Property Rights, Economic Development, and Commodity-led Growth: The Failed Neoliberal Pact and Resource Nationalism in Bolivia

Kevin M. Powers II

Word Count 9,567

Paper submitted to the faculty of the Virginia Polytechnic Institute and State University in partial fulfillment of the requirements for the degree of

Master of Public and International Affairs

Dr. Ariel Ahram Dr. Giselle Datz Dr. Gerard Toal

27 January 2015 Alexandria, Virginia

Keywords: Property Rights, Economic Development, Neoliberalism, Privatization,

Resource Nationalism, Social Welfare, Commodity-led Growth, Bolivia, Evo Morales

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Property Rights, Economic Development, and Commodity-led Growth: The Failed Neoliberal Pact and Resource Nationalism in Bolivia

Kevin M. Powers II

ABSTRACT This paper seeks to address ambiguities in the prevailing conventional wisdom that asserts a positive correlation between property rights and economic development. Using Bolivia’s economic and political experience from early 1980s to 2014 as the subject case, this paper discusses various factors that encourage a policy agenda contrary to the dominant models of development to inform the present understanding of property rights and economic growth as it relates to state hegemony over natural resources. The analysis expects to contribute to the current academic discourse by presenting a more complex link between property rights and economic development than the popular theory currently implies. Specifically, the paper will examine the unique political and economic incentives related to the nationalization of natural resources, as well as the exogenous factors that may serve to further amplify the provisional effect of this strategy.

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Conventional wisdom regards strong property rights as an essential component of economic

development. It’s presumed that people and businesses will only invest and generate wealth

where institutions are in place to delineate and guarantee the private control, utility, and transfer

of property. Moreover, governments are presumed to advance economic welfare by establishing

laws and customs to protect private property. As such, the World Bank and International

Monetary Fund (IMF) have advocated policy reforms for developing countries to bolster

property rights, at times compelling these governments via contingency-based loans and negative

economic appraisals.

Nationalization policies and the status of property rights in Bolivia have been a point of

contention between the South American state and Western financial bodies over the past decade.

The World Bank (2014) provides a critical assessment of Bolivian economic development in its

2014 Doing Business report, specifically citing “uncertainty regarding expropriation and

nationalization processes” and “concerns over property rights” as key drivers of its pessimistic

outlook. Despite the fact that the Bolivian economy has outperformed most of its regional peers

since the global financial crisis of 2008, the government’s nationalization of major industries and

natural resources over the past decade is still regarded as a major impediment to sustainable

development. For its part, the IMF projected an optimistic view of Bolivia’s near-term economic

position. However, like the World Bank, the IMF (2014) report cites the status of property rights

as a hindrance to sustaining economic growth in Bolivia.

Governed by the socialist regime of Evo Morales since 2006, the Bolivian state has

precipitously undermined the status of property rights by nationalizing a significant portion of

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the economy and dismantling legal protections of private property via the country’s new

constitution (Achtenberg 2012, Colburn & Trejos 2010, Vargas 2007, Zissis 2006). In the largest

and perhaps most controversial state seizure of property, Morales effectively nationalized the

hydrocarbon sector by decreeing all oil and gas reserves property of the state. The government

rescinded all hydrocarbon extraction contracts in place at the time and dictated a new set of

terms, stipulating a greater share of the revenues (82 cents on the dollar) be collected by the state

(Kaup 2010). Beyond the energy sector, the Morales government has nationalized most of the

country’s public utilities and mining companies (Achtenberg 2012, Kaup 2010). The speed and

scope of these measures has astonished international observers, as hydrocarbon products (44%)

and mined metals and ores (33%) comprise the vast majority of Bolivian exports (Haussmann &

Hidalgo 2009).

During this period of significant nationalization, the Bolivian economy exhibited the highest

growth rates in the country’s recorded history, with GDP more than doubling between 2006 and

2013 (World Bank 2014). The chart below (Figure 3) depicts Bolivian GDP over the past 20

years. Virtually concurrent to the start of Evo Morales’ nationalization agenda, a dramatic and

uninterrupted increase in Bolivia’s economic growth can be observed. The benefit of this

economic growth has been felt across the economy, with the poverty rate falling from 38% to

24%, purchasing power increasing by 41%, and the minimum wage for Bolivian workers

growing by 127% – far exceeding the rate of inflation (Neuman 2014).

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Figure 3. Bolivian GDP (2014 USD) from 1992-2013 (World Bank 2014)

Case Study Selection

Economists have observed a positive correlation between property rights and economic growth

(De Soto 2000, Knack & Keefer 1997, North 1990). Namely, the more robust a system of

property rights, the better the anticipated economic performance. Using political and social

statistics for a given country, the status of property rights can be scored and measured against

economic performance as a means of comparison between various economies. One such metric

is the International Property Rights Index (IPRI), which observes quantifiable legal and political

factors to provide a comprehensive characterization of both physical and intellectual property

rights across 97 countries. Regression analysis of IPRI and GDP per capita shows a statistically

significant (p>0.001) positive correlation between property rights and economic performance

(International Property Rights Index, 2014). By ranking the indexed economies and grouping

May 2006: Evo Morales issues presidential decree nationalizing Bolivian natural gas reserves. 

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them into their respective quintiles by IPRI score, the graph below (Figure 1) illustrates the

conspicuous relationship between property rights and GDP per capita.

Figure 1. Relationship between IPRI and GDP per capita (IPRI 2014)

However, several apparently contradictory cases are discovered once the data behind this

correlation are unraveled. For instance, Bangladesh scores at the very bottom 20% on the IPRI

(#96 out of 97), but ranks amongst the top 20% (#13 out of 97) when the same population is

ranked by 5-year average GDP growth (years 2009-2013). Regionally, a striking incongruity

between property rights and economic performance can be observed among South American

economies. The table below (Figure 2) provides a comparative illustration of South American

countries listed by 2014 IPRI scores (lowest to highest) alongside their respective 5-year average

GDP growth (years 2009-2013), with the IPRI quintile distribution for each value denoted by a

color-code for the inclusive population of 97 countries.

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Figure 2. South American IPRI Scores and Economic Growth (IPRI 2014, World Bank 2014).

Paraguay, Argentina, Bolivia, and Ecuador stand out in particular as countries that seem to

contradict the conventional wisdom regarding property rights and economic performance. For

sake of comparison, where these four economies averaged 5% GDP growth during 2009-2013,

the top 20% of IPRI-ranked countries (comprised mostly of European states and the U.S.)

averaged just under 1% of GDP growth during this same period (IPRI 2014, World Bank 2014).

And what is more remarkable still is the case of Bolivia, which has observed an ostensibly

inversed relationship between economic performance and the state’s respect for property rights.

Bolivian economic growth began its acceleration at a time when property rights were in the

process of being drastically weakened, whereas the status of property rights in these three other

nations remained relatively stable during the same period (IPRI 2014, World Bank 2013).

