Post-‐neoliberal economic policy and resource nationalism in Latin America : a case study of the Lithium industry in Chile

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UNIVERSITY OF AMSTERDAM

FACULTY OF SOCIAL AND BEHAVIOURAL SCIENCES Department of Political Science

Post-‐neoliberal Economic Policy

and Resource Nationalism in Latin

America

A Case Study of the Lithium Industry in Chile

Student: R.C. Perotti Supervisor: Prof. Dr. Jeffrey Harrod Second Reader: Dr. Robin Pistorius Master Thesis Political Science International Relations August 2014

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List of acronyms & abbreviations

CEL Comité Especial de Licitación (Special Tender

Committee)

CEOL Contratos Especiales de Operación de Litio (CEOL) (Special Lithium Operating Contract)

CEOP Contratos Especiales de Operaciones de Petróleo (Special Petroleum Operations Contracts)

CEPAL Comisión Económica para América Latina y el Caribe (see: ECLAC)

CESCO Centro de Estudios del Cobre y la Minería (Center for Copper and Mining Studies)

CIE Comité de Inversiones Extranjeras (Foreign Investment

Committee)

COCHILCO Comisión Chilena del Cobre (Chilean Copper Commission)

CODELCO Corporación Nacional del Cobre de Chile (National Copper Corporation of Chile)

CORFO Corporación de Fomento de la Producción (Production Development Corporation)

CRS Congressional Research Service

DL Decree Law

ECLAC Economic Commission for Latin America & the Caribbean (see: CEPAL)

EITI Extractive Industries Transparency Initiative

ENAP Empresa Nacional del Petróleo (National Petroleum Company)

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FESUC Federación de Supervisores y Profesionales del Cobre de Codelco (Federation of Unions and Professional Supervisors of CODELCO)

GDP Gross Domestic Product

ICMM International Council on Mining and Metals

IIED International Institute for Environment and

Development

ISI Import-Substituting Industrialization

LAPOP Latin America Public Opinion Project

Li Lithium

NLC National Lithium Commission

OECD Organisation for Economic Co-operation and

Development

OPEC Organization of the Petroleum Exporting Countries

PPM Parts Per Million

SERNAGEOMIN Servicio Nacional de Geología y Minería (National Geology and Mining Service)

SQM Sociedad Química y Minera (Chemical and Mining

Society

SVS Superintendencia de Valores y Seguros (Supervisor of

Securities and Insurance)

T LCE Lithium Carbonate Equivalent in Tonnes

UNCTAD United Nations Conference on Trade and Development

USA United States of America

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Chapter 1: Introduction

1.1. Introduction

1.1.1. Introduction to the Topic

In the past decade global markets have changed significantly. The growth of Eastern Asian markets, particularly the Chinese, have a significant effect on the developmental opportunities of other markets. There has been a global rise in demand for primary commodities, especially in rapidly developing economies such as the Chinese market. This rise in global demand for primary commodities has transformed international trade and it has‘[…] enhanced policy space for ‘rising powers’ and resource-rich ‘emerging’ countries […]’ (Grugel & Riggirozzi, 2012: 1). While the global demand for commodities such as minerals grows steadily, the Latin American region is becoming increasingly dependent on the export of these resources. Singh (2010a: 61) foresees potentials issues, such as growing tensions because; ‘[…] these resources are subject to various conflicts between governing elites, the private sector, social movements, and other groups seeking to make claims of ownership’. Resource governance is becoming increasingly important. There is no consensus, neither scientifically nor socially, on what is the best way of governing the resource extractive sector.

One form of governing the resource extractive sector is resource nationalization. Resource nationalization has shown potential in some parts of the world. A resource boom in a nation where the resources have been nationalized can considerably benefit society when state institutions are competent, and accountable – even if only to a small group as is the case in some of the OPEC states (McPhail, 2009). Another example of successful nationalization is Norway. Norway has successfully been using revenues from North Sea oil to subsidize social democratic benefits to its citizens (Efert, Gelb & Tallroth, 2003). The small OPEC states like Qatar have at the same time been able to diversify their economic if not productive activity (Kohl & Farthing, 2012: 226). Resources are very important for many Latin American states. However, Latin American states are still looking for a successful formula.

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Latin America historically has had an interesting relationship with neo-liberalism, many states in the region entered global markets through the introduction of neoliberal economic policy, under neoliberal governments. Nowadays, Latin America is going through a process of reconstructing its relationship with neoliberalism, and between the state and society. Neoliberalism is losing legitimacy, which causes elements associated with the neoliberal doctrine to be delegitimized as well. With many Latin American New Leftist governments developing new kinds of policies, there seems to be a rise of – what scholars call – post-neoliberalism. Post-neoliberalism is an attempt at creating progressive policy. Post-neoliberal policy is ideally all-inclusive; it is an attempt at bridging political and cultural cleavages between conventional opposites such as the rich and the poor, and the right and the left. Historically, these cleavages have led to civil wars and political conflicts. Post-neoliberalism is an attempt at creating sustainable progress, by avoiding political conflicts. An important element of post-neoliberalism is therefor the harmonizing of ideals by searching for the middle ground. This middle-ground means for post-neoliberalism: retaining key elements of neoliberalism - such as free or semi-free markets and a focus on exports - while more attention is paid to social issues.

A new field of study has opened up due to the interaction of three factors; (1) the declining legitimacy of neoliberalism in Latin America; (2) the rise in global demand for primary commodities, and; (3) the rise of new forms of political economy in Latin America, under New Leftism - such as post-neoliberalism economic policies. These three factors interact in a way that pose problems and offers opportunities for development. However, as one student of Latin American politics notes;

‘Political scientists and political economists who specialise in the region [of Latin America] have not paid enough detailed attention to the issues of resource nationalism in the region’s left turn’ (Rosales, 2013: 1452).

There is still much to learn about developmental issues such as resource governance in the new political climate of Latin America, for there is still little research on the future of resource governance (WIR, 2007).

