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Bulletin of Latin American Research, Vol. 21, No. 3, pp.

339357, 2002

Capital and the Lagos Presidency: Business as Usual?1


EDUARDO SILVA
Department of Political Science, University of Missouri-St. Louis
Business-state relations in Chile's new democracy had been relatively tension-free for the first two governments of the centre-left Concertacio n de Partidos por la Democracia. However, during the first two years of the third Concertacio n administration, under the presidency of Ricardo Lagos, the relationship soured dramatically. At first glance, an ideological shift in the ruling coalition's centre of gravity would seem to explain the change in business-state relations. During the first two governments more conservative factions of the centrist Christian Democratic party had controlled the Concertacio n. Lagos, on the other hand, represented the left pole of the coalition and his socialist credentials brought the long shadow of the past on his presidency. This, however is an insufficient cause, three additional conditions must also be taken into account. The first one considers changes in the institutional and economic context that eroded the private sector's confidence in the Concertacio n's commitment to maintain the free-market socioeconomic model imposed under military rule. The second and third conditions are a decline in the electoral fortunes of the Concertacio n in favour of conservative parties and a shift in power relations among employers' associations towards more confrontational factions. Keywords: business-state relations; Ricardo Lagos; politics; government; Chile

Introduction
Although accompanied by uncertainty, Chile's transition from authoritarianism occurred within institutions that protected the neoliberal socioeconomic order imposed by the military government. Continuity, restraint, and pragmatism have been the hallmarks of all three administrations of the Concertacio n de Partidos por la Democracia. Campero (1991), Montero (1997), and Barrett (2000) have
1 For their constructive criticism of earlier versions I thank Jonathan Barton, Warwick Murray, Ronaldo Munck, Peter Kingstone, Mahrukh Doctor, Ben Ross Schneider, and an anonymous reviewer.
2002 Society for Latin American Studies. Published by Blackwell Publishers, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.

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Eduardo Silva shown that Chile's political institutions and the Concertacio n's commitment to maintaining a good business climate mollified private sector fears about democracy. Silva (1997) has argued they also contributed to stable, collaborative, and, sometimes, cosy business-state relations in the first two Concertacio n presidencies. Despite the fact that the Concertacio n's moderate reform platform and collaborative arrangements with capital remained the same, business-state relations soured markedly in the Concertacio n's third term under president Ricardo Lagos. Tension, acrimonious public posturing, sharp accusations, and a drumbeat of relentless criticism were the norm in several contentious policy issues handled more quietly in past administrations. The employer associations of landowners and truckers even staged mass mobilisations reminiscent of the Allende period. What accounts for this sudden shift from cooperative to conflictive business-state relations if the Concertacio n has not changed its platform or its disposition to negotiate? It is tempting to argue that an ideological reaction to a power shift within the Concertacio n fully explains the change. As Garreto n (1991) and others have shown, the Christian Democratic party controlled the centre-left coalition during the transition to democracy and the first two administrations of the Concertacio n. Angell and Pollack (2000) and Barrett (2000) have documented how towards the end of the 1990s the centre of gravity shifted to the Party for Democracy and Socialist Party the left pole of the Concertacio n culminating in Lagos' election to the presidency in January 2000. Moreover, Lagos had been a minister in Salvador Allende's government in the early 1970s. Thus, one could conclude that mistrusting business elites reacted to traumas from the past. They may have been overly concerned Socialists would betray their professed commitment to moderation and free-market economics and undermine the institutional conditions and pragmatic agreements that underpinned the status quo in Chile. This is certainly part of the answer. But, as Angell and Pollack (2000) have shown, the Lagos administration was only following up on moderate initiatives that past Concertacio n governments had left incomplete, not radicalising them. Thus, the immediate and vehement attack of business on the Lagos administration is not consistent with the more tolerant and accommodating attitude of capital, as represented by its umbrella employers' association (the Confederacio n de la Produccio n y Comerico, CPC) towards the same issues in the past. A fuller explanation must take additional factors into account. These include changes in the institutional and economic context that gave business elites confidence, a decline in the electoral strength of the Concertacio n in favour of conservative parties, and changes in power relations among the employers' associations of the CPC.

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Factors that shaped business-state relations in Chile


