Arbitrary Policies and Business in Latin America

(Panel co-organized by Juan Flores Zendejas and Aurora Gómez Galvarriato
Business in Latin America has suffered on many occasions from arbitrary changes on the “rules of the game” undertaken by the governments, that reduce or eliminate the profitability of projects that were viable under former regulations. The expropriation of private firms is an extreme example of these policies, but they also include legal changes that regulate economic sectors that retroactively affect the terms of the concession or permits to operate, establish nationality requirements for their owners, price controls, import or export restrictions, etc. These policies are often carried out within institutional frameworks that lack the required check-and balances that could enable firms to defend from them. They increase the perceived risk of arbitrary policies in other sectors of the economy.
There is an extensive literature by institutionalist economists and political scientists on the perverse effect of these policies on investment and economic growth. They have argued that undefined property rights have a negative effect on the expansion of markets and thus, hinder economic growth. Empirical evidence has utilized different indicators of the risk of expropriation as a proxy for institutional performance. Historical narratives of expropriations are abundant for certain sectors (natural resources such as oil) and periods (during decolonization years in Asia and Africa). However, such studies are rather rare for more recent episodes and other sectors such as banking and industry. In Latin America, historical episodes of expropriations and arbitrary regulations have been recurrent in the 20th century. The causes have been diverse, including fiscal fragilities, political alliances, or political regime changes. Furthermore, we know less about the medium and long-term effects on particular sectors from these episodes.
Why are these policies undertaken? Which are the internal and external factors that lead to waves of these types of policies? And what are their consequences on the performance of firms, and on the sectors having suffered from them? Who wins and who loses? This panel intends to shed fresh light on these episodes, and analyze the link between political regimes and business performance and structure in several sectors of the economy in Latin America. The focus will be on the 20th century.