The Political Dynamic of Redistribution in Unequal Democracies: The Center-Left Governments of Chile and Uruguay in Comparative Perspective

Uruguay, 2005–2010: Significant Labor Reform

The distribution of power resources in Uruguay during the second half of the 2000s was more balanced than in Chile. Economic elites’ influence over decision making was limited by the mobilization of organized collective actors—center-left parties and unions—promoting an ambitious redistributive agenda in the field of labor. Economic elites and especially business associations had little power with which to hinder reforms. In 2004 the Frente Amplio candidate Tabaré Vázquez was elected with a congressional majority. The party’s organization is similar to that of an organic mass party, maintaining militancy and strong ties with the labor movement and other social organizations (Levitsky and Roberts, 2011: 14) and structuring electoral competition in terms of distributive issues (Roberts, 2014: 27), and this helped to place redistribution on the government’s agenda. The labor movement, grouped under a single labor federation—the Plenario Intersindical de Trabajadores–Convención Nacional de Trabajadores (PIT-CNT)—played a strategic role in these transformations. After a long period of weakness beginning in the 1990s, it increased its membership and maintained close ties with the governing party (Antía, 2014: 148–150; Doglio, Senatore, and Yaffé, 2004: 258) that allowed it to influence the agenda and the reform process.

One of the government’s first measures was to convene wage councils for tripartite collective bargaining and extend collective bargaining rights to workers who had traditionally not been covered (Senatore, 2008). ¹ At the same time, it approved a new legal framework that institutionalized and updated the existing collective bargaining mechanisms. In addition, it adopted norms that broadened the legal rights of organized labor and extended the right to strike (Ermida, 2006). Business associations opposed the reforms, arguing that they generated bias in favor of workers, but their influence was slight. Employers had a number of sectorial organizations but lacked a unified voice, and this limited their power at the intersectorial level (Rodríguez, Cozzano, and Mazzuchi, 2010: 143). They also lacked stable alliances with other actors in the political system. In contrast to Chile, Uruguay lacked a conventional right-wing party whose core constituency was the business sector (Gibson, 1996), and the business elites’ ties with the center-right parties (Colorado and Nacional) did not give them effective influence over the reform process. For example, Nacional legislators generally voted on a bill in the Senate after the government had negotiated with the party to incorporate a peace clause for conflict prevention that employers demanded even when they were opposed to other aspects of the law (Cámara de Diputados, 2007). Finally, the relationship between business associations and the executive was not a source of influence over the labor policy-making process. In fact, the institutional spaces that involved employer participation also incorporated labor actors.

In sum, employers had little influence during the discussion of the collective bargaining law, which mainly addressed the concerns of the government and the PIT-CNT (Cámara de Industrias del Uruguay, 2009). Therefore, in 2009 two of the main business organizations appealed to the International Labor Organization (ILO) to intervene in an attempt to strengthen their position in the domestic debate. But despite the fact that the ILO’s Committee for Union Freedom backed various business-sector demands (Comité de Libertad, 2010), this resource was not effective in modifying the government’s labor policy, which remained stable under three successive Frente Amplio governments.

Chile, 2000–2010: Marginal Reforms in the Field of Labor

Reforms of collective labor rights in Chile were guided by the strong instrumental power of economic elites without the counterweight of the popular sector because of the way the governing center-left parties were organized and the weakness of labor actors. This configuration was largely a response to the legacy of the military dictatorship (1973–1990), which established a set of neoliberal institutions and reforms that strengthened the economic and political power of economic elites while weakening the influence of the popular sectors (Huneeus, 2001). Economic elites’ instrumental power was channeled through three main paths: the cohesion of business organizations, close ties with right-wing parties, and a fluid link with the Concertación governments (Fairfield, 2015a: 73–80).