Institutional constraints
According to Campero (1984, 1991) and Montero (1997) the trauma of Salvador Allende's Unidad Popular government left a deep mistrust of democracy among entrepreneurs. By the end of the military government large-scale business, concentrated in a number of horizontal and vertical conglomerates, as well as the armed forces and conservative political forces in general, considered the laissezfaire free-market socioeconomic model to be the military government's major legacy. Given this situation, Loveman (1992, 1995) argued that the construction of political institutions to protect that socioeconomic order from political forces opposed to the dictatorship was a principal concern of the military government. The main institutional tethers enshrined in the Constitution of 1980 have been analysed by Scully (1996), Siavelis (2000), and Londregan (2000). They included nine appointed, or designated, Senators from conservative institutions (including four from the armed forces). This gave conservatives a majority in the Senate and, thus, absolute veto power over legislation. Furthermore, constitutional amendments must have two-thirds support of all senators and deputies to pass, making it impossible to amend without substantial right wing support. Electoral laws (the binomial electoral system) and districting over represent right-wing parties in the chamber of deputies. The armed forces enjoy considerable autonomy from civilian rule. The background of Supreme Court justices, charged with interpreting the constitution, favours conservatives. The National Security Council gives the military a strong voice in the policy making process. Silva (1996) has argued these institutions left conservatives feeling they could protect their economic interests in democracy. Those interests included, ironclad private property rights; macroeconomic stability; the price system as the means to allocate resources (including wages); weak unions and labour flexibility; private sector dominance in health insurance, pension funds, a small state (low taxation). In short, business elites sought to protect their socioeconomic dominance and their control of production costs.

A business-friendly policy process


Confidence by Chilean business elites that democratic government would not design policies contrary to business interests did not rest on institutionalised veto capacity alone. Drawing on Evans (1995), Schneider and Maxfield (1997) argued confidence also depends on the interaction between state officials and the private sector in the policy process. Participation in the policy process generates conviction that policies will work, and that solutions to problems would not be at their expense. Building on these ideas, Silva (1997) found evidence of such a structure of business-state interaction in democratic Chile. In the Chilean policy process, state agencies usually initiated policy proposals. Following that, employer associations, dominated by Chile's leading firms, represented the
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Eduardo Silva interests of the private sector during various phases of the policy formulation stage of the process, interacting with state officials to iron out differences. When policy proposals cut across economic sectors the Confederacio n de la Produccio n y Comercio represented the interests of large-scale capital. CPC membership consisted of the heads of the six major employer associations, each aggregating the interests of a major economic sector (industry, agriculture, commerce, mining, finance, and construction). Consensus or coalitions determined the CPC's policy stances.

Business elites during military rule


The positive nature of business-state relations rested on several additional conditions that originated in the structural adjustment policies of the military government and in the process of Chile's transition to democracy. The shift from import-substituting industrialisation to an open, free-market economy during the military government caused significant changes among business groups and how they related to the state. These changes had profound consequences for business interests relevant for understanding the private sector's disposition to take a collaborative or conflictive stance on policy issues. Edwards (1987) and Kurtz (1999, 2001) among others have described in detail the sequence, timing and results of Chile's economic transformation under military rule. For our purposes it suffices to point out that protected industry and traditional agriculture declined precipitously. By contrast, the agricultural and natural resource commodities sectors in which Chile had a comparative advantage (fruits, fish, timber) expanded rapidly, as did finance, commerce, and real estate. With respect to business-state relations during this period, scholars such as Campero (1984, 1991), Montero (1997), and Ominami (1991) agree that the Chilean military government kept employer associations at arms length between 1975 and 1981 while the Chicago boy technocrats designed and implemented neoliberal economic policy. The puzzle has been why the employer associations of industry and agriculture the Sociedad de Fomento Fabril (SFF) and the Sociedad Nacional de Agricutura (SNA) did not protest the radical structural adjustment policies of the Chicago boys more vigorously. Their relative quiescence was especially puzzling because the SFF and the SNA were historically the most powerful of the employer associations and had been in the forefront of organising private sector opposition to Allende. These analysts concluded the SFF and the SNA did not protest more because the military government's commitment to the protection of private property rights earned their unconditional support. These were, after all, the very economic sectors that had suffered the most from Unidad Popular's nationalisation, expropriation and land reform policies. That experience also transformed the SFF, in particular, and the SNA into hard-line ideological defenders of private property and anti-labour unionism, and it developed in them a deep distrust of the Christian Democratic party, to say nothing of their hatred 342
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Capital and the Lagos Presidency: Business as Usual? for leftist parties. Silva (1996) has argued other major employer associations, such as the National Chamber of Commerce, the Builder's Society, and the newly formed Banking and Financial Sector Association, shared these views in principle, but took more pragmatic stances in practice, especially with regard to opposition political parties. Ominami (1991) and Montero (1997) have pointed to a second reason for private sector quiescence. The largest corporations usually belonged to conglomerates with the financial capacity to expand into the more dynamic sectors of the economy. Dahse (1979), Rozas and Mar n (1989), and Fazio (1997, 2000) documented the rise, fall, and reconstruction of these conglomerates since 1970 and their increasing association with transnational capital. The point here is that business elites who directed these conglomerates became staunch supporters of Chile's neoliberal transformation and the military government, and they controlled the major employers associations. According to Pollack (1999) they also distanced themselves from traditional conservative parties, now Renovacio n Nacional, preferring to back the party of military regime's technocrats, the Unio n Democra tica Independiente (UDI). Lastly, Silva (1996) and Campero (1991) have argued that the deep economic crisis of 19821983 brought about significant changes in the arms-length relationship to which the state had held employer associations. Under the auspices of the CPC, the major employer associations forged a reflationary policy program to replace the orthodox monetarist position of the military government. Hammering out a policy consensus within the CPC led to a confrontation between the more uncompromising SFF and the rest of the member associations who were more willing to negotiate with the government. The SFF lost. After a lengthy period of wrangling, the military government began a dialogue with the CPC and individual employers associations over the implementation of some of those measures. Silva (1997) concluded this process gave birth to a system of interaction between state and business continued by the Concertacio n. Four additional conditions for explaining the stability of business-state relations during Chile's transition to democracy emerge from this exposition. First, on most policy issues large-scale capital connected to powerful conglomerates (frequently associated with transnational corporations) was the principal business interlocutor. These business elites were not homogeneous in their interests or political strategies and they interacted with the state either directly or through the major employer associations they controlled. Second, a more accommodating and negotiation prone leadership dominated the CPC during the transition to democracy and held the more hard line SFF in check. Third, large-scale business turned to hard line UDI for political representation instead of the more compromise-ready Renovacio n Nacional. Fourth, the system for business-state interaction in the policy making process used by the Concertacio n had been established by the military government in the mid-1980s.