If the prevailing hypothesis that property rights and economic growth are positively correlated

to one another is to be presumed, the Bolivian case is an outlier to the theory’s model of causal

CountryIPRI Score 

(2014)

Avg. GDP Growth 

(2009‐2013)

Venezuela 3.2 2.0%

Paraguay 4.1 5.3% Global Rank

Argentina 4.4 4.3% Top 20%

Bolivia 4.5 4.9% 2nd Quintile

Guyana 4.7 4.6% 3rd Quintile

Ecuador 5 5.5% 4th Quintile

Peru 5 4.4% Bottom 20%

Brazil 5.5 2.7%

Uruguay 6.1 5.2%

Chile 6.8 4.0%

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relationship. So how can this seemingly deviant case be explained with respect to prevailing

economic principles and Bolivia’s current program of nationalization? Further, conventional

wisdom being what it is, what factors led Bolivia toward a policy agenda that so purposefully

weakened the status of property rights? Finally, how does the case inform the current

understanding of economic development and property rights as it relates to state hegemony over

natural resources?

Accounting for divergent cases such as this can provide valuable insights concerning the

theoretical strength of bivariate analyses (i.e.: linear causality between property rights and

economic growth) by revealing more intricate paths of causation (Ahram & Datz 2014). In

expressly focusing on this theoretical outlier, the analysis expects to contribute to the present

academic discourse by presenting a more convoluted relationship between property rights and

economic development than the conventional wisdom currently implies. Specifically, the paper

will address the unique economic and political incentives related to the nationalization of natural

resources, exogenous factors that may amplify the provisional effects of such a strategy, and the

general feasibility of property rights within socially volatile regimes.

As part of this paper’s strategy of inquiry, the analysis begins in section I with a literature

review of the concepts engaged by the analysis, to include a discussion on the Washington

Consensus and Bolivia’s neoliberal period, the influence of commodity booms on resource

nationalism and the “petro-political cycle,” and the effects of privatization on social welfare and

political legitimacy of the state. In section II, a case review of Bolivia’s past three decades is

presented, describing the socio-economic path from neoliberal reform to resource nationalism. In

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examining the case, the paper will detail Bolivia’s experiences with the neoliberal agenda, the

subsequent “social convulsion” against reform, the Bolivian state’s pivot toward

renationalization, and various achievements and critiques of the current government. In section

III, relating the case to the commodity boom and resource-based growth, the paper will argue

that the status of Bolivian property rights was made untenable by specific privatization reforms,

and that renationalization was necessary to restoring political and economic stability. The paper

closes in section IV with some final conclusions regarding social welfare, economic stability,

and the unique treatment of property rights as it relates to resource nationalism.

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I. Contextualizing the Status of Property Rights & Resource Nationalism

The IMF (2014) and World Bank (2014) have expressed pessimism regarding the long-term

viability of the Bolivian economy, citing the condition of property rights and the state’s

nationalization policies as specific concerns. The conventional wisdom among economists

contends that government deference and protection of property rights are an essential ingredient

to economic development, and that strong regimes for property rights positively define an

economic system and determines the success of an economy by promoting specialization and the

division of labor through voluntary and protected exchange (Barzel 1989, Hayek 1948, North

1990, Von Mises 1920). Further, it is presumed that institutional soundness of property rights

will strengthen financial capital markets and increase access to credit (De Soto 2000, North

1990).

Robust property rights, it is argued, lead individuals and firms to fully internalize the costs

and benefits of their use of an asset, resulting in resources being employed in the most socially

efficient way, while decreasing the costs associated with protection of one’s property from legal

contest or criminal depredation (Demsetz 1967, Milhaupt & West 2000). Finally, it has been

shown that there is a positive relationship between the strength of property rights and the

development of states, in terms of economic prosperity and political inclusiveness (De Soto

2000, Knack & Keefer 1997, North 1990).

Conversely, state expropriation and nationalization of private enterprises have a deleterious

impact on the condition of property rights (Acemoglu & Johnson, 2005). It is generally accepted

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that nationalization represents the “compulsory transfer to the State, by virtue of legislative or

executive act of a general and impersonal character, of private property or activities” (Francioni

1975). Advocates for nationalization policies maintain that it’s an essential prerogative of the

state to guarantee its sovereignty and social welfare. Critics, on the other hand, argue that such

policies impede upon the supposed inviolability of private property rights in an industrious

economy and just society (Arsel et al. 2012). Nevertheless, the authority and proclivity of the

state to nationalize private assets is negatively linked to the legitimacy of property rights within

that economy, as these boundaries represent the power distributions between private parties and

the state (Acemoglu & Johnson 2005).

Therefore, an overly ambiguous and profuse application of nationalization policies can

deteriorate the legitimacy of overall property rights. So where the state is less constrained by

institutions of property rights, the ability to execute and enforce contracts is diminished, and the

economy suffers as a result (Clague et al. 1999, North 1990). Countries with fewer constraints on

the state’s capacity to expropriate property have substantially lower income per-capita, lower

investment rates, and have less access to credit (Acemoglu & Johnson 2005). Hence, the IMF

and World Bank’s pessimistic outlooks toward Bolivia’s economic position.

The “Petro-Political Cycle” and Resource Nationalism

In both economic and political terms, command of Bolivia’s hydrocarbon resources

represents the most important facet of Evo Morales’ nationalization agenda (Kaup 2010). Sitting

atop the second largest proven reserves in South America, and owing to its strategic geographic

advantage, Bolivia is the largest exporter of natural gas on the continent (Assies 2004). As a

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result of export-oriented neoliberal reforms, government policies throughout the late 1990s and

early 2000s attracted foreign oil and gas exploration companies (Lay et al. 2008). Bolivia’s

proven gas reserves increased by ten-fold during this period, with foreign investors committing

$3 billion to the hydrocarbon sector from 1997 to 2005 (Acuna 2009).

Because the typical market price of oil and gas is much higher than the cost of production,

governments are usually able to collect large economic rent from hydrocarbons relative to other

sectors (Vivoda 2008). By scrutinizing the interactions between host-nations and oil companies

operating in the Middle East, Stevens (2008) demonstrates a long-term ebb and flow of resource

nationalism and privatization among petroleum-rich developing nations, with the respective

power positions between state and industry determining the level of economic rents that will be

levied. Bargaining between private interests and the host-government determines the value of

these rents, with the relative balance of power between these two parties exhibiting a cyclical

pattern depending on various market forces (Stevens 2008).

Grosse (1989) explains that industry competition and price play the most significant role in

determining the negotiating leverage between industry and state. The bargaining position of

private interests increases where fewer competitors are able or interested in participating, which

explains the observable acquiescence on the part of states during periods of industry

consolidation (Grosse 1989). Increased oil prices, on the other hand, typically positions host

countries to raise taxes or renegotiate the terms for extraction. Accordingly, rising oil prices are

usually accompanied by the political phenomenon of resources nationalism in developing

countries (Walde 2008).