The aim of this research is to contribute to the understanding of post-neoliberalism in Latin America, focussed on post-neoliberal economic policy and resource nationalism. There are certain paradoxes within post-neoliberalism, for

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example the retention of a liberalized economy while at the same time raising enough taxes for social policies. The aim of this research is to further the understanding of post-neoliberalism by researching post-neoliberal economic policy in relation to Latin America’s most important economical sector: the mining sector. The question to be answered in this thesis reads:

To what extent is resource nationalism compatible with post-neoliberal economic policy in Latin America? A case study of the lithium-industry in Chile.

1.1.2. Motivation

Many Latin American nations are rich with natural resources. These natural resources are very often an important part of their economy. With the rise of post-neoliberalism, governments and policymakers are trying to figure out what kind of economic policy best fits their needs. Post-neoliberalism is an attempt at harmonizing historical cleavages within Latin American nations by finding a middle ground. Therefore, policymakers are in a tough spot when it comes to resource governance. Historically, natural resources were in the hands of elites. Resource governance, in the form of nationalization, might bring about unsolicited problems when antagonizing old elites by meddling in resource governance. In the twentieth century, many nations have experienced radical politics; be it imposed neoliberalism, or socialist experiments. The socialist experiments have shown many Latin American nations what happens when waging class-warfare. This is something many incumbent governments in Latin America actively try to avoid. Post-neoliberalism is the embodiment of this active search for practical, pragmatic, all inclusive, and harmonizing policymaking. The findings of this thesis contribute to the scientific and social understanding of resource governance in post-neoliberal Latin America.

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1.1.3. Aim of the Research

Scientifically the aim of this research is threefold, this research attempts to contribute to; (1) the understanding of developmental issues in Latin America; (2) the understanding of post-neoliberal economic policy; (3) the role of resource governance in Latin America. Some scholars argue that there are ‘[…] inherent contradictions and limitations [within] post-neoliberal policy’ (MacDonald & Rupert, 2009: 2). This research attempts to answer whether resource nationalism is one of those inherent contradictions or limitations, by seeking out whether resource nationalism is compatible with post-neoliberal economic policy.

Policymakers might benefit from the findings of this thesis by analysing the differences and similarities between the lithium industry in Chile and the resource-industry of their interest. In case a policymaker wishes to implement post-neoliberal economic policy in relation to resource governance, the findings of this research might offer a better understanding of the compatibility of post-neoliberalism with different approaches of resource governance.

1.2. Methodology

1.2.1. General Methodology

In order to answer the question of compatibility between resource nationalization and post-neoliberal economic policy the research is based on a combination of inductive and deductive reasoning. The research is deductive in the sense that there are several studies on post-neoliberalism, describing aspects of its characteristics. These arguments and theories can and will be tested on the basis of the findings of this research. The research is, however, also has a large inductive character. There hasn’t been research on the compatibility of post-neoliberalism and resource nationalism. The findings of this research will therefore create, or be the basis of, new theoretical perspectives.

The findings in this research are based on primary research, conducted in a mostly qualitative fashion. Where needed, and where possible, quantitative data is used to support or to clarify arguments. The qualitative data is derived from a number

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of sources: first, the author conducted twelve interviews over a period of two months, doing fieldwork in Chile. A list of interviewees can be found in the list of references. These include, but are not limited to; natural resource lawyers; the chairman of a lithium company; government officials; and a CODELCO senior. The primary sources used for this research include annual reports, investment reports, papers, and studies from:

• Newspapers, or –websites such as Mining, and El Mercurio; • Intergovernmental organisations, such as ECLAC, and

UNCTAD;

• Mining enterprises such as SQM, CODELCO, Rockwood, and Li3 Energy;

• Governmental scientific agencies such as USGS, SERNAGEOMIN, and COCHILCO;

• International economic organisations such as OECD, IMF, and the World Bank

• International organisations such as EITI

• Independent policy research institutes such as IIED

The potential bias for each source has been taken into account, in order to arrive at independent, and unbiased, conclusions.

1.2.2. Case Study Selection: The Lithium Industry in Chile

1.2.2.3. Why Chile?

Post-neoliberalism is a relatively new concept in Latin American political economies, therefor it is still subject to change and development. This means that the nation for the case study should represent a stable post-neoliberal project. Radical leftists governments, such as that of Hugo Chavez in Venezuela or Evo Morales in Bolivia are too extreme in their political ideologies to be representative of post-neoliberalism (Yates & Bakker, 2013: 14). To analyse post-neoliberal economic policy a case has been selected where post-neoliberalism shows promise, or at least receptiveness towards neoliberal economic policies. To assess whether, and where,

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post-neoliberalism aids development is worthy of another research-project on its own. For this thesis, post-neoliberalism as a developmental project is approached neutrally. There is a comprehensive overview of the conceptual debate on post-neoliberalism in the theoretical framework of chapter 2.

Chile stands out because of its progressive attitude compared to other Latin American nations. For example, a big problem with Latin American governments is that although their spending policies reduce the worst manifestations of poverty, they tend not to tackle the underlying inequality (Cortes, 2009). Students of Latin American politics suggest that in order to tackle the underlying inequality, different kinds of interventions are required, such as extensive changes to the tax-system, in order to tax people’s incomes and properties directly instead of a focus on sales and export taxes (Centeno, 2009; Lo Vuolo et al., 2010). Traditionally, governments in Latin America, both on the political right and the political left, have avoided such tax-reforms, for fear of the political costs (Grugel & Riggirozzi, 2012: 10). The current Bachelet-administration in Chile is attempting to pass major tax-reforms, in order to create funds for free universal education within six years of the bill (Chilean Government website for Reforma Tributaria [Tax Reforms]). It is, however, not the purpose of this research to assess these tax-reforms, the tax-reforms serve as an example to show the attempted progress in Chile, and political will for change, which is deemed an important aspect within post-neoliberalism (Leiva, 2008: xxi).