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Eduardo Silva

n, and Chile's transition to Business elites, the Concertacio democracy


Although punctuated by some difficult periods, the generally harmonious nature of business-state relations under military rule rested on the fact of robust economic recovery and large-scale business' belief that the military government usually favoured their interests over those of other social sectors. Montero (1997), Barrett (2000), Campero (1991) and Mun oz (1995) have shown that this, however, was not business' perception of the Concertacio n. They believed the Concertacio n's leadership was tied to a `statist' past and, thus, had to prove their capacity to maintain a good business climate. Accordingly, the private sector was on its guard, ready to challenge any deviance from the socioeconomic and institutional model established by the military government. The reformist platform of the Concertacio n economic growth with equity worried the private sector. According to Larra n (1991) and Weyland (1997, 1999), that platform promised to maintain the export-oriented free-market economic model (including the focus on macroeconomic stability). However, it also advocated labour law reform; tax code revisions; increased government spending on health, education, and social programs; review of human rights violations; and reform of the authoritarian enclaves in the constitution. Without intending to minimise the importance of the opposition's struggle against the dictatorship, as analysed in Drake and Jaksic (1991), and despite Pinochet's defeat in the 1988 plebiscite, Chile's transition from authoritarianism took place under conditions largely established by the military government. Accordingly, the Concertacio n's dilemma was to convince authoritarian forces that its reformist program did not threaten either them or Chile's governability. Barrett (2000) and Silva (1996) have shown that the Concertacio n was aided in this task by the fact that the centrist Christian Democratic party dominated the centre-left coalition, and that centre-right forces within that party controlled strategy. The Concertacio n explicitly promised to abide by the institutional framework established in the 1980 constitution and to maintain the free-market economic model. Reforms, while desirable, would only be attempted within that framework. Other scholars, such as Roberts (1998), Posner (1999), and Siavelis (2000) agree that the conciliatory, moderate leadership style of the Christian Democratic wing of the Concertacio n contributed to confidence that the transition would go smoothly. Under Christian Democratic leadership, the first two Concertacio n administrations conducted themselves as promised. Of those, Patricio Aylwin's administration (19901994) was more reformist than Eduardo Frei's (19942000). Allamand (1999) has shown that significant constitutional reforms were attempted. Mindful of the veto power of the right wing, the Concertacio n sought to negotiate change with conservative political parties, especially Renovacio n Nacional. While a number of changes were approved, the key clauses that maintained protected democracy remained intact. On human rights, the Aylwin government established a `Truth, Justice, and Reconciliation 344
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Capital and the Lagos Presidency: Business as Usual? Commission' (Barahona de Brito, 1997; Lira and Loveman, 1999). The military, however, retained amnesty from prosecution. Because these were political issues, business elites did not have a direct role in them, although in the main they supported the position of conservative political parties. Both capital and right wing parties agreed institutional protections against `irresponsible' government were essential, as was the role of the military as the guardians of the neoliberal order. On economic and social policy, Silva (1997) found that the Concertacio n kept the system of interaction with business established by the military government. Labour reform and tax increases were the most dramatic policy initiatives. Although the institutional veto power of conservative parties in the legislature compelled negotiation, Silva (1996) and Roberts (1998) found that strong lobbying by the CPC contributed the Concertacio n's waffling on key labour demands regarding strengthening unions and collective bargaining. The tax bill turned out to be a more straightforward matter. Weyland (1997) showed how the Concertacio n negotiated agreement for passage with Renovacio n Nacional. According to Silva (1996), the rates, however, were discussed with the CPC and set at levels most of the private sector deemed acceptable. Significantly, the hard line SFF felt betrayed by the CPC and Renovacio n Nacional's compromise. On other economic policy matters, and in environmental policy making, as analysed by Silva (19961997), individual employer associations and the CPC were consulted. Conversely, if the private sector demanded attention it got a hearing. These were the strategies the Concertacio n employed to prove that it and democracy did not pose a threat to the private sector. In addition, as Patricio Silva (1991, 2001) argues, the Concertacio n continued the military's tradition of staffing economic agencies with highly qualified technical personnel. This depoliticised much of the negotiation process. The Frei administration continued the pattern, but with less zeal in constitutional questions, redress for human rights violations, and labour law reform. In conclusion, relatively harmonious business-state relations under the first two Concertacio n governments rested on the following conditions. Chile's political constitution protected the neoliberal socioeconomic order established during the military government from change. The armed forces, immune from human rights prosecution, assumed the role of guardians over their legacy. A moderate centrist party (the Christian Democrats) intent on maintaining a good business climate controlled the Concertacio n. Under the Christian Democrats, the Concertacio n negotiated mild reforms with Renovacio n Nacional and the CPC within the institutional constraints of Chile's protected democracy. At the time, as Pollack's (1999) analysis of the Chilean right reveals, Renovacio n Nacional was the ascendant conservative political party and aspired to lead the democratic right. The CPC was led by more accommodating sectors than the SFF. The opinions of entrepreneurs were taken seriously within the halls of power. Businessmen and government officials continued to employ mechanisms invented during the final years of the dictatorship to iron out conflicts. Sustained high economic growth rates contributed to private sector confidence. These
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Eduardo Silva conditions mollified fears businessmen may have harboured about democracy. External shocks were the only major source of trouble.