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The fluctuation of power positions between industry and state is described as the petro-

political cycle (PPC), which oscillates between cooperative and combative phases (Wilson,

1986). Recognized as a cooperative period of the PPC, the last two decades of the 20th century

were characterized by broad privatization of the hydrocarbon sector in the developing world.

During this same period of the PPC, Stanislaw and Yergin (1993) stated that “economics is

taking precedence over politics,” and provided four contributing factors: confidence in the

sovereign control of resources on the part of governments; the need to increase productivity as a

result of decreasing oil prices; risk aversion on the part of states; and the prevailing inclination

toward privatization as prescribed by the neoliberal agenda.

Subordinate to the notions of PPC is the resource nationalism model, which embodies efforts

by resource-rich countries to “shift political and economic control of their energy and mining

sectors from foreign and private interests to domestic and state-controlled companies” through

either direct expropriation of property or involuntary renegotiation of existing contracts

(Bremmer & Johnson 2009). However, turning the cause-and-effect assumptions of PPC on its

head, the resource nationalism model states that commodity prices may rise as a result of market

pessimism about supply growth caused by state expropriation and nationalization (Bremmer &

Johnson 2009). In their review of the latest commodity boom, Bremmer and Johnson (2009)

explain that resource nationalism facilitated the rise in oil and gas price from 2005 to 2009.

However, with the international economy slowing and demand for oil and gas dwindling, a

sustained period of weaker prices will swing the bargaining power back to multinational

extraction firms (Bremmer & Johnson 2009).

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In addition to the PPC, Vernon (1971) provides the “obsolescing bargain model” (OBM) as a

means for comprehending the interactions between host-country governments and the private

companies that conduct extraction of natural resources. In market conditions that initially favor

multinational enterprises, OBM demonstrates that over time fixed assets of a private interests

will necessarily increase, shifting the bargaining power to the government (Vernon 1971). The

dynamics of Vernon’s OBM has been credited with explaining the prevalent expropriation and

nationalization of private hydrocarbon interests in the developing world during the 1970s, and

are considered to be a contributing factor toward the reversal of privatization across Latin

America in the late 1990s and early 2000s (Vivoda 2009).

Studying the constraints of extraction-led development in Bolivia, Kaup (2010) finds that the

market conditions for oil and gas that characterized the late 1990s and early 2000s, a period that

saw the greatest increases in investment and extraction in this sector, lent to an advantageous

bargaining position for foreign-owned companies. However, by 2005 the conditions in the global

energy market shifted both the PPC and OBM dynamics against industry in favor of the Bolivian

state, which directly coincided with the burgeoning political revolution led by Evo Morales and

subsequent resource nationalism (Kaup 2010).

Resource nationalism, which defines the propensity of governments to assert control over

natural resource, can present political risks for governments, as it may deprive them of the

foreign equipment and competence they require to grow or maintain the production and income

streams they require for lasting subsistence. Bremmer and Johnson (2009) caution that “so long

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as prices remain high, governments can extend international influence and sustain popularity

[…] but when prices begin to fall and the cash cow begins to lose weight, resource-drunk

politicians may face, or produce, serious local and regional instability.” Specifically citing the

Morales government’s dependence on oil and gas revenues to finance politically vital social-

welfare programs, the authors conclude that a severe drop in commodity prices could dash the

prospects for a hydrocarbon-led economic boom and contribute to political volatility (Bremmer

& Johnson 2009).

Privatization and Social Welfare

The current diminutive status of property rights in Bolivia can be attributed in large part to the

sweeping program of privatization that occurred during the country’s neoliberal period and the

resulting social upheaval that provoked government seizure of private assets (Kohl & Farthing

2006). In the opening years of economic reform, the International Monetary Fund and the World

Bank touted Bolivia as a triumph for neoliberalism, having steadied the economy, boosted

exports, and conquered inflation. However, whereas the proponents of the neoliberal agenda

presented the reforms as a path toward political liberalization and economic growth, the Bolivian

experience, especially with regard to privatization, was one of government subterfuge and social

distress (Kohl & Farthing 2006).

Observing the primary stages of neoliberal reform in Bolivia during the late 1980s and early

1990s, Kohl and Farthing (2006) revealed that in implementing the privatization of natural

resources and public services the Bolivian government used a complex program of coercion in its

engagement with the popular classes. Bolivian president Sanchez de Lozada vowed that

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privatization would "attract international investors to Bolivia, fuel economic growth, and create

hundreds of thousands of jobs.” But new jobs never emerged, income distribution worsened, and

the economy remained stagnant (Kohl & Farthing 2006). In a defense of the Bolivian states’

program of nationalization, Stiglitz (2006) contends that privatization of oil and gas lacked

transparency. Ambiguous contracts between extraction companies and the state resulted in

Bolivian citizens losing-out on subsequent returns, with foreign multinationals having invested

just $3 billion in the local economy to secure an 82% share of revenues from hydrocarbon

reserves estimated at over $250 billion (Acuna 2009). Consequently, the privatization policies

that resulted in such an uneven distribution of ownership and income can be attributed to the

political and economic upheaval that subsequently overtook Bolivia (Stiglitz 2006).

Analyzing the relationship between economic policies and political conflict, Alesina and

Rodrik (1994) find that policies for boosting economic growth are “optimal only for a

government that cares solely about pure capitalists” and determined that the vaster the disparity

of ownership and income, the lower the economic growth. The authors conclude that there will

be “strong demand for redistribution in societies where a large section of the population does not

have access to the productive resources of the economy” and that “inequality is conducive to the

adoption of growth-retarding policies” (Alesina & Rodrik 1994). Reviewing income distribution

and political instability, Alesina and Perotti (1995) analyzed a sample of 71 countries to

demonstrate that income inequality, by encouraging social discontent, amplifies the socio-

political volatility of a country. The latter is manifest by “increasing the probability of coups,

revolutions, mass violence or, more generally, by increasing policy uncertainty and threating

property rights, which has a negative effect on investment and, as a consequence, reduces

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growth” (Alesina & Perotti 1996). Thus was the case in Bolivia, where income inequality and

economic growth demonstrated an inverse relationship (Kohl & Farthing 2006).

Property Rights and Legitimacy of the State

Regarding property rights and resource allocation of developing states, Besley and Ghatak

(2010) observe that issues of nationalization and property rights are not exclusively a matter of

economics, but are largely the result of underlying political conditions. Evidence supports the

inevitable necessity of property rights for advanced economic development, but its feasibility as

a social institution will be problematic where political development has not advanced to a point

in which government has the legitimacy to establish the requisite legal framework (Besley &

Ghatak 2010). Additionally, Van de Walle (1995) maintains that property rights will not emerge

extemporaneously, but are born from a state-society relationship where the government is

regarded as a rightful arbiter of its citizens.

As such, at the foundational stages of development, it’s been argued that less energy need be

spent on institutionalizing property rights; not because it’s an unnecessary economic factor, but

because its long-term sustainability would be precarious if sociopolitical institutions remained

fragile (Åslund 1994). Moreover, while macroeconomic stabilization and price stabilization

demand close attentiveness on the part of developing states, privatization need not be rushed, as

issues of property rights are complicated, take time to evolve, and requires a well-established

judicial system (Åslund 1994).