Recent Chilean governments, including the current Bachelet administration, have exhibited post-neoliberal characteristics to such an extent that it seems to be receptive to post-neoliberal economic policy such as the initiation of tax-reforms. There is more that makes Chile an interesting case study. Chile has, since its independence, been highly dependent on natural resource exports for its foreign exchange, a substantial portion of economic activity, and large percentages of its public revenue, even it was geographically more remote from key markets in North America and Europe than any other part of the South American continent (Kurtz, 2012: 83). Figure 1.1. shows the increasing Chilean dependence on commodities, as analysed by the IMF. According to the IMF’s study, Chile is one of the most commodity dependent economies among emerging markets. Chile is becoming even more dependent, with commodity exports doubling from circa 10 per cent of the GDP in 1970-1980 to almost 20 per cent in 2010 (IMF, 2013: 3). The Chileans are

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especially dependent on the export of metals, such as copper. Mining is perhaps the principal pillar of the Chilean economy (Sustainable Development Strategy Group, 2013: 4).

Figure 1.1. Commodity dependence: net commodity exports as percentage of GDP (IMF, 2013: 12).

Another interesting feature of Chile is its history with resource governance. World’s biggest copper producer is the Chilean state-owned company Corporación Nacional del Cobre de Chile (CODELCO) (website Copper Investing News; website Mining Global Mining News). Chile has experience with relatively successful nationalization. These factors – the tax reforms, moderately left and right governments, history of relatively successful nationalization – combined, make Chile an utmost interesting case for studying the compatibility of resource nationalism with post-neoliberal economic policies.

1.2.2.3. Why Lithium?

Resource nationalism is well known in relation to natural resources such as fossil fuels, oils and gas. There are of course more natural resources being nationalized. Lithium, the lightest of all metals, is gaining global importance because of its function

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in secondary batteries and nuclear fusion (Ebensperger et al., 2005: 225). Secondary, rechargeable batteries are widely used in hybrid cars and fully electronic automobiles. The increasing salience of lithium in the global economy is therefore partially explained by the global search for more environmentally friendly, or less fossil fuel dependent modes of transportation (ibid. 227), and various national alternative energy programs (U.S. Geological Survey, 2012: 5). Lithium is becoming increasingly interesting for miners because of its significant value to rechargeable batteries. The use of battery-operated devices is increasing, and is expected to keep increasing because of the expected growth in the Chinese market (website ChinaGoAbroad). It is expected that the Chinese will buy increasingly more lithium and lithium-using products, as the Chinese market grows. Figure 1.2. shows the expected growth, as calculated by Talison Lithium (2012) and COCHILCO (2013), based on current market conditions and pricing. Because lithium is a relatively new important natural resource, the debate on privatization and nationalization of the lithium-industry is also relatively new – making it a very current topic. With growing global demand for lithium, and predictions of increasing global demand (Vikström et al, 2013: 262), this light metal is of great interest to any government, or private business, looking to make a profit of it. The lithium-industry in Latin America is especially interesting; since it holds more than half of the lithium-reserves, for a geographic representation, see Appendix 1.

Figure 1.2. Projections of lithium consumption in relation to their applications and their respective Ex pe ct ed li th ium de m and (t LC E)

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1.2.3. Structure of the Research

Figure 1.3. is a schematic representation of the structure of this research; from general theory to a specific case-study, to conclusions about the case-study and generalizations about the theory and applicability of the conclusions.

Figure 1.3. Research structure

After having introduced the topics of resource governance in Latin America, and having argued why the lithium industry in Chile makes for an excellent case study, in the following parts of this thesis the scientific concepts are explicated. In the research question there are two political scientific concepts: post-neoliberalism and resource nationalism, in order to clarify these concepts, this thesis commences with a theoretical framework. Post-neoliberalism will be explained on the basis of the studies by scholars of various backgrounds, while being related to the concept as it is applied in Latin America. Understanding a country from a post-neoliberal perspective requires extensive description of the concept; as such a label is always contested. In the part following the theoretical framework, there is a subject are overview. This part provides a description – using secondary literature readings – about the extent to which Chile fits the earlier given description of post-neoliberalism – because there is

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no dichotomous answer to whether Chile has moved to post-neoliberalism or not. This part provides an examination of what resource nationalism and post-neoliberalism in Chile entails – using Chilean Mining Law and political history. The third chapter consists of a subject area overview. In order to link post-neoliberalism and resource nationalism with Chile’s lithium industry, the background to the political economy, and the role of resources will be briefly outlined. In the fourth chapter the lithium industry of Chile is examined and technocratically assessed on its growth potential using primary sources. The fifth, and final, chapter links the findings of the research on the lithium industry to the theory on post-neoliberalism and resource nationalization. The chapter consist of an analysis of the findings, some generalizable conclusions, and recommendations for further research.

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Chapter 2: Theoretical framework

2.1. Introduction

As indicated in Chapter 1, this is a study of the compatibility of resource nationalization and post-neoliberalism in Latin America, with the lithium industry in Chile as a case study. In order to fully understand the concepts and theories, this chapter sets out an overview of different interpretations of the theories. As the case study focuses on the lithium industry in Chile, a subject area overview of Chile and its political history can be found in the following chapter – Chapter 3. This chapter contains a theoretical framework in which the concepts of post-neoliberalism and resource nationalism are outlined. Because the research focuses on post-neoliberalism and resource nationalism in Latin America, the concepts will be discussed in relation to the South American region. Post-neoliberalism in Latin America is not the same as it is in Western Europe for example.

This chapter provides a description of the growth and development of post-neoliberalism, and an overview of the academic literature on the conceptual definition of post-neoliberalism. Another important function of this chapter is distinguishing post-neoliberalism from radical leftism and populism, and showing the relation between neoliberalism and New Leftism. Outlining the framework of post-neoliberalism contributes to the understanding of the differences and similarities within the region’s development. Another relevant objective of this theoretical framework is to demonstrate the different viewpoints within the literature on post-neoliberalism about the role of resource nationalization as post-neoliberal economic policy. This theoretical analysis of the different theoretical viewpoints on resource nationalization will show the controversy and the scientific hiatus with regard to this topic. The lack of literature and scientific research on the role of resource nationalization within post-neoliberal economic policy is one of the motivations behind this research. This research on the compatibility of resource nationalization and post-neoliberal economic policy - with the lithium industry in Chile as a case study - will contribute to the further understanding and studying off post-neoliberalism and resource-governance in Latin America.