Reversal of fortune under Lagos


Although many of these conditions had changed when president Lagos took office in March 2000, there were important continuities. His was still an administration of the Concertacio n, the same moderate opposition coalition that had been acceptable to the military government. It was committed to maintaining macroeconomic stability, preserving the market economy, and to pursuing its reform platform within the institutional limitations of the Constitution of 1980. It also kept technocratic rule and retained the system of business-state interaction in the policy process. In other words, the Lagos administration did not depart from past practices, nor did it advocate radical new reforms or harbour revolutionary intent. Given these continuities, how did change in the other conditions affect the dramatic deterioration in business-state relations? The shift in the centre of gravity within the Concertacio n from the Christian Democrats to the renovated socialist parties Partido por la Democracia and the Socialist party was certainly reason for greater vigilance on the part of the private sector. However, this was insufficient cause for the vehemence of private sector actions in the first year of Lagos' administration. Constitutional reforms focused on eliminating the designated senators and Pinochet's legal difficulties might also have worried the private sector because of the uncertainty that raised over policy. Yet the issues were handled without great uproar. The confrontation occurred over socioeconomic reforms. Those debates reveal two additional important conditions for sharp tension in business state relations beginning in 2000. These were (1) the weakness of the Lagos administration due to lingering economic recession and its narrow electoral victory coupled with (2) the strengthening of uncompromising pro-neoliberal forces after the electoral rise of UDI and a shift to hard line leadership in key employer associations. The next three sections explore the weight of these factors in the dramatic rise of tension in business-state relations at the beginning of Lagos' presidency.