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Haggard and Kauffman (1995) explain that “economic liberalism and political democracy

may be in conflict for countries at certain stages of growth” for two distinct reasons: social

displacement and increased economic disparities that are characteristic of early stages of

development. Highly disparate allocation of property and earnings, especially between urban and

rural populations, become the basis of conflict between democracy and capitalism, “increasing

the likelihood of either revolution or reactionary political outcomes” (Haggard & Kauffman

1995).

Moreover, devoid of a stable economy it’s unlikely that institutions of representative

governance will achieve lasting durability (Van de Walle 1995). An interim regime type, with

the necessary executive discretion, may be needed to set the required economic foundation for

political reform. Thus, initial political composition of a state will not necessarily distinguish the

success or failure of economic development. Van de Walle (1995) describes what he calls the

“developmental state,” a manifestation of civic and state collaboration that can emerge under

both authoritarian and democratic regimes, where sociopolitical stability is primarily the result of

rapid economic development, not the mode of governance.

Thus, by focusing so intently on the status of property rights in Bolivia, at the apparent

detriment of other significant institutional development, pro-liberalization interests like the IMF

and World Bank may actually retard the very economic and political stability they aspire to.

Furthermore, while the illiberal approach of the Bolivian government may run counter to the

principles of these international organizations, the hegemony of the state can act as a stabilizing

force during these immediate stages of development.

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II. Bolivia’s Journey from Neoliberal Reform to Resource Nationalism

Bolivia’s current political and economic order can be attributed to a tumultuous series of

government reforms carried out over the past three decades. Beginning with its shift from

military to democratic rule in 1982, this period has seen dramatic shifts in Bolivia’s political and

economic foundations. Like many of its Latin American neighbors in late 1980s and early 1990s,

Bolivia was prompted by a combination of domestic unrest and international economic shocks to

remodel its political and economic system.

As such, the case for this analysis commences in the 1980s, with Bolivia’s economic crisis

and the period of neoliberal reforms that immediately followed. At the start of the 1980s, often

called Latin America’s “lost decade,” Bolivia confronted a severe debt crisis plaguing many of

the economies in the region. Like many of its neighbors, the origins of the Bolivian crisis were

rooted in the increased public borrowing during the 1970s petrodollar boom, a rise in interest

rates against US dollar-denominated loans during the late 1970s, and the corruption of the

country’s military government. Beginning at the latter end of the 1980s, Bolivia underwent

considerable political and economic reform characterized by a massive shift of power and

resources from the state to the market, a process by which technocratic swiftness took

precedence over broader political discussion (Jemio et al. 2009, Kohl 2002).

The privatization of state-owned enterprises that commenced during this period of reform

would ultimately trigger massive popular opposition across Bolivia against the neoliberal

program during the 1990s, and the decade that would follow was essentially a full opposing

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swing of the pendulum (Jemio et al. 2009). Spurning the neoliberal socioeconomic rationales for

privatization and property rights, the Bolivian state has since undertaken a significant

renationalization of domestic resources and industries that were privatized during the neoliberal

era. Moreover, the country’s right-of-center regime has been replaced by a far-left socialist

government and a new constitution that authorizes future nationalization of property where it

serves the “collective good” (U.S. Department of State 2012).

The Washington Consensus and Bolivia’s Neoliberal Period

When several Latin American economies collapsed under hyperinflation and over-

indebtedness triggered by the debt crisis of the 1980s, the World Bank, IMF, and the U.S.

Department of Treasury intervened. However, emergency financial aid and loan packages were

structured in such a way that relief was contingent upon specific policy reforms. Popularly

codified in 1990 by economist John Williamson, the Washington Consensus represented a set of

neoliberal policy prescriptions meant to stabilize the region’s economies during this period.

Due to the economic shock of the early 1980s, reform was considered absolutely necessary by

both the Bolivian government and international bodies. Under unrelenting macroeconomic strain

the Bolivian currency collapsed in 1982, precipitating a steep fall in the price of commodity

exports and 9.2% decline in GDP. Bolivia’s authoritarian government would also be dissolved in

1982, ceding power to the country’s previously elected president, Hernan Siles. By 1985

hyperinflation was fully realized. Unable to consolidate enough political support for economic

reform, Siles was forced to leave office a year before his term was scheduled to end (Valenzuela

2004). The annual rate of inflation reached 20,000% and persistent deterioration of export prices

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pushed Bolivia toward the brink of insolvency and placed their financial survival at the mercy of

World Bank and IMF provisions, whose monetary contributions were conditional on a series of

neoliberal structural adjustments (Waisman 1999).

Neoliberal reforms were accepted as essential to spurring economic growth and the broader

goal of fostering sustainable democratic states in Latin America (Rodriquez 2010). Most

governments in the region believed that as long as political resistance to the adoption of said

reform could be overcome, normally by swiftness of action (“shock therapy”), the Washington

Consensus policy prescriptions could solve their current crises of over-indebtedness and

hyperinflation, and ultimately prove effective in growing their economies (Ocampo 2004).

The application of neoliberal policies in Bolivia were unexceptional in their emphasis on

opening the country to international capital markets, privatization of traditionally state-owned

firms, freeing the fixed exchange rate, and a reduction of deficit spending by government.

However, second only to Chile, the speed and depth of Bolivian reforms were considered the

most radical in Latin America (Acuna 2009). Market restructuring was preceded by substantial

political democratization, which was cause for significant social tensions coupled with

administrative challenges (Waisman 1999). Bolivia’s government initially sought the democratic

consent of its people to accomplish neoliberal restructuring. But as reforms became stymied by a

burgeoning opposition, whose political influence was bolstered by democratic liberalization, the

state became increasingly reliant on coercive methods to implement their policies (Kohl 2006).

The discordancy produced by the external influence of international stakeholders and increasing

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domestic political resistance would eventually fracture the legitimacy of Bolivia’s neoliberal

project (Kohl 2006).

In 1985, under newly elected president Victor Paz, the Bolivian government enacted by

presidential decree the first phase of neoliberal reforms. In a prototypical application of “shock

therapy,” Supreme Decree 21060 sought an end to protectionist policies with a winding-down of

import substitution industrialization, privatization of enterprises controlled by the state

(including the closure of state-owned mines and a resultant loss of over 50,000 jobs), further

sanctioning of inward FDI, and – essentially forfeiting the sovereignty of their monetary policy –

pegging their currency to the US dollar (Sachs 1987). The policies were apparently effective in

the short-run, as inflation dropped to an astonishingly low rate of 11% by 1987.

The welcomed stability provided by neoliberal reform, after nearly two decades of military

rule and three years of devastating hyperinflation, appeared to alleviate the apprehensions of

enough Bolivians to remain politically viable. From the establishment of the supreme decree in

1985 until the election of Gonzalo Sanchez de Lozada in 1993, neoliberalism was the established

form of economic governance in Bolivia. Beginning with Lozada, however, the legitimacy of

Bolivia’s neoliberal project began to unravel.

