Latin America’s economies are strikingly under-taxed. Its governments, influenced by neoliberal economic policies to pursue competitiveness, have extracted little from their economies and rely on regressive taxes rather than taxing private wealth. Tasha Fairfield’s book not only brings Latin American cases—among the most unequal in the world—into the conversation about the democratic politics of wealth, it is also the single best study to date of the causal channels through which Latin American economic elites shape tax policy and thus how democratic governance is distorted by the influence of the wealthy.
Fairfield investigates how business power prevents tax reform, exploring variation across countries, sectors, and time in Latin America. Two distinct types of power are at work: the structural power that results from fear of adverse response to policy by economic actors, and the instrumental power that gives business the “capacity for deliberate political actions” (p. 28). The book shows that each, operating at various stages of the tax reform process, is sufficient to undermine the imposition of increased taxes on business. Based on more than 400 interviews in three countries (Argentina, Bolivia, and Chile) as well as the analysis of many other source materials, the book explores some three dozen reform proposals (drawn from a population of 60 assembled by the author in the course of her research) and traces how these two forms of business power shaped policy outcomes. The book also examines strategies politicians can use to circumvent this business power and tax it more heavily, and how the role of popular mobilization can overwhelm that power in exceptional moments.
Though its empirical contributions are significant and compelling, this book is especially notable for two of its methodological strengths. One of these is the conceptualization and measurement of business power and its sources, which takes place most centrally in Chapter Two. Here Fairfield elaborates clear definitions of both structural and instrumental power, explicit ways to measure each, and a precisely delineated set of explanations for why business power varies. This chapter is a marvel of clarity and precision, and should serve as a model not only for future work in this field, but also for the design of research more generally.
The other great methodological strength of this book, manifested in its empirical chapters, is its implementation of process tracing. Alongside Alan Jacobs’ (2011) Governing for the Long Term, this book provides the single best example of process tracing this reader has ever encountered. The evidence from hundreds of interviews is not only marshaled effectively to assess the causal claims the author advances and alternative explanations, but is also well integrated into the text and reference material. Most important is the transparent way in which the inferences from those interviews are presented. At a moment when the discipline of political science is torn about standards for research transparency in published work, Fairfield’s book (and the associated articles she has published in various venues) provides a model for scholars who seek to explicitly show how the evidence used to evaluate causal claims is generated and how it is interpreted in the course of their analysis.
As a model of process tracing, the book also brings into relief some of the tradeoffs inherent in this approach to causal assessment. First, its achronic presentation may not serve those seeking a more historical presentation of the history of Latin America’s tax reform initiatives. Yet this organization has a signal advantage in that it highlights the evaluation of causal claims rather than the narrative presentation found in traditional case studies, and thus enhances the important theoretical contributions of the book.
Second, by its nature, process-tracing evidence is assessed at a very low level of granularity. Fairfield meticulously reconstructs how business leaders, politicians, and technocrats grappled with each of several dozen attempts to reform tax law, and traces the causal role of potential disinvestment by business and the instrumental power business actors could exercise in the thinking and actions of individual and collective actors involved in policy formation. The evidence in each case study is deeply satisfying and the account of how business shapes tax policy is persuasive. Yet one wonders whether something is obscured because of the granularity of the analysis that treats each of several dozen reform episodes as a separate case in which a causal process is traced. To what extent are these cases independent from one another, and therefore each shedding light on the causes of business power and the effects of that power on tax policy outcomes? Or to what extent do causal processes operating at higher levels of aggregation (e.g. countries or presidential administrations) affect policy outcomes?
Relatedly, one also wonders about the causal depth of instrumental power as an explanation for tax policy outcomes. Fairfield’s theory holds that instrumental power derives from two types of sources: the resources (especially cohesion) at the disposal of business actors, and the relationships they have with policymakers (especially those institutionalized through partisan linkages or formal consultation practices). Yet the book does not explore the origins of that cohesion and those relationships. Take the case of Chile, where historians (e.g. Thomas C. Wright Landowners and Reform in Chile, 1982 and Maurice Zeitlin The Civil Wars in Chile, 1984) have famously demonstrated that these very characteristics of Chilean business elites held to a striking extent over decades and centuries. Thus the continuities across episodes observed by Fairfield in each of the countries replicate patterns identified by scholars in earlier historical periods. What are the historical roots of those long-term continuities in business power? And do these deeper causal factors underlie its causal effect? Are partisan linkages, institutionalized consultation, and business cohesion a consequence of some deeper structural or institutional conditions that (for example) make Chilean business so able to influence tax policy outcomes? If so, the careful process tracing of how consultation and cohesion allow business to stymie tax reform will not shed light on the deeper causes that explain persistent inequality in Chile. As a by-product of her emphasis on precisely evaluating how business power shapes discrete policy choices, Fairfield misses an opportunity to more carefully position her work with respect to more structural and historical accounts of political economy in Latin America and thus speak to scholarship on long-term continuities in social, political, and economic inequality.
In all, Fairfield has provided a strikingly clear and compelling account of how business shapes taxation in contemporary Latin America. The book deserves attention from scholars of taxation and other aspects of political economy and public policy, both in that region and far beyond. In addition to its methodological contributions and to the new agendas it opens in the study of taxation, subsequent scholarship might also draw on this book and fruitfully assess whether business power operates similarly in realms beyond taxation—one wonders, for example, whether policy responses to the growing flows of immigration into Argentina and Chile will be shaped by business power. Americanists, too, might draw on the insights of this book to enter dialogue with the growing scholarship on inequality and policy outcomes in the United States.