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2.2. Political Economy in Latin America

Grand concepts like neoliberalism are both necessary and dangerous. Necessary because they help to identify the ways in which the global political economy is organised, how power works, and what ideas and ideologies are ascendant. Dangerous because these grand concepts enable generalisations, finesse specificities and tempt people to reckless degrees of certainty in their observations’ (Harrison, 2010: 1).

Grand concepts, thus, are inherently both necessary and dangerous. What goes for neoliberalism, according to Harrison (2010), also goes for post-neoliberalism. This emphasises the need to describe the concept of post-neoliberalism as extensive as possible, using the interpretations of the concept by various scholars.

2.2.1. Neoliberalism in Latin America

Before post-neoliberalism gained salience in Latin America, there was neoliberalism. Neoliberalism embodied the deconstruction of the state; following socialist experiments, and state-led developmental projects in some Latin American states; ‘Neoliberalism in Latin America was the child of the deep crisis that afflicted the continent in the 1970s and the early 1980s’ (Taylor, 2009: 23). The introduction of neoliberalism into Latin American politics and societies was often accompanied by authoritarian, or dictatorial, governments; such as the military dictatorship in Brazil; the military dictatorship in Chile between 1973 and 1990; the military dictatorship in Argentina between 1976 and 1990; the authoritarian state in Mexico between 1977 and 1994, and; the foreign intervention and subversion of democracy in Nicaragua (Keen & Haynes, 2013: 510). Many of these regimes gained their power and authority through force, through military coupes, and not through democratic elections. However, they seemed to pursue an idea of liberalization. At least, economically speaking.

In general, neoliberal economic policies in Latin America have aimed to ‘[…] roll back the state, liberalize and deregulate the economy, and increase the size of the

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private sector […]’ (Macdonald & Ruckert, 2009: 3). Neoliberal economic policies have been promoted and developed by what is known as the ‘Washington Consensus’, where measures such as liberalization and deregulation, fiscal austerity, and privatization were prescribed (Clark, 2012: 2). Deregulation of the economy, as a project, started getting momentum in the 1970’s (Grugel & Riggirozzi, 2012: 3). Neoliberal economic policies, and the influence of the Washington Consensus, have been prominent in Latin America since the 1980’s (Granovsky-Larsen, 2009: 42). In Latin America these neoliberal measures have included; cuts in public expenditure, the sale of public utilities, free trade agreements, and the titling and privatization of property rights in lands, water, forests, and other previously state publicly owned resources (Yates & Bakker, 2013: 3).

The legitimacy of neoliberalism – or the neoliberal revolution – stems from the combined effects of the end of communism, the grand economic downfall in the developing world caused by the debt crisis of the early 1980’s, and the rise of global finance in the 80’s and 90’s of the 20th

century. These factors contributed to the rise of liberal ideas; linking development to freeing markets (Grugel & Riggirozzi, 2012: 4). Some have found and experienced positive experiences from the neoliberal revolution; there is evidence suggesting that neoliberalism reduced state corruption, led to improvements for consumers through cheaper imports, more competitive pricing structures and improved access to new technologies, and controlled inflation (Gwynne & Kay, 2000).

Neoliberalism became an inherent part of Latin American political economical culture, which later influenced the construction of post-neoliberalism. The market opening, and the deepened integration into the world economy occurred at the same time as democratization. Economic liberalization became one of the main focuses, both politically and culturally. This resulted in legitimization of technocratic decision-making. (Silva, 2008). Many neoliberals figured that economic policy should be depoliticized, meaning that party-politics should be absent when creating economic policy. Whatever the reason for neoliberals to promote technocratic policy-making might have been, the people viewed technocracy as an inherent part of neoliberalism. As technocratic decision-making increasingly became the norm, the distance between governments and the people it governs also increased; diminishing popular access to

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the state (Silva, 2008). This distance between government and public inadvertently delegitimizes a government’s authority. The governments weren’t the only ones losing legitimacy. Neoliberal economic policies have also been losing legitimacy, because of the poor economic performance in Latin America during the neoliberal era, which is described as ‘[…] disappointing and volatile’ (Potter, 2007: 12). Some of the most avid supporters of neoliberalism concede that growth has been below expectations in much of the developing world (World Bank, 2001). Besides the poor economic performance there has been a significant negative impact on the distribution of resources and the re-established power of local elites (Granovsky-Larsen, 2009: 49). Latin American citizens increasingly began to see neoliberalism as a confound doctrine used by the rich for their own benefit. Latin American citizens started blaming ‘[…] neoliberal economic policies for slow growth, no improvement in poverty rates, and sparse investment in human capital through education and health’ (LeoGrande, 2005: 32). Once neoliberalism started to become associated with the elitism, technocratic policy-making also became associated with elitism. It were the neoliberals that promoted the use of technocrats in their pursuit of economic liberalization. People experienced technocratic policymaking as imposed by the neoliberal ruling class, or in some cases even, imposed by dictators. With the return of popular democracies in Latin America at the beginning of the 21st

century, the concept technocracy therefore became somewhat abhorred. Post-neoliberalism later became a political reaction against what was seen as excessive marketization, and the technocratic and elitist democracies that came with the market reforms at the end of the 20th

century (Grugel and Riggirozzi 2012: 3).

The reestablishment of the power of local elites, the association of neoliberalism with the politics of ruling classes (Harvey, 2005), and the popular disappointment with the neoliberal policies articulated into a new idea of political and economical development. This response began approximately at the beginning of the new millennium; when governments with a more left, or left of centre leaning, political character took office. These governments aspired to end the pro-elite era of democratization (Panizza, 2009). These Latin American nations have been making – what some are calling – a ‘turn to the left’ (Arditi, 2008: 59).