Central to the Lozada government’s plan to further broaden the reach of neoliberal reform

was “The Plan for All” (El Plano de Todos). The plan was composed of four major reform

initiatives that involved education, privatization, localization of government accountability, and

land reform. All four of which were met with significant opposition and little to no net gain

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(Kohl 2006). Education reforms instituted bilingual instruction and emphasized labor skills

necessary to participate in the global marketplace. But the new policies resulted in the

mobilization of irritated and mistrustful unions, as they considered the centrally assigned

directives a direct challenge to their own influence (Kohl 2006). Privatization of state-owned

energy resources occurred under a scheme of capitalization, where the government maintained a

majority stake in the firms, but sold remaining interests to international investors. Here, the state

ostensibly relinquished an essential source of government revenue, realizing only modest

benefits to the wider economy, while triggering extensive social unrest (Kohl 2006). Moreover,

bestowing local municipalities with a 20% share of state revenue, the central authorities

envisioned that localization of government administration and services would result in efficiency

gains. This may have been. However, the unintended consequence was the strengthening of rural

political parties and actors (such as Evo Morales) that would eventually challenge the urban

neoliberal elites (Kohl 2006). Finally, land reform measures were taken by the Bolivian

government to reorganize land resources around a commercial model of ownership. Whereas,

prior to reform, land ownership was conferred to those who physically worked the soil,

ownership was now obtainable through commercial purchase and guaranteed by the remittance

of property taxes. The subsequent concentration of private land holdings encouraged further

political opposition from a growing faction of landless peasants (Kohl 2006).

Nevertheless, by preserving relative order and containing inflation the Lozada administration

was able to maintain the fragile legitimacy of neoliberal doctrine (Kohl 2006). But a series of

fateful events would overwhelm the government’s ability to maintain the hegemony of their

neoliberal project. In 1999 the Argentine economy and currency collapsed, a noteworthy event

22  

for Bolivia as Argentina absorbed surplus labor and provided a significant source of repatriated

funds. During this same period the Bolivian government was cracking down on the illegal coca

industry, which further exacerbated unemployment in the informal labor market. It was in this

precarious setting that a provocative series of government privatization agreements triggered

massive social backlash against neoliberal reforms (Assies 2004).

“Social Convulsion” Against Privatization

The point of departure for Bolivia’s renationalization program did not commence with the

election of Evo Morales in 2005, but goes back to what has been called the “social convulsion”

that began during the late 1990s in response to privatization reforms (Assies 2004). Gaining

national prominence during the “water war” in Cochabamba in early 2000 and climaxing during

the “gas war” of 2005, a powerful social movement would rise from street demonstrations

against privatization and set the political stage for Evo Morales’ election and subsequent

programs of renationalization.

In the late 1990s, the World Bank began urging the administration of Bolivian president Hugo

Banzer to privatize the state utility company SEMAPA as a condition to the bank’s continued

financial assistance. Policy guidance from the World Bank regarding the expansion of water

delivery service, including the construction of a dam to supply the Cochabamba Valley, provided

an outline for privatization. Citing water service in La Paz and Cochabamba specifically, in 1999

the Bank demanded that SEMAPA restructure utility rates to operate on a “full cost recovery”

basis, meaning that government could no longer subsidize water (La Fuente 2003). On the

recommendation of the World Bank, SEMAPA was privatized in 1999, with the water

23  

consortium Aguas del Tunari attaining a majority stake of shares. As part of the contract, Aguas

del Tunari agreed to complete the financing of several expansion projects underway at that time

and to settle $30 million of debts accumulated by SEMAPA. To meet these obligations, water

rates immediately rose on average of 35% to about $20 per month upon completion of the deal.

Those who could not pay had their water shutoff. Given that a typical customer’s monthly

income was about $100 a month, many Bolivians could not afford the price increase and lost

water service, triggering widespread outrage from both urban and rural populations across

Cochabamba (Finnegan 2002).

Privatization of the water utility, and the subsequent rate hikes and service shutoffs, had the

effect of uniting disparate social groups against Aguas del Tunari and the Banzer government.

Professional associations, trade unions, peasant farmers, environmentalists, and neighborhood

organizations coalesced to form the Coordinadora de Defensa del Agua y de la Vida (Coalition

in Defense of Water and Life), which immediately began organizing massive street

demonstrations (Finnegan 2002). Demonstrations in Cochabamba began in January 2000, with

protestors blockading the streets to traffic and filling the city’s main plaza. A general strike was

also organized, essentially halting all business. Protests grew more violent as police clashed with

activists, and beginning in early February authorities began using tear gas and making arrests.

After hundreds of arrests and almost as many injured, clergy from the Catholic Church attempted

to mediate between the government and the protestors, which restored order for a short while

(Schultz 2003).

24  

Under The Coalition in Defense of Water and Life, activists organized a referendum on the

issue, resulting in 96% of its 50,000 participants demanding the annulment of Aguas del Tunari’s

contract. The Bolivian government ultimately rejected both the legitimacy and outcome of the

referendum, instigating a new round of demonstrations beginning in April 2000 (Finnegan 2002).

These protests were more violent and widespread, with mass demonstrations occurring in

Cochabamba, La Paz, Oruro, and Potosi. With most of the major Bolivian highways blocked,

and several police units refusing to confront the protestors, president Banzer declared a “state of

siege” on 8 April.

The president’s emergency decree forbade any form of public protest, established a national

curfew, and allowed for the detainment of activist leaders. When soldiers joined the police in

disbanding remaining protesters, several demonstrators were shot and at least one was killed

(Finnegan 2002). Informed by the police that their safety could no longer be guaranteed, the

executive officers of Aguas del Tunari fled Cochabamba to Santa Cruz, providing the

government an opening to bring an end to the conflict (Blackwell 2002). Stating the executives

had abandoned their concession per the original agreement, the Bolivian government rescinded

Aguas del Tunari’s contract. Though a prolonged settlement process with the company would

follow, the protestor’s demands would ultimately be met, as Bolivia’s renationalization of the

water utilities was carried out by the state (Blackwell 2002, Jemio et al. 2009).

However, just as the country’s water war was coming to the terms of a truce, the opening

salvos of the “Bolivian gas war” were being fired. In 2004, Bolivian natural gas reserves were

estimated to exceed 50 trillion cubic feet, the largest in South America, making the hydrocarbon

25  

industry the most valuable sector of the Bolivian economy (Assies 2004). Yet as a result of the

neoliberal policies enacted during the 1980s and 1990s, the Bolivian state’s role in the

hydrocarbon sector was radically curtailed. The national oil company, Yacimientos Petrolíferos

Fiscales Bolivianos (YPFB), underwent several incremental phases toward privatization during

this period.

