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A strong and capable bureaucracy is likely to lead to better public policies. On the one hand, there is the obvious direct effect of the quality of the bureaucracy on the quality of policy implementation. On the other, our analytical framework emphasizes that political agreements leading to effective public policies are more likely to obtain in environments in which it is more feasible to delegate policy implementation to a quality bureaucracy. (The quality of the bureaucracy is an important component of the quality of the environment for political transactions.) A high-quality bureaucracy does not descend from heaven, but it is itself the product of conscious political decisions over time. The building of a bureaucracy, “civil service policy,” is a policy in itself. In the language of our framework, it is a policy with special investment-like transaction characteristics, and such policies place large demands on the implementation capacity of political systems. Thus, a poor bureaucracy worsens the policy-making environment, and a poor policy-making environment is unlikely to create a quality bureaucracy. We argue in this chapter that Argentina has suffered from this vicious circle. Political actors do not have a quality bureaucracy onto which to delegate policy implementation, and the weaknesses of the bureaucracy are themselves the result of the poor quality of the overall policy-making environment in Argentina. In this chapter, we expose some problems of the Argentine bureaucracy, and we argue that those problems are due to the lack of any relevant principal interested in providing long-term incentives to bureaucratic actors. [ABSTRACT FROM AUTHOR]

In previous chapters, we discussed some of the features of the Argentine polity that limit the ability of politicians to enter into complex intertemporal transactions. In Chapter 3, for example, we showed that legislators lack basic incentives to develop professional careers, to invest in legislative capabilities, and to develop expertise that would allow them to control the bureaucracy. We claim that one of the features that limits legislators' incentives is the lack of judicial enforcement of policy agreements. In this chapter, we analyze the incentives and constraints facing Argentine justices that make it so that in equilibrium and on average the Court has not been a binding constraint on the workings of the Argentine executive. The common wisdom on the Argentine judiciary is that the Court is too obliging, too connected to the other political powers to serve as an independent source of political enforcement (Ekmekdjian 1999). Nevertheless, the lonely voices of those who question whether the Court really lacks independence have found support in the results of two studies, which show that in the second half of the twentieth century the Argentine government lost cases in a proportion similar to that of the U.S. government. Hence, it is not obvious that the government's appointment powers are so overpowering as to void the implications of the division of power theory: that is, that an “aligned” Court will indulge the president and be unresponsive to changes in the political environment. [ABSTRACT FROM AUTHOR]

Federalism in general and fiscal federalism in particular are crucial axes of Argentina's history, of Argentina's present, and of Argentina's possible futures. This chapter provides a brief description of some basic characteristics of federalism in Argentina, with focus on many deficiencies of federal fiscal arrangements. Then it applies the analytical framework developed in Part I to explain those inefficiencies as the dynamic outcome of a game among the national government and provincial governments. This gaming around federal fiscal issues (the distribution of taxes, transfers, and spending responsibilities) permeates national and subnational policy making in crucial policy areas such as the social sectors. The 2001 article from Business Week reproduced here provides some vivid examples of the importance of fiscal federalism and intergovernmental politics in Argentina: To investors in emerging markets, 2001 could well be the year of Argentina. Fears that Latin America's third-largest economy might default on its $123 billion public debt have eased, thanks to a $39.7 billion Christmas gift from the International Monetary Fund. But it's now up to President Fernando de la Rúa to prove to the fund that Argentina can sort out its finances. If he fails, the consequences could be dire for bourses from Buenos Aires to Moscow. Yet the key to Argentina's success in this grim struggle doesn't lie in the presidential palace. Instead, investors must pay close attention to what happens in Argentina's interior. It's the far-flung provinces, with their budget-busting spending, that have helped push the country to the brink. De la Rúa, as part of his bid for IMF aid, has extracted a hard-won pledge from Argentina's 23 governors to freeze expenditures for five years. […] [ABSTRACT FROM AUTHOR]

If our Walrasian view of economic organization is correct, then business groups can be thought of as causative forces in economic systems that also cause them. Before testing this idea empirically, we needed first to develop a theory of business groups. To this end, in the last chapter, we constructed a highly stylized economic model consisting of upstream sectors producing intermediate inputs and downstream sectors using those inputs to produce final consumer goods. In the model, manufacturing firms decide whether to buy intermediate products at zero markups from a firm within a group, or at full markups from unaffiliated firms. Solving this model based on pricing decisions of firms in general equilibrium reveals multiple equilibria in the form of two distinct and economically stable solutions to business group integration in an organized economy: a high and a low concentration set of groups. We can think of these two stylized economies as both consisting of interconnected networks of firms where authority and economic power interact in the context of a price structure. In one solution, the few very large business groups organize an economy in which they remain the stable elements, pushing other groups and independent firms into niches that the large groups do not dominate. In the other solution, many business groups coexist by occupying different distinct upstream or downstream niches and by trading with unaffiliated firms. The idealized model, therefore, predicts that business groups, which represent concentrated and authoritatively held assets, organize themselves quite differently across economies. [ABSTRACT FROM AUTHOR]