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2.2.2. New Leftism

The turn to the left, New Leftism, and the move beyond neoliberalism in Latin America, have been preceded by what is known as the ‘ third way’. The ‘third way’ first emerged in the North, among governments such as those of Tony Blair in the United Kingdom, Bill Clinton in the United States, and Jean Chrétien in Canada. As two students of post-neoliberalism in Latin America argue on the relation between Latin America and the third way, that;

‘[…] the less radical New Left governments in South America have much in common with the attempts of these pragmatic reformers to redeem neoliberalism by retaining the effort on inflation targeting and deficit cutting, while experimenting with progressive social policy alternatives’ (MacDonald & Rupert, 2009: 1-2).

It is important to note that these authors, once again, point out the need for a distinction between radical and less radical New Left governments. Generally, when students of post-neoliberalism in Latin America refer to New Leftism, and New Leftist governments, they refer to the less radical ones. The term ‘third way’ is generally lost when speaking of Latin American politics, however some authors have recognized a ‘third way for the Third World’ as a part of a transition to an ‘inclusive neoliberalism’ in Latin America (Taylor, 2009: 21).

Although students of Latin American politics have identified the rise of - what is commonly referred to as - New Leftism, it is not an easily defined concept. There seems to be agreement among scholars that New Leftist politics is still derived from the socialist imagery, such as the enactment of distributive demands or its cultural orientations (Grugel & Riggirozzi, 2012: 1). However, the left seems to strive for equality without necessarily excluding capitalism, international trade, and liberal citizenship: ‘[…] the left [in Latin-America] has a much more layered relationship to the liberal tradition that prevents us as seeing it as antiliberal’ (Arditi, 2008: 73). Roberts et al. (2007: 10) sum up the shared characteristics of the New Left as:

1) A willingness to use state power to stimulate economic growth and correct for market failures;

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reduce social inequalities and address social deficits, and;

3) A commitment to deepen democracy through various forms of popular mobilization and participation in the political process

New Leftism, as described above, can be considered as part of the movement beyond neoliberal economic policy. This movement beyond neoliberal economic policy is often associated with post-neoliberalism; which can be broadly described as the ‘[…] rise of an alternative model of development that goes beyond the Washington Consensus’ (Kaltwasser, 2011: 232).

2.2.3. Post-‐neoliberalism

In order to avoid a misinterpretation of the word post-neoliberalism, it makes sense to start off with what post-neoliberalism is not: post-neoliberalism does not simply refer to an era “after” neoliberalism. Defining post-neoliberalism is challenging due to the fact that the concept is still developing. As described above, New Leftism and post-neoliberalism make up a big part of what is seen as a movement beyond neoliberal economic policy and the Washington Consensus. Nonetheless, the conceptual definition of post-neoliberalism remains ‘[…] preliminary and does not entail a clean break from the previous period, with policies of macroeconomic openness and stability broadly maintained […] (Clark, 2012: 2). Because there is no clean break from the previous period, it is hard to say where neoliberalism ends and where post-neoliberalism begins, which impedes a conceptual definition of post-post-neoliberalism. Furthermore, post-neoliberalism is also concerned with the rights of indigenous people, ecological practices, and other developmental issues (Brand, 2009: 103). Post-neoliberalism can also be understood as a new kind of politics, rooted in and responsive to local traditions and communities (Grugel & Riggirozzi, 2012: 3). However, for the purpose of answering whether, and to what extent, post-neoliberal economic policy is compatible with resource nationalism, the definition of post-neoliberalism will be limited to the political economical interpretation, which will be further outlined in the following paragraphs.

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discuss its conceptual definitions. As mentioned earlier, post-neoliberalism can be understood as a response to what was seen by Latin Americans as excessive marketization and the technocratic and elitist democracies that were associated with the implementation of neoliberal economic policies. Scholars of Latin American politics and history have attempted to further clarify and understand this movement beyond the Washington Consensus, in order to define post-neoliberalism. First off, there seems to be a growing agreement among students of Latin-American politics – such as Grugel and Riggirozzi – that post-neoliberalism involves the ‘return of the state’ (2012: 1). This ‘return of the state; refers to the ‘[…] use of state power to stimulate the economy and correct widespread market failures [and] the provision of human and social capital, the subsidization of consumption for the poor, and other social investments’ (Macdonald & Ruckert, 2009: 7). Grugel and Riggirozzi also note that Latin American states are increasingly involved in developmental issues (2012: 1). These definitions of post-neoliberalism, with the return of the state as an important economical and political actor, resemble the characteristics of New Leftism as summed up by Roberts et al. (2007: 10)1

. This is an indication of the relationship between New Leftism and post-neoliberalism. Grugel and Riggirozzi (2012: 3) see the post-neoliberal project as a construction of a social consensus that is both respectful to the demands of growth and business, as sensitive to the challenges of citizenship and poverty. Grugel and Riggirozzi (ibid. 4) also recognize the role of the state with regard to its citizens and its economy:

‘Post-neoliberalism is […] an evolving attempt to develop political economies that are attuned to the social responsibilities of the state whilst remaining responsive to the demands of ‘positioning’ national economies in a rapidly changing global political economy’.