The Chilean business sector had a strong economywide peak association, the Confederación de la Producción y del Comercio (Production and Trade Confederation—CPC), which united the six principal sectorial business associations (Schneider, 2004: 152). Another source of instrumental power was the relations that employers maintained with the government through institutionalized consultation (Fairfield, 2015a: 79). Business elites maintained close ties with the parties on the right, Renovación Nacional (National Renovation–RN) and the Unión Democrático Independiente (Independent Democratic Union–UDI), which generally represented their interests (Fairfield, 2015a: 75). Business associations and these parties shared the defense of the neoliberal economic model and the “authoritarian enclaves” designed to preserve that model (Fairfield, 2015a: 76; Garretón, 2012: 87; Luna, 2014a). The parties were well represented in Congress from 1990 to 2010 with the help of the “designated senators” (until 2005) and the binomial electoral system (until 2015). Seats in Congress were almost evenly split between the center-left bloc and the right (Mardones, 2007), and this gave the latter the ability to halt or modify labor reform proposals.

In the face of this concentration of power, the popular sector did not manage to pose an effective counterweight. The labor movement had little influence. Union membership was only about 11 percent of the employed labor force (ILOSTAT, n.d.), and union organization was fragmented. The Central Única de Trabajadores (United Workers’ Central—CUT) was the main organization, but there were three other confederations with limited membership and scant political influence. The CUT’s traditional ties with the Concertación’s Socialist and Christian Democratic parties had eroded (Posner, 2008), and this limited the effectiveness of its demands (Labor Ministry official, interview, Santiago, December 2, 2010). The Concertación governments adopted a strategy of demobilization of popular sector organization as a way to ensure governability (Posner, 2008). These parties began to organize themselves as electoral-professional parties (Levitsky and Roberts, 2011: 13; Pribble, 2013: 33), which contributed to undermining the influence of organized workers over labor policy reform.

This political dynamic is clearly seen in the labor reform approved during the Lagos government in 2001. The government held a forum to discuss the characteristics of the proposal, and even at this early stage the opposition, along with the CPC managed to limit it; the bill sent to Congress excluded changes in collective bargaining and allowed for the replacement of striking workers (El Mercurio, September 14, 2000). During the congressional process, opposition to the government’s proposal included business associations, right-wing legislators, and even some legislators from the Concertación (El Mercurio, September 2, 2001; Labor Ministry official, interviews, Santiago, November 1, 2010). The government ended up excluding from the bill all the clauses that those sectors rejected (Frank, 2002).

The Bachelet administration (2006–2010) was the first Concertación government that did not present a project to Congress to strengthen collective bargaining (López, 2009), even though it was part of Bachelet’s agenda (Concertación, 2005: 23), basically because of the CPC’s objection. In fact, in 2007 the government announced that it would send a set of reforms to Congress that promoted sector-level collective bargaining, the prohibition of replacing striking workers, and the suppression of bargaining groups designed to compete with unions in the enterprise. In the face of firm opposition from employers, the government formed two roundtables to bring opposing positions closer (Diario Financiero, May 28, 2007). However, the CPC refused to participate, arguing that “what the Labor Code says today is exactly what it should; sector-level collective bargaining would only produce fewer jobs in the country, create negative expectations, and, of course, put production and efficiency at risk” (Diario Financiero, July 11, 2007).

The government repeatedly reduced the scope of its proposals until it threw out the idea of legislating on the matter altogether (Diario Financiero, May 10, 2008). As a backdrop, in 2007 there was an increase in social mobilization of subcontracted workers in various strategic sectors (López, 2009). In addition, the Catholic Church through Bishop Alejandro Goic called on politicians to legislate an “ethical wage.” In response, the government created a presidential advisory council on jobs and equality that reached agreement on particular issues but stopped short of considering measures to strengthen workers’ collective action (CAP, 2008). In short, the CPC succeeded in removing the issue of sector-level collective bargaining from the government’s agenda, even at a time of strong union mobilization. This mobilization and the Church’s demands placed the issue of inequality on the public agenda but did not open up sufficient political space to counterbalance the power of economic elites.