In accordance with Bolivia’s 1985 loan agreement with the IMF, the government was to cease

any new capital investment toward state-owned enterprises. As the energy sector is a capital

intensive industry, this pledge undermined the state’s ability to support and maintain its primary

source of revenue, the YPFB (Kaup 2010). The state’s inability to provide new investment for

the YPFB resulted in decreased efficiency and productivity in the hydrocarbon sector. Under

renewed pressure from the World Bank and IMF, Bolivia passed both the Law of Investment and

Law of Hydrocarbons in 1990, which allowed for private contracts of operation and investment

between YPFB and transnational energy firms (Assies 2004). To attract foreign investors the

legislation relaxed price controls and set a framework for private-public joint ventures in the

energy sector. The significant increase in private investment resulted in greater exploration and a

600% increase in Bolivia’s estimated natural gas reserves. However, the contracts for extraction

and export of Bolivian natural gas significantly favored private transnational firms over the state

(Jemio et al. 2009).

Perhaps the most substantial reform affecting state control of hydrocarbon resources was a

result of the “Plan de Todos” introduced by president Lozada. Seeking to remove the state

entirely from direct participation in all commercial ventures and investment, the plan’s 1996 Law

26  

of Capitalization directed the privatization of Bolivia’s publicly held industries. The scope of the

law’s mandate included the state’s divestiture in railroads, telecommunication, air transportation,

electricity, and hydrocarbons. As a result, YPFB was partitioned into three subdivisions, and a

majority position for each piece was auctioned off by the Bolivian government in what was

called a “garage sale of national patrimony” (Assies 2004, Kohl & Farthing 2006). Though the

selloff was worth more than $500 million, rather than making a cash payment directly to the

Bolivian treasury, the new owners agreed to reinvest equivalent future earnings back into their

respective operations (Jemio et al. 2009, Kohl 2002). Therefore, the state received no direct

financial compensation from the transaction.

As private firms brought new projects online, productivity increased as expected, and within

three years natural gas extraction was up 200%. However, even with increased production across

the sector, government revenues derived from the hydrocarbon industry actually dropped, as

taxes and royalties were reduced from 50% to 18% of returns (Gustafson 2010, Kohl 2002,

Perreault & Valdivia 2010). Moreover, as the price of gas was now indexed to the international

markets under the new legislations, the cost for energy within the domestic market increased by

over 50%, placing a considerable economic burden on the Bolivian population (Assies 2004,

Kohl 2002).

As production increased, a transnational consortium called Pacific LNG began drafting plans

to export Bolivia’s natural gas to North American energy markets. Through a joint venture

between British Petroleum, Repsol (Spain), and Petrobras (Brazil), the company planned a $6

billion pipeline from Bolivia to the Chilean port of Mejillones, where the gas would be processed

27  

and shipped to the United States and Mexico. Though it never received official approval from the

Bolivian government, the pipeline was endorsed by president Lozada shortly after he retook

office in 2002, prompting immediate opposition across the country (Assies 2004).

Instigated in part by popular opinion over the historic rift between Bolivia and Chile over the

War of the Pacific in 1879, in which Chile gained territorial control over Bolivia’s coastal access

to the Pacific Ocean, the country’s community organizations, unions, and indigenous population

united again to challenge the government’s privatization policy (MacDonald & Butler 2012).

Sponsored by the MAS political party and its presidential frontrunner, Evo Morales, the

Coordinadora de Defensa del Gas (Coalition for the Defense of Gas) emerged in 2003. Aside

from the dispute with Chile regarding sovereign access to the Pacific, the coalition criticized the

financial terms of the pipeline contract, which would have paid nearly 50% less per BTU (British

Thermic Unit) than Bolivia’s current contract with Brazil – a contract that was also believed to

be inequitable (Assies 2004, Kohl 2002).

Emulating the opposition to privatization of water in Cochabamba, the MAS demanded a

national referendum on the issue and declared a “Gas War” in August 2003. Mass street

demonstrations against the pipeline were quickly organized and the highways leading into La

Paz were blockaded. Wishing to avoid the national crisis from two years prior during the Water

War, the government dispatched military forces in September 2003 to regain control of the

highways, resulting in the deaths of at least 50 people over a four week period (Assies 2004,

MacDonald & Butler 2012). Facing massive levels of popular condemnation and social unrest as

28  

a result of his government’s response, president Lozada resigned the presidency on October 17

2003.

Lozada’s vice president, Carlos Mesa, ascended to the presidency and quickly engaged with

Congress to pass legislation that would grant direct referenda on the nationalization of Bolivia’s

hydrocarbon industries (Jemio et al. 2009). In addition to renationalizing the hydrocarbon

industry, the referendum reestablished the state’s authority to fund YPFB capital investments,

and called for increased taxes levied on foreign-operated petroleum companies (Acuna 2009,

Kaup 2010). However, as the government was either unable or unwilling to implement the

referendum’s mandate through concrete legislative mechanisms, anti-government protests were

rekindled and president Mesa was forced to resign in June 2005 (Kaup 2010).

Evo Morales in Power

With no politically viable candidates to replace Mesa in the presidential line-of-succession,

one of the country’s Supreme Court justices was named the provisional president until elections

could be held. Having acquired immense popularity during the gas dispute, Evo Morales ran a

focused campaign against the inequities of privatization, and won the presidential election in

December 2005 (MacDonald & Butler 2012).

Morales and the MAS party captured 54% of the popular vote, with an astonishing 84% voter

participation rate. Morales’ electoral victory was the first in four decades to capture an absolute

majority at the national level in Bolivia (Webber 2011). Often compared to the election of

Nelson Mandela to the presidency of South Africa in 1994, Morales’ victory was also significant

29  

in that he was the first indigenous Bolivian elected to lead a nation where 62% are identified as

indigenous peoples (Harten 2011).

Despite concerns raised by his detractors, it is said that Morales and the MAS have pursued a

“third way” with regard to Latin American politics, blending the policies of “social justice”

inspired by Venezuela under the late Hugo Chavez with the fiscal pragmatism observed in Chile

under president Bachelet (Touraine 2007). His populist rhetoric on the subject aside, many

economists have observed that Morales has not implemented significant structural economic

reforms (Farthing & Kohl 2014). Introduced in June of 2006, the administration presented the

National Development Plan (NDP), its strategy for political, economic, and social

transformation. The NDP expanded upon social-democratic social protection policies. But the

policy agenda fundamentally abided by Bolivia’s prior neoliberal economic model disciplined

exchange rates and monetary pragmatism (Webber 2011). Perhaps an illustration of the political

hybridity of the NDP, after its initial unveiling it was attacked from the right as “ready for the

garbage can of good intentions” and admonished from the left as representing a “continuation of

failed neoliberal policies of the past” (Molina 2010). However, the NDP did depart from the

neoliberal policies of the prior governments with regard to the renationalization of Bolivia’s

natural resources. Primarily focused on hydrocarbons (specifically the country’s vast reserves of

natural gas) as a strategic resource essential to new government’s development program, the

NDP laid the basis for subsequent reversals of earlier privatization policies (Molina 2010).