The return of the state is one important aspect of post-neoliberalism - as part of a movement beyond the Washington Consensus. However, post-neoliberalism in Latin America tries to deal with other developmental obstacles as well. Post-neoliberalism also represents an attempt at economic and political development by bridging the cultural and political cleavage between the old authority-having elites and the poor; the political right and the political left; the failed neoliberal policies and

1_{For
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of
the
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New
Left
by
Roberts
et
al.,
see
paragraph
2.2.2.} 2_{See
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2.2.2.
for
the
relation
between
New
Leftism
and
post-‐neoliberalism.}

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the counterhegemonic social forces (MacDonald & Rupert, 2009: 6). Historically, these values have contributed to development in the region; corporation among elites and harmonization of ideals to advance pragmatic policies have been an important explanatory factor for why some Latin American nations grew out to be the more successful than others since their independence of colonialism (Kurtz, 2001: 9). The need for cooperation is still very relevant, especially in a continent as culturally and politically divided as Latin America. Post-neoliberalism is a call for a ‘[…] new form of social contract between state and people’ (Wylde, 2011: 436). This refers to a new form of social contract, where the interests of both elite and non-elite, are heard and represented. This means that post-neoliberalism, compared to neoliberalism, is more attentive to the needs of the poor; such as increased political influence and income equalization (Grugel & Riggirozzi, 2012: 2). However, in order to do accommodate both interests, post-neoliberalism avoids returning to economies of the past such as socialism and communism; ‘[…] the new policies are being put in place alongside the retention of key elements of economic management from the neoliberal era that are deemed essential for economic stability’ (Grugel & Riggirozzi, 2012: 2). These retained elements include a focus on the export axis and the commitment to a degree of fiscal restraint (ibid. 4). Cleary – a student of Latin American politics – argues that leftist, and all other administrations are constrained by ‘[…] the regionwide commitment to economic neoliberalism and by increased levels of international economic integration’ (2006: 45). Meaning that Latin American states have incorporated neoliberalism into their developmental project, because of the historical role neoliberalism has played. Overbeek & Apeldoorn (2012: 19) suggest that incumbent governments have actively consolidated central neoliberal tenets – such as monetary and fiscal stability, free trade and the promotion of FDI – because they were influenced by ‘[…] the historical trauma of the debt and inflationary crisis of the early 1980s, and […] recurrent capital strikes […]’. The retention of neoliberal elements, and the avoidance of radical leftist policies linked to crises, serve an economical purpose such as stabilizing the economy (Grugel & Riggirozzi, 2012: 2). However, they also serve the purpose of bridging the earlier mentioned cultural and political cleavages. Bridging these cleavages requires pragmatism. Pragmatism is thought to help with avoiding the polarisation of traditional opponents such as, for example, the elites and the poor. This is one of the reasons that post-neoliberalism is often related

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to ‘moderate New Leftism’, instead of its radical counterpart2

.

2.2.4. Relation between post-‐neoliberalism and New Leftism

Post-neoliberal economic policy is different than the economic policy of well-known radical left movements - such as the late Hugo Chavez in Venezuela or Evo Morales in Bolivia (Panizza & Miorelli, 2009: 39). Post-neoliberalism has far more nuanced ambitions, and it focuses on cooperation between different political and cultural groups. These two aspects are not characteristic of the radical leftism of Chavez or Morales. As mentioned earlier, post-neoliberal economic policy is not a continuation of pre-neoliberal socialist experiments in Latin America, nor should it be confused with populism or radical leftism. Populists can locate themselves on the left, but there are leftist projects that are not populist and populist projects that are not leftist (Roberts et al., 2007: 10). Post-neoliberalism is however a distinct phenomenon which is not necessarily connected to any traditional political ideology such as radical leftism, elitism, neoliberalism, or conservatism, but rather – as previously mentioned – as a harmony between those traditional Latin American political identities – which is closer to what some scholars call the moderated New Left. However, the New Left has not presented itself with a coherent alternative to neoliberalism, ‘[…] but rather developed a very diverse and heterogeneous set of post-neoliberal policies and strategies’ (Cameron, 2007: 2). Because of that diverse and heterogeneous set of policies implemented by these New Left governments, it is hard to generalize about these governments. The same is true for New Left governments, as for populist and radical leftist governments; post-neoliberal economic policy can be used and implemented by New Left governments, there is however no inherent connection. Pegging post-neoliberalism on a traditional ideology or a political group is not useful. A group, party, or government might adopt and implement a certain post-neoliberal economic policy but that does not necessarily make them post-neoliberal. This paragraph has shown the similarities between the New Left and post-neoliberalism. These similarities indicate that post-neoliberalism is not an isolated development, but connected to many of the political sentiments in Latin America.

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An important contrast between radical leftism and post-neoliberalism are the political economic ideas of these radical leftist governments. These ideas show radical leftism to be different from post-neoliberalism and its characterizing pragmatism and business-friendliness. For example, the popular nationalism, or radical leftism, of Venezuelan governments takes the breaking of neoliberal hegemony as its core ideal (Yates & Bakker, 2013: 14). If breaking the neoliberal hegemony is the central value, it is possible that old neoliberal elites will try to obstruct the actions undertaken by the Venezuelan governments. This obstructs the post-neoliberal ideal of harmonization of ideals, which hinders cooperation. A lack of cooperation among elites and non-elites curbs pragmatism. The need for the pragmatism and cooperation of the post-neoliberal approach is demonstrated by Overbeek’s and Apeldoorn’s prediction for these radical leftist governments of Venezuela and Bolivia;

‘In [Venezuela and Bolivia], incessant elite resistance and class struggles, including within state institutions, will most likely continue to imperil the transient hegemony achieved by [these] governments’ (Overbeek & Apeldoorn, 2012: 19).

The elite resistance and class struggles might jeopardize the future of those radical leftists governments. The creation of a new social contract between people and state brings the risk of one side taking too much power over the other. In the case of revolutions where radical leftists blame neoliberalism for Latin America’s problems, this might lead the new governments to implement anti-neoliberal and anti-elitist policies. In contrast, ‘[…] post-neoliberal governments have tended to be perhaps surprisingly pragmatic, especially in so far as the economy is concerned, where policies work with the grain of a liberalized global economy’ (Grugel & Riggirozzi, 2012: 5-6). This emphasises the importance of cooperation and harmonization among elites and non-elites, and among elites themselves – a core aim of post-neoliberal economic policy is harmonizing the interests of the different political groups.

While these terms – radical leftism and populism – are normatively charged (Panizza & Miorelli, 2009: 39), these normative – negative - associations are not of importance to this thesis. It is important to separate the analytical aspects from the normative aspects when researching a compatibility issue – like the compatibility issue of resource nationalism and post-neoliberal economic policy in this thesis. The

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purpose of this research is to understand to what extent post-neoliberal economic policy is compatible with resource nationalism, not to assess post-neoliberal economic policy on its economic performance, or to analyse resource nationalism – for example - for its added value to the gross domestic product (GDP).