Chile, 2014–2016: Moderate Reforms in a Context of Politicization of Inequality

The Chilean political scenario changed in 2011, when the university students’ movement unleashed massive mobilizations under the right-wing coalition government presided over by Sebastián Piñera (Segovia and Gamboa, 2012: 69). While the movement’s demands focused on the reform of the education system, it also placed the need for other reforms on the public agenda, thus transforming both the distribution of wealth and the constitutional order (Luna, 2014b; von Bülow and Bidegain, 2015). This cycle of protests led to a repoliticization of inequality (Roberts, 2014: 240; 2016) even though the political system continued to be skewed in favor of the economic elites.

In 2014 Bachelet returned to the presidency with a plan that included significant reforms in three central areas—education, taxes, and constitutional order—and reforms aimed at strengthening collective labor rights (Nueva Mayoría, 2013). The president enjoyed a favorable correlation of forces in Congress, which held 55 percent of the seats in both houses. This along with the student mobilizations contributed to strengthening the popular sectors’ power. However, the labor agenda was not central to the student movement, and the labor movement failed to sustain its pressure for significant labor reforms. At the same time, while some of the instrumental power of the economic elites was diminished by the right-wing parties’ loss of seats, they relied on other sources of power to influence the reform.

The parliamentary discussion of labor reform led to changes in several aspects of the original proposal, which had already been toned down (Cámara de Diputados, 2016). Among the principal measures, the government proposed the recognition of union ownership and the prohibition of bargaining groups in companies with unions, as well as ending the replacement of strikers (Biblioteca del Congreso Nacional, 2014). Likewise, the reform project introduced greater flexibility for the labor market through enabling the negotiation of “adaptability pacts” between workers and employers, which was a long-standing corporate demand.

The CUT supported the reform (CUT, 2015) and pressured for its passage but did not mobilize its membership beyond calling for or supporting particular national strikes (Julián, 2016: 182). The Nueva Mayoría had enough votes to approve the proposal, but it was modified during the legislative process in response to criticism from some sectors of the coalition itself and the opposition of right-wing parties and of business organizations (La Tercera, March 31 and May 6, 2015). In particular, pressure from some Christian Democratic legislators and the minister of finance, Rodrigo Valdes, led to limiting the provision prohibiting the replacement of workers on strike (El Mostrador, March 23, 2016).

Although the parties of the right were a minority in the legislature, economic elites had other sources of power to influence decision making. After the law’s passage, legislators from the UDI and the RN challenged the constitutionality of four of its main provisions. The Constitutional Court established that two of them—union ownership and the extension of union benefits to new members as a collective instrument—were unconstitutional, and both were removed from the law. Thereafter, the government passed a new law that eliminated some provisions of the previous one with the purpose of “restoring the lost balance in the system of labor relations” (La Tercera, June 22, 2016).

The new law did little to strengthen workers’ collective resources, but it represented some improvement over previous attempts at reform. The system of labor relations continued to have a decentralized and bipartite character, with strong regulation of collective bargaining and limits on the right to strike.

Uruguay, 2006: Significant Tax Reform with Concessions

In 2006 the Frente Amplio government proposed a significant tax reform, which created a progressive tax on personal income that improved the system’s horizontal and vertical equity. However, its design had some limitations because of its dual nature ² and its less burdensome treatment of the income of independent professionals. The reform was passed in December 2006 after long negotiations within the party. Some of its larger factions made the reform’s approval conditional on the executive’s introducing changes in various aspects of the proposal (El Espectador, March 10, 2006) in order to achieve a balance between the tax burden on income from work and capital profits, introducing extensions or exemptions that improved the distributive bias of the reform, and promoting changes that aimed at stimulating productive activities (Rius, 2013). The broad-based makeup of the Frente Amplio meant that reforms proposed by its governments contained a broad spectrum of views originating from party activists, factions, and organized social bases (Pribble, 2013: 36). This configuration has prioritized redistribution on the government’s agenda but also granted groups such as organized professionals a channel for obtaining concessions and maintaining privileges.

During the discussion of the reform, the organizations representing independent professionals deployed a strong lobby in Congress with the intention of moderating the impact of the tax on their incomes (Bogliaccini and Luna, 2016; Comisión de Hacienda, 2006). The tax reform provided independent professionals better treatment than was accorded other workers (Barreix and Roca, 2006).