The ascent of renovated socialism


Although renovated socialists were the inheritors of political and philosophical convictions the large-scale business sector historically opposed, the private sector realised they no longer posed a fundamental threat to the system. Garreto n (1991), Roberts (1998), and Hite (2000) researched how a strong current within the Socialist party explicitly renounced revolution, nationalization, and planning. They accepted the market as the basis for economic and social order. A commitment to long range state planning gave way to a focus on more immediate problems within the capitalist economy, such as smoothing out business cycles, adjusting social spending, and dealing with extreme poverty. 346
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Capital and the Lagos Presidency: Business as Usual? Nevertheless, from its perspective, large-scale business still had reason for vigilance. The renovated socialists represented the left pole within the Concertacio n and had developed ideological positions regarding deepening democracy and economic policy the private sector did not share. Roberts (1998) examined how, although no longer revolutionary, renovated socialists believed in deepening democracy both in its procedural and in its substantive (socioeconomic) dimensions. Thus, under Lagos, the Concertacio n could be expected to renew efforts to abolish the authoritarian enclaves embedded in the Constitution of 1980, to reopen the human rights debate, and to reform the dictatorship's labour code. It could also be expected to redouble efforts to protect the environment; and press for tax increases to finance higher spending levels for health, education, welfare, and housing. Renovated socialism was also the principal home of neostructuralist economic thought. With the victory of neoliberalism, structuralists began a process of critical self-evaluation that led to the evolution of neostructuralism. Kay and Gwynne (1999) argue that neostructuralists accept many of the key elements of neoliberalism. Neostructualists, such as Sunkel (1993), recognise the central role of the market, the private sector, free trade, and foreign investment for economic growth. However, they also believe the state has a larger role to play in the governance of markets than neoliberals advocate. Neostructuralists, like Mun oz (1995) and Meller (1991), support mild industrial policy link to different sectors of the economy and to generate competitive advantage in manufactures that require higher skilled labour and produce higher value added goods. The idea is to exploit international market niches. Protectionism and subsidies should only be used selectively and built-in targets for reductions; regional integration is encouraged. Moreover, the state is no longer the centre point of investment, public enterprise is not encouraged. The state's main role is to guide private enterprise and to maintain macroeconomic stability. There is also a concern for greater social equity, meaning the state has a role in public health and education. The renovated socialists' desire to deepen democracy and their affinity for neostructuralism raised concern in the large-scale business sector. Constitutional reform and human rights prosecutions threatened the political institutions that, in their eyes, best protected their interests. Proposed social programs raised the spectre of a fiscally irresponsible tax and spend government leading to macroeconomic instability. Stronger unions and environmental restrictions generated worry over control of the workforce, and the freedom of firms to allocate resources and profits. Neostructuralist emphasis on mild industrial policy and regional integration threatened unwanted competition for, and reorganisation of, conglomerates focused on commercial and financial relations with the world at large. Social and industrial policy also meant more public competition for scarce national savings. Moreover, the arguments of Montecinos (1998), Patricio Silva (1991), Vadle s (1989) and others, suggest that neoliberals viewed neostructuralism as the new ideological battle ground for their bitter historical conflict with the structuralist school pioneered by Rau l Prebisch (1950a, 1950b) at the United Nations Economic Commission for Latin America in Santiago.
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Eduardo Silva Although there was reason for concern and higher vigilance, the policy preferences of renovated socialists in the Concertacio n hardly justified the immediate and vehement attack on the government on a number of policy issues. As Angell and Pollack (2000) showed, the Lagos administration came down on record in favour of maintaining the free market system and negotiating reforms within the institutional confines of the 1980 Constitution. Given the Chilean private sector's vaunted pragmatism, and past practice, one would have expected it to see how things developed before launching such an onslaught.

The Pinochet case and constitutional reform: private sector accommodation


It is tempting to argue that the certainty of change in some of the authoritarian enclaves that protected the dictatorship's socioeconomic legacy were sufficient additional conditions to explain private sector combativeness during the fist two years of the Lagos administration. Those changes involved the human rights proceedings against Senator Pinochet and serious discussions in the Senate over constitutional reform. However, the private sector took a comparatively calm approach to these, and other, issues. Thus, it seems unlikely they were the principal causes of private sector's falling out with the administration. Senator Pinochet was a powerful symbol of continuity. Thus, his long house arrest in Britain and proceedings to strip him of parliamentary immunity to bring him to trial for human rights violations was potentially damaging for political stability. Silva (2002) has argued that the process was salutary for Chile. Conservative forces realised the country functioned perfectly well without him. It did not descend into chaos. Building on the legal precedents set in Britain, when Lagos took office in March 2000 his administration maintained a strict policy of non-intervention in the judicial process. The courts stripped Pinochet of his senatorial immunity and, after many appeals and counter appeals, he was declared unfit to stand trial. Throughout, conservatives and the private sector declared their support for Pinochet. However, they refrained from issuing inflammatory and polarising rhetoric. For the most part, the private sector stuck to bland statements in the local press arguing the case contributed to a climate of uncertainty that slowed Chile's recovery from recession. In short, businesspeople were resigned to let due process take its course, and it helped that a formula was found to keep Pinochet from standing trial. A genuinely frightened private sector would have at least used the press more aggressively than it did. With respect to constitutional reform, the private sector is satisfied with good faith bargaining between conservative political parties and parties of the Concertacio n in a senate committee chaired by Renovacio n Nacional. Senator Viera-Gallo (2001) reported that the committee had reached agreement on a number of issues, including a reduction in the presidential term to four years without re-election and with concurrent elections for the legislature. However, agreement has eluded the commission where authoritarian enclaves are concerned. Of these, greater consensus now exists on the need to abolish the 348
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Capital and the Lagos Presidency: Business as Usual? designated senators by 2006. Perhaps this is because, heeding Allamand's (1999) arguments, right wing forces are persuaded that the institution poses a threat to them. The Lagos administration will be in a position to make some appointments and when these are added to those of the Frei government, plus Pinochet's ejection from the Senate, conservatives may lose their veto power. Nevertheless, conservatives still clearly feel the socioeconomic system needs protecting from `irresponsible' incumbents (gobiernos de turno). The press has reported on various formulas. Renovacio n Nacional and UDI have proposed raising quorum requirements even higher and proposed creating eight to ten `national' or at-large senators who do not represent districts. Meanwhile, parties of the Concertacio n have suggested raising the number of senatorial districts.2 Moreover, Viera-Gallo concedes there is no agreement on other authoritarian enclaves, such as removal of the commanders-in-chief of the armed forces by the president without approval of the National Security Council and changing the binomial electoral system to one based on proportional representation. Although the private sector is not always content with how conservative political parties protect their interests in political matters such as human rights and constitutional reform, one can understand why large-scale business is not up in arms. The Lagos administration will not circumvent the constitution. Where negotiation and compromise are possible change will occur. Where conservative political parties draw the line, institutions will remain.