2.3. Resource nationalism

2.3.1. Defining resource nationalism

Resource nationalism has many definitions. It is important to have some understanding of the different definitions of resource nationalism, on account of the research question. The extent of compatibility between resource nationalism and post-neoliberal economic policy depends on the definitions and understanding of these concepts. This paragraph explores those different understandings and definitions of resource nationalism, and its varieties and methods.

Ward, writing a working paper for the IIED, found that resource nationalism is generally characterised by the tendency for states to take – or seek to take – direct, and increasing control of economic activity in natural resource sectors (Ward, 2009: 5). That is to say that resource nationalism refers to the nationalization of natural resources for the purpose of profiting from the rents of these resources by the state – as opposed to privatization. For states to take increasing control in the economic activity in natural resource sectors, states have a variety of methods and approaches at their disposal, as shown in Table 2.1:

Table 2.1. Methods and approaches of resource nationalism (based on Ward, 2009: 8-‐9)

Absolute resource nationalism

1. Nationalisation of the natural resource.

Benign resource

nationalism

2. Renegotiation or cancellation of existing natural resource contracts.

3. Rejection of particular kinds of governance frameworks – such as production sharing contracts – considered less favourable to

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producer countries.

4. Increases in taxes, which must be paid by natural resource companies in times of high commodity prices.

5. Stringent and mandatory regulation of local content.

6. Restrictions on exports of natural resource products.

7. Reservation of specified quantities of natural resources on grounds of national security or energy security.

8. Measures for ‘domestication’ of key sectors.

9. Requirements for investors to make increasing contributions to direct social spending by executing infrastructure projects, or investing in a variety of social investment projects in localities, or at the national level where they invest, or investing in the development of the local industry.

The first method on the list, nationalisation, is the best-known – and most obvious – method of resource nationalisation, referred to here as ‘absolute resource nationalism’. The other 8 methods listed in Table 2.1. are still part of the wider understanding of resource nationalism. Ward (2009: 10) writes about these methods that;

‘[these] kind of policy changes […] lead to significant changes in financial modelling and cash flow of individual projects without breaching host country commitments to producers […]’

The last eight approaches on the list of Table 2.1. are referred to as ‘benign resource nationalism’. However, the term benign might be somewhat misleading, considering those methods still represent efforts by the government to capture greater benefits from natural resource exploitation in ways that are unpopular with enterprises (Ward, 2009: 10). Regardless of their unpopularity with enterprises, these measures can still be taken alongside forms of privatization. This would lead to a certain policy mix of both nationalization and privatization at the same time. The fourth approach on the list of Table 2.1. refers to taxation. This is perhaps the most commonly used form

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of ‘benign nationalization’. The OECD (Korinek, 2013) conducted a study on the mineral resource trade in Latin America. In the research they distinguish three important types of taxation that could be levied in the mining sector, shown in Table 2.2. (created by the author, from Korinek, 2013: 22-23). These forms of taxation are important within the mining industry, and will be discussed in detail when analysing the lithium industry in Chile.

Table 2.2. Methods of taxation in the ming sector (created by the author from Korinek, 2013: 22)

Income tax Not specifically for mining. Tax rate is uniform for all taxpayers at a given level of profit. Some countries have a progressive tax regime that levies higher taxes from commercial entities with higher levels of profit.

Royalties A payment made for the use of property or the use of a natural resource. These can be in the form of a tax on the extracted minerals, per physical unit of production or ad valorem. Royalties are often placed on extractive industry enterprises because they exploit a non-renewable resource that they do not own – minerals are typically owned by the state.

Surface rentals

A fee levied on economic activities that use land, such as resource extraction. These fees are often based on land area and are calculated by multiplying a standard rate for the type of activity being done on the land.

2.3.2. Resource nationalism as contradiction

As lined out in the foregoing paragraphs, the exact details and interpretations of what post-neoliberal economic policy looks like is a complex issue. In broad terms however, scholars have argued that post-neoliberalism is:

‘[…] characterized mainly by a search for progressive policy alternatives arising out of the many contradictions of neoliberalism. These progressive alternatives contains remnants of the previous neoliberal model, as neoliberalism does not suddenly disappear’ (MacDonald & Ruckert, 2003: 6-7).

As MacDonald and Ruckert point out above, post-neoliberalism is an attempt to move beyond contradictions within neoliberalism. Resource nationalism in Latin America

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makes for an interesting study of how post-neoliberalism attempts to move beyond neoliberalism’s contradictions. This contradiction has two sides:

First, starting with the side of the contradiction wherein resource nationalism is seen as compatible with post-neoliberal economic policy. One could argue that resource nationalism is a way of generating state revenue, which could be used to reduce social inequalities through redistributive measures – which is in line with the ideals of New Leftism and post-neoliberalism (Roberts et al, 2007: 6). According to some, post-neoliberalism is characterized by its renationalization in ‘[…] some parts of the economy, especially in the energy and minerals sector’ (MacDonald & Ruckert, 2009: 7), making resource nationalization a fundamental part of post-neoliberalism. Bakker and Yates (2013: 10), also recognize nationalization and renationalization of major resource extractive industries as examples of progressive policy reforms. These policy reforms are a part of – what they call; ‘[…] the principle of re-socialization and re-founding the state around the social sphere’. Besides, as opponents of privatization argue according to Kohl and Farthing, privatization of resources is in some cases only beneficial for capital owners, managers, and skilled workers – this exacerbates income inequality (2012: 226).