For corporate income, the reform introduced a 25 percent tax on income from economic activities that replaced a previous 30 percent tax. During the legislative process it was established that profit-sharing companies would be taxed at a similar rate as before the reform. This reform generated little corporate resistance (leader of the Chamber of Construction in Uruguay, interview, Montevideo, July 12, 2014; adviser for Chamber of Industries of Uruguay, interview, Montevideo, July 14, 2014). In addition to promoting equality, the reform was designed to stimulate investment, which was at very low levels, by providing incentives for business activity (Poder Ejecutivo, 2006). It took business interest into account as a result of the sector’s structural power, which in this case, rather than from a fear of disinvestment resulted from the intention of attracting investments through a pro-business orientation (Bergara, 2006).

In sum, the government managed to impose direct taxation on income that was previously untaxed, but the structural power of business elites, which was related to the government’s interest in fomenting investment, and the instrumental power of professional associations, which were part of the Frente Amplio’s electoral base, limited the tax reform.

Chile, 2014: Significant Tax Reform with Concessions

In Chile, any reform that sought to increase taxes on high-income sectors would change the taxes levied on corporate income. Given the integrated nature of the income tax system in that country, the difference between the tax rates on capital income (15 percent in 2001) and labor income (40 percent) and the ability of employers to pay taxes only on dividends provided incentives for high-income earners to significantly reduce the taxes they paid by reporting their personal income as income from a company (Jorratt, 2009). While the Concertación governments achieved only marginal reforms in the posttransition period (Fairfield, 2015a), the Nueva Mayoría government managed to approve a reform in 2014 that increased direct taxes on economic elites but included some concessions. This result was made possible by an increase in the political influence of the popular sectors that opened space for the government to press for significant tax reform at the same time that it was encountering considerable resistance from corporate elites (Antía, 2014: 267–283; Fairfield, 2015b).

In effect, since 2011 the student movement had positioned the need for tax reform at the top of the political agenda, since it was necessary to finance the education reform that this sector demanded (Funk, 2013: 89). After President Piñera made some tax adjustments (Antía, 2014: 269; Fairfield, 2015a: 429), tax reform became part of the electoral debate of 2013 and the platforms of several center-left parties (Nueva Mayoría, 2013). The Bachelet government presented a reform proposal to Congress aimed at increasing revenue and improving income distribution. The main measures were increasing the corporate income tax rate from 20 percent to 25 percent and changing the tax base so that all corporate income, not just dividends, would be subject to taxation (Biblioteca del Congreso Nacional, 2014). The project was approved by the Chamber of Deputies as presented with votes from the Nueva Mayoría, but when it went to the Senate negotiations between the government and the right-wing parties and employers’ organizations led to changes that reduced its redistributive thrust.

Why did the government resort to concessions even when it had a congressional majority? While the instrumental power of the business sector had been somewhat reduced as a result of the right’s reduced representation in Congress, the business associations continued to exert considerable political influence because of their organizational cohesion, their ties with the parties of the right (Fairfield, 2015a), and their ability to frame the public debate through their ownership of the mass media (Sunkel and Geoffroy, 2001). This power was apparent in the tax reform process (see also Fairfield, 2015b). The perception of the Ministry of Finance that the economy was decelerating contributed to the government’s convergence with parties on the right over the need to change some aspects of the reform. Adopting the reform quickly became the government’s priority to prevent uncertainty about taxes from affecting expectations and corporate elites’ willingness to invest. The Nueva Mayoría senator Carlos Montes explained that economic deceleration made an accord with the right-wing parties imperative (El Mercurio, August 16, 2014).

Although this agreement limited the scope of the reform and opened the way for tax evasion by high-income sectors (Agostini, 2014), it was still a progressive change that substantially increased the burden on the highest-income taxpayers (World Bank, 2016). In contrast to the 2000–2010 period, when the economic elites removed progressive tax reforms from the governments’ agendas (Fairfield, 2015a: 83–86), in 2014 the cycle of social mobilization opened space for change but the elites managed to limit its scope (Fairfield, 2015b: 428–437).