Private sector assault: labour, tax, agricultural, debt relief, and environmental policy
In the section heading above are the issues that generated bitter conflict between the private sector and the Lagos administration. We have already seen that the shift in the Concertacio n's centre of gravity to the renovated socialists was cause for heightened vigilance by large-scale business. Still, if the Lagos administration had begun under more auspicious circumstances, one would expect the private sector to have been more patient in testing the mettle of the new administration before confronting it so directly. This is where alterations in economic conditions and electoral fortunes in conjunction with changes in the leadership of key employer associations help to explain the private sector's polarising assault on socioeconomic policy. The Lagos administration was weaker than previous Concertacio n governments. First, as Angell and Pollack (2000) point out, Chile's sustained high economic growth rates averaging 6 percent per year and low unemployment of about 4 percent seemed over. Since the Asian financial crisis began to affect Chile in 1998 and the subsequent slowdown of the US economy in 2001, Chile has suffered from recession and sluggish growth (predicted at 3.4 percent for 2002)

2 El Mercurio on Line, `Reforma opositora elimina a designados y vitalicios,' 23 June, 2000 and Latin America Southern Cone Reports, 10 April, 2001.
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Eduardo Silva and persistent high unemployment at about 10 percent.3 These adverse economic conditions affected the Lagos administration's priorities (focus on growth, not equity) and diminished the popularity of the government. Second, the 1999 presidential contest ushered in a politically weaker administration (P. Silva, 2001; Angell and Pollack, 2000; Barrett, 2000). It had less electoral support, having been the first to go to a second round in which the Concertacio n narrowly edged out the conservative opposition, the Alianza por Chile. Angell and Pollack (2000) also reveal that the Concertacio n suffered from internal divisions over Lagos' nomination as its candidate. Two significant changes in the political and economic right also occurred. First, UDI replaced Renovacio n Nacional as the main right wing political party. Pollack (1999) and Barrett's (2000) analyses underscore the significance of this fact. The hard line defenders of the military government's legacy now dominated both right wing party politics and large-scale business elites. Second, the balance of power within the employer organisations of large-scale business had shifted to the hard-line elements of the Industrial Society (SFF). Over the past 10 years, the SFF had grown increasingly dissatisfied with its subordination in the CPC and with the CPCs willingness to compromise with Renovacio n Nacional and the Concertacio n, especially on tax issues (see Barrett, 2000). In fact, it briefly broke with the CPC in the late 1990s.4 By 2000, the SFF had rejoined the CPC and gained ascendancy within it. These hard line elements among conservative parties and business elites exploited the political vulnerability of the Lagos administration. Their actions suggest a three-prong strategy. First, a long-term plan to keep renovated socialists form forming a lasting social coalition in favour of neostructuralism; for although neostructuralism was a relatively mild departure from neoliberal orthodoxy, it was still the hard right's principal ideological opponent. Second, a medium term goal to improve the right's electoral chances and, ultimately, to win the presidency in 2006. Here the extreme right wing opposition linked proposed reforms to continued economic stagnation and high unemployment. If the government wavered and cracked internally it would appear weak and indecisive, further improving the electoral chances of the right in the future. Third, a shortterm objective to defeat, or at least drastically limit, unwanted reforms. Attempts to link lobbying with weaning voters away from the Concertacio n and bullying the administration into submission were clearly in evidence in the confrontation over labour code reform. Under new hard line leadership the SFF and the CPC, frequently in tandem with UDI, launched a blistering public opinion campaign excoriating the government's proposed labour reform. The CPC, opened a strong pre-emptive attack against labour reforms, especially those linked to strengthening unions (closed shop, mandatory union membership, dues from non-union employees who benefit from union contracts, job security) and
3 Latin America Southern Cone Reports 13 November, 2001: 7. 4 Ben Ross Schneider, personal communication at the XVIII World Congress of the International Political Science Association, Quebec, Canada, August 15, 2000.