Consequent decrees to the NDP called for the renationalization of railroads, electricity,

mining, telephones, and at least one foreign-own manufacturing plant (Sivak 2010). The Morales

30  

government would not, however, truly nationalize the hydrocarbon industry. At least not in the

classic definition of the term, where assets are expropriated by the state (Molina 2010). Instead,

the provisions of existing contracts between the government and foreign oil and gas companies

would be amended to the benefit of the Bolivian state. The Morales government instituted

Supreme Decree 2870, unilaterally modifying more than 40 extraction contracts with the major

petroleum companies operating in Bolivia; including British Petroleum, Repsol (Spain), Total

(France), and Petrobras (Brazil) (Vargas, 2007). Where the terms of these contracts had

previously defined an 82:18 profit sharing ratio to the advantage of corporations, the split was

reversed so the state would receive 82% of profits (Harten 2011, Webber 2011). By comparison

to the previous arrangement, in which hydrocarbon extraction resulted in $173 million of state

revenues at their peak in 2002, the Bolivian government would receive $1.3 billion in 2006

(Webber 2011). However, critics point out that the investment rate as a percentage of GDP

dropped by more than 40% by the end 2006 and with the exception of direct intervention in the

form of government spending, foreign and domestic investment has remained largely stagnant

relative to GDP since (Jemio et al. 2009, World Bank 2014).

Nevertheless, the Bolivian state’s control over hydrocarbon resources was made permanent in

the 2006 Constitution. Articles 351 and 348 of the new constitution mandate state authority over

the exploration, extraction, and all manner of transportation and marketing of the country’s

natural resources (Jemio et al. 2009). Further, the articles’ definition of natural resources was

written so ambiguously as to include any physical element – including the electromagnetic

spectrum – containing potential utility for the Bolivian economy (Jemio et al. 2009).

Consequently, the Morales regime has asserted its new powers under the constitution to

31  

administer a program of sweeping nationalization over the Bolivian economy. Below is a partial

list (Figure 4) of the major private interests across several key sectors of the economy that have

been nationalized since Evo Morales became president.

Figure 4. Major firms nationalized in Bolivia since 2006

Criticism of Morales

The World Bank’s Doing Business report (2014), which attempts to measure the effect of

local business regulations on specific national economies, provides a bleak assessment of the

Bolivian state, ranking it 157 out of 189 economies considered, citing the issue of insecure

property rights and contract enforcement as specific drivers of its negative outlook for the

Bolivian economy (World Bank 2014). Echoing concerns expressed by the World Bank, the IMF

(2014) has also identified the status of property rights as the central point of apprehension toward

Bolivia’s long-term economic potential.

The IMF (2014) Staff Report on Bolivia, which was prepared in conjunction with bilateral

consultations between the organization and the Bolivian government, observes that collaboration

Company/Owner Bolivian Interests Year

All Bolivian Oil and Natural Gas Reserves* Energy extraction/distribution 2006

Glencore International AG Mining/smelting company 2007

Entel / Telecom Italia Largest telecomunication company 2008

Corani / Ecoenergy International Power generating company 2010

Guaracachi / Rurelec PLC Power generating company 2010

Valle Hermoso / Panamerican de Bolivia Power generating company 2010

Empresa de Luz y Fuerza de Cochabamba Electricity distributor 2010

Transportadora de Electricidad / Red Eléctrica  Largest electrical power grid operator 2012

South American Silver Mining/smelting company 2012

Bolivian Airport Services SA Management of 3 largest airports 2013All extraction contracts in Bolivia rewritten in the state's favor; major firms included were Brazil's Petrobras and Spain's Repsol. 

32  

between the public and private sectors would be indispensable to long-term productivity and

diversification of the country’s largely natural resource-based economy, cautioning that Bolivia’s

current business climate lacks the legislative and judicial securities necessary for significant

private partnership and investment. As such, the IMF advises that Bolivia ought to develop

“stable rules of the game” regarding the treatment of property rights to clearly demarcate the

state’s role in the economy so that “private sector risk may be evaluated and minimized” (IMF

2014).

In an official response that accompanies the IMF report, Bolivian officials contend “there is

no uncertainty for private investment,” as the security of private property and investments are

guaranteed in the country’s 2009 constitution. Written nearly exclusively by Morales’ MAS

party members, the new constitution does contain language that expresses the right to private

property. However, the same article that describes those rights also states that proprietorship of

property is contingent upon its service to a “social function” for the “collective good,” and

subsequent language grants expropriation rights to the state should those collective purposes be

deemed unfulfilled (US Department of State 2012).

Skeptics cite constitutional vagaries such as this, along with the temperamental rhetoric of

President Morales, as evidence that Bolivia’s path toward sustainable economic development is

untenable (Achtenberg 2012, Zissis 2006). Bolivia’s positive economic performance in recent

years notwithstanding, Western pessimism toward its economic viability seems to hinge largely

on the country’s nationalization policies and an inability – or refusal – to establish a legitimate

regime for property rights.

33  

There has also been continued anxiety among the political opposition in Bolivia, who

observed a drastic change in the manner by which the political process has been managed under

MAS (Molina 2010). Critics argue that when MAS is unable to make gains through regular

democratic procedures and institutions, they turn to their social and regional allies to agitate for

change via massive demonstrations in the streets. Further, the minority political parties are

regularly discredited by MAS, and the Bolivian political system that traditionally relied on

coalition governance and comity between representatives is now described by the opposition as a

zero-sum hegemonic rule on the part of the MAS majority (Molina 2010).

The national referendum resulting from the gas war was significant in that it represented a

shift toward direct democratic governance (Jemio et al., 2009). In 2006, a constitutional

amendment institutionalized this tool for direct democracy and authorized referenda on national,

regional, and local policy questions. The referenda process for constitutional amendments would

still require congressional endorsement. However, the 2009 Constitutional referendum, in which

61% of voters approved of a constitution largely drafted by MAS stakeholders, bypassed the

requirement for a two-thirds congressional supermajority, preventing political and regional

opposition from offering amendments through appropriate democratic processes. As a result, the

capacity for coalition governance under a political party system has been weakened (Jemio et al.

2009). Latin American political analysts have acknowledged that the process by which the

constitution was ratified diminished the overall standing of popular democratic representation in

Bolivia (Molina 2010).

34  

Bolivia’s Current Economic Status

The Bolivian economy remains highly reliant on the country’s abundance of natural

resources, with natural gas and petroleum products (44%) and mined metals and ores (33%)

comprising the majority of Bolivian exports (Haussmann & Hidalgo 2009). Further, Bolivia is

still one of the most impoverished and underdeveloped states in Latin American, with a gross

national income per capita of $2,550 and 24% of Bolivians living beneath the poverty line

(World Bank 2013). However, due in large part to high commodity prices, Bolivia has been one

of the top economic performers in Latin America since the global recession of 2008, averaging

5% annual growth between 2009 and 2013 (IMF 2014).

Despite its hostility toward property rights, Bolivia has not regressed into the economic

shambles that characterized the state’s pre-neoliberal era. In fact, Bolivia’s economic statistics

have been some of the most impressive in the region for at least the past 5 years (IMF 2014).

