Democratic Constraints to Reform: The Slow Pace of Privatization in Costa Rica

By Vargas-Cullell, Jorge | Hemisphere, Spring 1998 | Go to article overview

Democratic Constraints to Reform: The Slow Pace of Privatization in Costa Rica


Vargas-Cullell, Jorge, Hemisphere


Costa Rica has little to show for its experience with privatization. Even after three structural adjustment loans from the World Bank in a little over a decade--1985, 1989 and 1993--the Costa Rican government has implemented a slow, shallow, piecemeal privatization. Most privatized institutions once belonged to the Costa Rican Development Corporation (Codesa), a public holding that embodied the country's brief experience with entrepreneurial state strategy. A strong interventionist state remains a major actor in key markets such as finance, power, telecommunications, insurance and social security. As Sebastian Edwards argues in his work Crisis and Reform in Latin America, in terms of privatization, Costa Rica lags far behind the rest of Latin America.

Given its relative inexperience in this area, Costa Rica may seem like a spurious example for a model of privatization. In terms of the comparative politics of privatization, however, the country emerges as an important case. Privatization in Costa Rica has not been a response to widespread, prolonged state failure. On the contrary, Costa Rica, the oldest stable democracy in Latin America, is the only country in Latin America where the state has implemented economic and institutional reforms within a mature democratic regime. Unlike similar efforts in Chile, Argentina or Mexico, Costa Rican market reform has confronted multiple democratic constraints to sweeping policy changes. And in contrast to Venezuela, state interventionism and democratic institutions have not led to economic and political quagmires. The study of privatization in Costa Rica, therefore, sheds light on a basic question: How do democracies in developing countries cope with major policy reforms? Addressing this concern affords important insight into the long-term survival of democracies in countries with developing, vulnerable economies.

Privatization in Costa Rica is also intriguing on its own terms. Despite appearances to the contrary, "E pur s'il muove," as Galileo put it. Still it turns. In the last decade, the Costa Rican government has implemented privatization in the areas of finance, power generation, staple foods, commerce and industry, with heated debate over reforms in the power and telecommunications sectors. Despite its modest scope, however, privatization has been at the core of Costa Rica's political debate on modernization. Following Harvey Feigenbaum's and Jeffrey Henig's definition of privatization as the transfer of functions and activities from the state to the private sector, Galileo's maxim applies: Things move, albeit slowly, in Costa Rica.

What then accounts for the slow pace of privatization in Costa Rica? The most convincing explanation is that democratic constraints, as well as linkages between the state and political parties, limit the government's ability to implement sweeping institutional reforms. Since many actors hold veto power, the process of coalition-building is inclusive and collusive. Costa Rica is undergoing a process of alliance transformation, allowing reformers promoting privatization to collude with institutional actors who hold veto powers. This process has allowed the government to implement a limited privatization program; yet the complex nature of such negotiations renders sweeping reforms unfeasible.

THE COSTA RICAN EXPERIENCE

Compared to Chile, Argentina and Mexico, privatization in Costa Rica has been minimal. In the first three countries, governments transferred entire sectors to the private sphere through ambitious public divestiture programs. Modernization of the state was at the heart of market-oriented reforms designed to replace state-led development. In contrast, although Costa Rica was one of the first Latin American countries to receive a World Bank structural adjustment loan, privatization there has not proceeded as rapidly as elsewhere in the region.

In the 1980s, successive Costa Rican administrations implemented a gradual, piecemeal process of privatization. …

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