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Capital and the Lagos Presidency: Business as Usual? to improve collective bargaining capability (strikes beyond the firm level). Throughout the public debates on the issue, the CPC consistently criticised the government for pursuing a reform that inhibited investment thereby ensuring a stagnant economy with high unemployment. In essence, the CPC threatened an investment strike.5 Although there is not sufficient space to develop the themes, many of the same articles in the press stressed that proposed tax reform and enforcement of existing environmental regulations had much the same effect. Therefore we can assume their medium and short-term goals were the same as in the case of labour code reform. The government wanted to increase tax revenue by raising corporate income taxes and closing loopholes. The government was also beginning to apply new environmental regulations, such as environmental impact report assessments in the approval process for new development projects.6 It must be conceded, however, that the environmental issue did not receive the same invective as labour reform, it was simply mentioned in the same breath as another antigrowth policy. The evidence also suggests the CPC used their campaign against these reforms to break up key elements of the social coalition renovated socialists sought to build to support neostructuralist policy initiatives over the longer term. This was clearest with regard to labour. As the conflict over labour code reform dragged on, the government wavered and became indecisive due to friction between conservative Christian Democrats and socialists and pressure from the union movement to persevere.7 Taking advantage of the moment, the CPC argued the private sector not labour was the government's best partner for growth (Ortega, 2001). By extension, one can assume that large-scale business hoped that a victory of theirs over tax reform and environmental policy would wean away environmentalists, middle classes, and the working poor from the renovated socialists. Moreover, large-scale capital explicitly sought to woo the medium and smallscale business sector to their side, offering defence of labour flexibility and freedom from environmental regulation as grounds for partnership. The CPC argued that labour reform and environmental regulations affected medium and small businesses more than large-scale business. Since medium and small-scale business did not have the political clout of large-scale business, it was up to the
5 For these positions see El Mercurio On Line, `Empresarios exponen inquietudes,' 19 May, 2000; `Empresarios y gobierno acotan temas que trabar an reactivacio n,' 29 June, 2000; `Empresarios detallan trabas a la reactivacio n,' 22 July, 2000; `CPC realiza 16 observaciones a proyecto Reforma laboral,' 30 March, 2001; `Lamarca considera insuficiente medidas de gobierno, 18 August, 2001. 6 For the politics of environmental policymaking in Chile see Silva (19961997). 7 For key moments see El Mercurio On Line, `La reforma de Inzulza,' 26 July 2000; `CUT oscila entre dia logo y movilizacio n,' 24 July, 2000; `Rebaja de sueldo m nimo fuera de discusio n,' 26 July, 2000; `CUT formalizo rechazo a reformas laborales,' 18 October, 2000; `Gobierno atenuo la reforma laboral,' 22 March, 2001; `CPC realiza 16 observaciones a proyecto reforma laboral,' 30 March, 2001.
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Eduardo Silva CPC to defend them, even at the expense of the interests of large-scale business in some instances.8 The calculated effort to wrestle medium and small-scale business away from an alliance with renovated socialists was part of a long-term campaign to win ideological hegemony in all sectors of business, and thus, build lasting social support for neoliberalism, a campaign that, according to Campero (1991), began during the dictatorship. Renovated socialism had worked hard since the middle of the 1980s to construct an alliance with medium and small-scale business. Campero (1991) and Mart nez and D az (1996) showed that the dictatorship had discriminated in favour of large-scale companies, conglomerates, and transnational capital. In response, renovated socialism had patiently designed policies and programs to develop entrepreneurial opportunities for the less privileged, as argued in Bitar (1988), Arellano (2000), and Arriagada (2000). The private sector has also employed mobilisation tactics built on a repertoire of contestation born during Unidad Popular. The main goals were to embarrass the new administration into favourable action and to weaken its future electoral prospects by stirring memories of leftists' incapacity to govern. Landowners were the first to threaten the use of such tactics. The Sociedad Nacional de Agricultura endorsed a march organised by regional associations to pressure the government to maintain price supports for traditional crops and to offer protection from Mercosur.9 The government persuaded the SNA to negotiate instead. The change did not reduce tension. After obtaining many concessions, the SNA became, reluctantly, cautiously, and temporarily mollified.10 Truckers, whose mobilisation helped precipitate military intervention in 1973, as analysed by Campero (1984), also threatened mobilisation because the government was not meeting their demands for relief from bad economic times. The SNA publicly supported the truckers, who timed their demonstration to coincide with that of 1972. Wisely, the government downplayed the event and issued a permit allowing a caravan to travel from Puerto Montt in the South to Santiago, the capital city. The caravan proceeded relatively uneventfully. The orderly, legal caravan and the evidently self-interested nature of the truckers' demands deflated the symbolism of the event.11
8 El Mercurio On Line, `Empresarios detallan trabas a la reactivacio n,' 22 July, 2000 and `CPC postula mayor incentivo a los convenios colectivos,' 22 May, 2000; El Mercurio On Line, `CNC: Indicaciones a reforma laboral atentan contra generacio n de empleo y pymes,' 29 March, 2001. 9 See El Mercurio on Line, `Postergada la marcha,' 19 June, 2000; `Agricultores dan plazo fatal al gobierno para encontrar soluciones,' 22 June, 2000; `La medidas urgentes que requiere el agro,' 24 July, 2000. 10 For the Mesa Agr cola see El Mercurio on Line, `SNA rechaza Acuerdo de Mesa Agr cola,' 25 August, 2000; `Gobierno: Intentan Salvar los Acuerdos de Mesa Agr cola,' 28 August, 2000; `Mesa Agr cola: Hoy se define incierto futuro; consenso en directivas gremiales para rechazar proposicones del gobierno,' 28 August, 2000; `SNA pide prefeccionar propuesta del gobierno en mesa agr cola,' 29 August, 2000; `Agr cola podr a lograr acuerdo,' 30 August, 2000. 11 El Mercurio on Line, `Desde la Regio n de los Lagos: Transportistas iniciaron marcha hacia la capital,' 30 August, 2000.