Since the global economic crisis of 2008, Bolivia has largely outperformed the median economic

fundamentals of the region (Figure 1). The charts demonstrate that during this period Bolivia has

shown positive economic growth above its regional peers, while preserving low inflation rates.

Its economy has maintained advantageous terms of trade, as revealed by a consistently positive

current account balance, and has exhibited restrained fiscal policies in terms of government

borrowing relative the South American average.

35  

Figure 5. Comparison of economic indicators between Bolivia and South America (IMF 2014)

However, as suggested above, these economic performance indicators have not translated into

universal optimism regarding Bolivia’s future. The World Economic Forum’s (WEF) Global

Competitiveness Index (2014), which seeks to capture, measure, and score the “set of

institutions, policies and factors that determine the level of productivity of a country,” ranks

Bolivia as 105 out of 144 in terms of competitiveness, placing it in the bottom quartile of Latin

American economies. Explaining its poor outlook for Bolivia, the WEF report specifically cites

the renationalization of companies and services, recent policy fluctuations regarding state

jurisdiction over natural resources, and inadequate legal frameworks for the execution and

enforcement of public-private contracts (WEF 2014). As such, pessimism toward Bolivia’s

current developmental path is predominately fixated on the state’s nationalization policies and

the associated condition of property rights within its borders.

36  

III. How and Why Bolivia Upset the Neoliberal “Conventional Wisdom”

The diminished status of property rights in Bolivia is largely a product of the resource

nationalism agenda pursued by Evo Morales since 2006. Coming to power at a time of

widespread social unrest and a booming commodities market, the success enjoyed by the

Morales government has benefited from propitious timing. Dissatisfaction with the neoliberal

project established an unassailable political mandate for a program of nationalization, and ideal

market conditions have permitted its immediate economic viability.

How Windfall Revenues Trumped Long-term Prospects

Despite prevailing economic principles regarding the status of property rights to the contrary,

immediate financial incentives were a key factor that prompted Bolivia’s current program of

nationalization. Favorable conditions in the global hydrocarbons market were of particular

significance. Taking office at a time when the country was in an advantageous position over

industry, Evo Morales promised to nationalize Bolivia’s oil and gas. Energy prices were

increasing at a record pace by 2006 and market competition was expanding with new exploration

companies entering the industry, creating a peak bargaining position along the petro-political

cycle for the Morales government to successfully capture a much greater share of extraction rents

(Vivoda 2008).

However, aware of Bolivia’s dependence on regional trading partners and recognizing the

globalized neoliberal economy in which they were embedded, Morales proceeded judiciously

and pursued a policy of “nationalization without expropriation” (Kaup 2010). So instead of

37  

seizing the actual property of oil and gas companies, the Bolivian government unilaterally raised

the royalties and taxes it collected on hydrocarbon export revenues, increasing the state’s take

from $608 million in 2006 to over $1.6 billion by 2008. The nationalization resulted in lower

profit margins for companies but had little observable impact on the daily operations of the

industry (Kaup 2010). In turn, the Bolivian government effectively achieved control over the

country’s number-one-grossing export – hydrocarbon products – and has used the subsequent

revenues to stabilize the economy and finance social welfare programs.

Why the Neoliberal “Conventional Wisdom” Has Been Greeted by Social Backlash

In many ways Bolivia’s nationalization policy agenda, which has evidently weakened the

status of property rights, was in direct response to the erstwhile neoliberal agenda. The revival of

Bolivian political and economic institutions under neoliberal reforms was primarily concerned

with stability, with little regard given to matters of social welfare (Grugel & Riggirozzi 2012).

The rise of an elite political class coincided with declining living conditions and social

provisions for the general population, as more social services were privatized and public

spending on healthcare and education was reduced (Portes & Hoffman 2003). Indeed, political

tensions within Bolivia developed as the underprivileged majority, who may have been

apprehensive of state restructuring at the outset of reforms, discovered their fears of chronic

marginalization had been realized. Worse still, as the disparity between rich and poor grew,

people began to doubt neoliberalism both as a set of specific policies and as an ideology. Social

mobilization crystalized around the negative impacts of neoliberal policies, and as the state

diminished in scope and allocated its former duties to the private sector, it became less able to

address the emergent demands of indigent citizens. Increased costs of basic service and

38  

commodities, job losses and price hikes that accompanied privatization, and reductions in social

spending that resulted from austerity measures led to massive demonstration and violent clashes

between protestors and soldiers in the streets.

From a political perspective, demanding sovereign control over “communal assets” provided

a convenient and effective populist message for political actors in a resource-rich developing

state like Bolivia. Furthermore, the resulting increase in public revenues afforded political

powerbrokers ample resources to maintain their current support as well as the means to build

new constituencies (Vargas 2007).

To the detriment of neoliberal objectives in Bolivia, rapid privatization produced the socio-

economic conditions that served as a catalyst for reversing the status of property rights. The

neoliberal project was based on a theoretical premise of economic growth and political stability.

But reforms fell short in practical terms. The Bolivian people came to perceive economic

liberalization as a danger to social welfare, and the privatization of natural resources provided an

immediate and tangible grievance to organize and protest against. The turbulent social conditions

that resulted from neoliberal adjustments spawned a formidable political movement and brought

Evo Morales to power. Furthermore, as was argued above, at the very same time that domestic

upheaval against neoliberal reforms provided a convenient political opening for opposition

parties, various elements of the hydrocarbon sector were setting the ideal economic conditions

for nationalizing Bolivia’s hydrocarbon resources.

39  

IV. Conclusion

Under Evo Morales, the social unrest that plagued Bolivia at the turn of the century has

largely abated, and the current state of the economy is that of positive growth and rising equity.

The government’s program of nationalization, while apparently weakening the status of Bolivia’s

property rights, can be credited with the marked success of the current regime. Furthermore,

international observers have praised the state’s prudent management of subsequent windfalls in

revenue, with the World Banks’ local advisor remarking in 2014 that Bolivia “could mismanage

this opportunity, and the reality is they have not” (Neuman 2014). With respect to property rights

Evo Morales has recently intimated that his government’s policies of social-welfare would

embrace more orthodox economic policies. Speaking at his third presidential inauguration in

October 2014, Morales explained that “to guarantee economic growth you need public

companies,” but added “private property will be respected” (Merco Press 2014).

Reliable institutions of property rights are undeniably a positive contributor toward economic

development. If individuals and firms lack certain guarantees regarding the status of their assets,

it’s widely acknowledged that long-term investment, production, and economic growth may

suffer as a result. However, as this case study has attempted to demonstrate, when immediate

social conditions are such that economic benefits of those guarantees are dwarfed by widespread

inequity and resentment, the long-term viability of property rights becomes untenable. Therefore,

by promoting political and economic stability, Bolivian resource nationalism may paradoxically

confer the requisite social environment that eventually permits the sustainable institutionalization

of property rights.

40  

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