Second, the other side of the contradiction sees resource nationalization as incompatible with post-neoliberal economic policy. As laid out in the arguments in the previous paragraphs, post-neoliberalism generally maintains the same strategies as neoliberalism with regard to economic policy. Following the neoliberal thought of shrinking the state and reducing the scope and cost of its activities (Grugel & Riggirozzi, 2009: 5), it seems only logical that natural resource governance would be privatized and left to the market. This might benefit the development of the resource-industry, as the market might exploit and extract it more efficiently. The role of elites in resource nationalization is arguably predictable. Resource having elites might have an interest in ensuring that natural resources stay out of the hands of the government, for it would encroach on their own property. One might argue that nationalization is not beneficial to the ideal and goal of interest harmonization, and is therefor not an example of progressive or pragmatic policy. Also, as opponents of nationalization argue, when resources are publicly controlled, all to often the benefits go to rent-seeking government officials and their allies, instead of going to the country and the

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people of the country as a whole (Zalik, 2008).

2.3.3. A history of natural resources in Latin America

In order to discuss resource governance with regard to post-neoliberalism in Latin America, it is necessary to include a short history of the importance of resources for growth in the region. This helps to explain the attitude the different governments might have towards resources in their country. It also helps to explain why resource-exports are so important for today’s Latin American governments.

Latin America has a history of both export-led growth and inward-looking development. It was by the middle of the nineteenth century that the growth of the world economy started becoming the centre of debate on economic policy and economic development in Latin America (Thomas, 2003: 46). With a growing world economy comes a growing demand for primary commodities. In this time governments knew, or at least thought they knew, what to do stimulate the export of primary products; (1) modest export taxes; (2) promotion of foreign investment; (3) and, public investment in social infrastructure. However, governments weren’t too concerned with transforming the rest of the economy with the help of the export sector (ibid. 49). In the time between the 1850’s and the First World War, public debate wasn’t concerned with economic policy. Public debate focused on political issues such as liberalism versus conservatism, relations between church and state, the nature of the constitution, and so forth. Commodity-exporting elites did not suffer from a lot of governmental intervention (ibid 49). In the century leading up to the First World War, practically all nations in Latin America followed a model of export led growth3

(ibid. 117). After a period of external shocks and crises, many Latin American nations opted for an inward-looking model of growth. The base of the growth in the inward-looking model comes from ‘import substitution industrialization’ (ISI). ISI rested on manufacturing. The idea behind ISI was that growth would come through the industrial establishments that had grown up in a market sheltered from imports (Thomas, 2003: 270). ISI was an attempt at strengthening the own industries by producing all the goods that were previously imported, this way the states hoped to

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become independent of imports.

ISI lost saliency as a developmental strategy when it reached the end of its ‘easy-phase’ - by depleting the domestic markets in Latin America (Grugel & Riggirozzi, 2012: 12), the end of the easy phase contributed to the economic catastrophe sparked by the debt crisis (Kurtz, 2001: 1). Some Latin-American nations have since been attempting to positively influence their development by pursuing an older technique; export-led growth (Grugel & Riggirozzi, 2009: 228). The export of natural resources and other primary commodities is of great importance to many Latin American economies (Grugel & Riggirozzi, 2012: 1-2).

2.3.4. Resource nationalism in (post-‐)neoliberal Latin America

Natural resources play an important role within post-neoliberalism in Latin America. Grugel & Riggirozzi call it a ‘crucial fact’ that post-neoliberal governance in Latin America has been made possible by ‘[…] the rising global demand for regional exports, especially natural resources […], allowing states to accumulate sufficient resources for distribution and the design of new social policies’ (2012: 6). The post-neoliberal attempt at harmony between increased taxation for the design of such social policies, while maintaining a business-friendly political economy is a complex balancing act. Resource nationalization is an interesting subject for a study on this balancing act, for the many interests involved (ibid. 5). As set forth in paragraph 2.1.1; there is a contradiction concerning resource nationalism and post-neoliberalism. In the same paragraph both sides of the contradiction have been explicated. This paragraph outlines the development of resource governance in neoliberal, and post-neoliberal Latin America.

Latin American governments began to strip their own states of responsibilities and activities as the neoliberal project gained legitimacy - and more importantly, authority. In general this happened as neoliberal economic policies gained hegemonic status at the end of the 20th

century. National elites in poorer, resource rich states implemented developmental policies designed to enhance national competitiveness through private capital participation. As argued before, it is to be expected that those

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national elites have interests in keeping natural resources out of the hands of the government, for it might encroach on their property and wealth. However, interestingly enough, in an important study on the history of resource governance in Latin America, Singh finds:

‘[…] that in many countries that embraced neoliberal reforms, elites opted for staged market opening rather than full privatization of the resource sector (in contradiction to the management of other key areas of the economy including finance and production) as a way of bringing in private capital’ (2013: 3).

It is difficult to say with full certainty what motivated those elites to opt for staged market opening rather than full privatization during the height of neoliberalism’s influence in Latin America. Privatization could mean more foreign competition, which might mean a declining market-share for national – or smaller – producers. Foreign competitors might have larger funds at their disposal, or more advanced technology or expertise, which could mean a significant competitive advantage over the national producers. Elites might fear having less political influence if their share of the wealth declines. All in all, there are plenty of reasons for national elites to fear, or at least oppose, full privatization of the resource sectors. When governments create resource policy, there are more things to consider than just the attitude of the local elites. Grugel and Riggirozzi (2012: 14), while studying the resource extractive industries of Bolivia and Ecuador, note:

‘Natural resource policy […] is to increase the volume of revenue to government rather than bring the export sector into public ownership, meaning that both Bolivia and Ecuador have opted to encourage production’.

Based on their findings, Grugel and Riggirozzi conclude that the most pragmatic thing to do, for Bolivia and Ecuador, was not to fully nationalize its resource extractive industries. Bolivia and Ecuador encountered practical difficulties, such as high costs of investment and the desire to avoid resource dependency (ibid. 14).

After inadequacies of neoliberalism generated a widespread questioning of this dominant worldview, political movements and intellectuals started looking for an alternative developmental ideology (Sandbrook, 2011: 415). Some Latin American nations have nationalized – or even re-nationalized – important industries and sectors.

Post-­‐neoliberal economic policy and resource nationalism in Latin America : a case study of the Lithium industry in Chile