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Cooperation on macroeconomic issues


Despite tension in state-business relations, on policies to spur economic recovery the interaction between state and business has been taking place within the same formal and informal institutions in existence since the transition from authoritarianism. Technocrats whose primary concern is sustained economic growth with macroeconomic stability head key state economic agencies (P. Silva, 1991 and Montecinos, 1998). Accordingly, robust economic recovery from recession is the highest economic priority. Fiscal, monetary, foreign exchange, and trade policy are tailored to that end. Social policy reform has been suspended, to boost exports the government has allowed the peso to weaken against the dollar, and it is proceeding with tariff reductions and negotiation for full membership in Mercosur. The private sector, via the CPC, employer associations, and firms continues to have frequent contact with the administration on these matters. The research departments and specialized committees of organized business raise demands, study government proposals, and in conference with ministers, under secretaries, and the technical staff of state economic agencies make useful observations on state economic policy.12 A similar, but more formalized system of interaction was established for social issues: the Mesa de Dia logo Social, a forum for tripartite negotiation. So far labour code reform was the most active item on the agenda, although environmental policy has also been on the table. Here environmental nongovernmental organisations join government, business, and labour. The procedure is to work through issues on the basis of proposals and counter proposals, although with considerable tension among the participants.

Conclusion: business as usual?


The available evidence suggests that the private sector's confrontational stance in the first two years of the Lagos administration was not due to deep-seated fears that his government posed a fundamental threat due to association with the Allende period. His was a platform of reinvigorating stalled Concertacio n reforms in the context of the market economy and the Constitution of 1980. Given the private sector's quiescence on constitutional reform and the Pinochet affair, changes in these conditions for constructive business-state relations during Chile's democratic transition do not seem to have been the principal cause of business-state tension under Lagos. That business-state relations were far from a breaking point was also evident by continued negotiation via established channels on macroeconomic issues. Instead, it seems that the private sector's confrontational stance on socioeconomic policy was part of a three-pronged strategy by the politically ascendant hard line right to take advantage of the
12 These points reported in El Mercurio On Line, `La reforma de Inzulza,' 26 July, 2000; `Texto del discurso del presidente Lagos,' 22 May, 2000; and `El alza del do lar tendra efectos positives para la econom a chilena,' 21 July, 2000.
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Eduardo Silva incoming government's weakness. It sought to break up renovated socialists' attempt to build a social coalition in support of neostructural economic policy; increase the electoral fortunes of conservatives; and defeat the government's policy proposals. Angell and Pollack (2000) argued the 19992000 presidential election brought Chile closer to `normal' politics, meaning the country's historical propensity for tight elections. Thus, we should expect the behaviour of political actors to differ from the rather exceptional first ten years of democracy under the Concertacio n. Constitutional reform to eliminate authoritarian enclaves is part of the process and their absence would further affect political behaviour. This paper shows that as the return to normal politics unfolds, business elites emerge as a new sociopolitical actor ready, willing, and able to act politically, sometimes in concert with conservative political parties and sometimes solo. It has an identity and repertoire of political symbolism and contentious action born of the struggle against Unidad Popular and the transforming experience of the military government. Large-scale business will be a difficult actor for governments interested in deepening political and substantive democracy to contend with, as the Lagos administration found out. But the outcome of labour and tax reform shows that capital's structural power derived from its role as the principal supplier of investment and employment in the market economy has limits and the private sector is pragmatic.13 The Lagos administration did manage to push through a compromise-laden labour code reform law by the end of 2001 and raised corporate income tax from 15 to 17 percent.14 The legislative struggle over, the SFF elected a more negotiation-prone president who immediately approached the government about setting up a joint commission to work on a pro-growth economic agenda the employer association had designed. In other words, the SFF switched to established patterns of collaboration for business-state interaction. The Lagos administration accepted and then put the shoe on the other foot. It embarrassed business elites by accusing the CPC of using the public problem of unemployment for private electoral gain.15 These events suggest Chilean business elites are not interested in compromising democratic order, opting instead for opportunitistic brinkmanship to gain an advantage if they can and then stepping back to a more concialtory tack. Moreover, although the private sector possesses substantial structural power, government need not be supine. Thus, some tension and some mobilisation, especially in Latin America, may also part of `normal' politics and business as usual may simply take a slightly different form.

13 For the structural power of capital see, Lindblom (1977) and Przeworski and Wallerstein (1988). 14 Latin American Monitor Southern Cone vol. 19, no. 2 (February), 2002: 5 and Latin American Monitor Southern Cone vol. 18, no. 9 (September), 2001: 4. 15 Ercilla no. 3178 1023 December, 2001: 43; Latin American Monitor Southern Cone vol. 19, no. 2 (February), 2002: 5.

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