Envío Digital
Central American University - UCA  
  Number 309 | Abril 2007


Central America

The Economic Power Groups’ Influence and Control Today

In this last of three articles, the author argues that the power of Central America’s big economic groups and their influence on public policy formulation and execution is affecting both democracy and development in the region. The conflictive relationship between democracy and the market is one of the most urgent issues we need to discuss today.

Alexander Segovia

It’s no secret that the Central American power groups have historically exercised significant influence on our societies and economies. What is new about the current situation is that this influence has spread from the national to the regional sphere as a result of their increasing expansion into the region. And this has happened in the context of a weakening of the state, political parties, the middle classes and the unions and other labor organizations, which in a democratic system act as a counterbalance to entrepreneurial power.

Arm-twisting power

This has coincided with the coming to power of pro-business and business governments and with the ideological hegemony of neoliberal thinking. The result has been a change in the correlation of regional political forces in favor of the regional economic power groups and the transnational companies, the main beneficiaries of the region’s new prevailing economic model. And this has intensified the inequality of power in Central America.

The increased imbalance of regional power has had a series of implications for democracy and the region’s development, intensifying as it has the Central American states’ traditional dependence on capital or, as certain authors put it, on structural capitalist power, which is essentially negative as it is manifested through veto. One example of this veto power took place in El Salvador in April 2005, when the head of the Supreme Court’s Probity Section, José Eduardo Cáceres, asked the Agricultural Bank and the Salvadoran Bank for a list of reports on the bank accounts of 13 former public officials whose declarations of personal wealth required his “comments.” The list of names included former President Francisco Flores and his wife, former presidential technical secretary Juan José Daboub and former economy minister Miguel Lacayo. Also mentioned was former foreign affairs minister María Eugenia Brizuela de Ávila, who has been president of the Salvadoran Bank since August 11, 2004.

Instead of sending the reports, as they had routinely done on other occasions, the banks refused to provide the information and decided to send a letter—backed by the Cuscutlán Bank as well—to Supreme Court President Agustín García Calderón, objecting to the Probity Section’s power to request such reports. The point was discussed by the 15 Supreme Court justices on June 9, and after a heated debate it was decided by a majority of 10 votes to move the faculty to ask banks for reports from the Probity Section to the justices themselves. René Fortín Magaña, one of the justices who voted against the ruling, interpreted the banks’ letter as an act of pressure against the country’s highest court, stating that “this decision demonstrates that the banks can twist the arm of the Supreme Court of Justice.” He also sent a petition to the Attorney General’s Office to declare the Court’s agreement null and void.

“Latch rights” afford them enormous influence

To help build a better understanding of the implications of the new economic integration and the change in the correlation of political forces in Central America, we held interviews in all of the region’s countries with businesspeople, business executives, politicians and academics and reviewed the bibliography on the subject, which is admittedly very limited.

The economic power groups have historically had important influence over the definition and implementation of national public policies, above all in countries that combined a high concentration of wealth with weak states, authoritarian and corrupt political regimes and, consequently, weak or non-existent democratic institutions. In such cases, the economic power groups exercised their influence directly by controlling ministers linked to economic management, or indirectly through the participation of the business chambers in the institutional spaces existing within public administration. In Guatemala, for example, the country’s main business elite grouped together in the Coordinating Committee of Agricultural, Commercial, Industrial and Financial Associations (CACIF) has participated in up to 27 state institutions, including the Monetary Board, the Guatemalan Social Security Institute and the National Minimum Wage Commission. Influence can also be exercised through the traditional informal pressure mechanisms consisting of direct contacts between the most powerful businesspeople and the public officials in the three state branches.

The economic power groups are still using these mechanisms, but the interviews conducted as part of our study revealed that their pressure on the different state branches is increasingly exercised through informal mechanisms outside of the region’s existing business and state institu-tionality. Notable among them are the frequent direct contacts between these groups and government authorities, including the President, ministers of state, legislators and judicial branch justices and judges.

As one Guatemalan top public official and business leader appropriately pointed out during the interviews, the region’s most powerful economic groups—which form a kind of club known in El Salvador as los grandotes and los torogozones and in Guatemala by the English version of the same thing: the “big boys”—have “latch rights.” This means the right to knock on the door of and communicate informally with the countries’ highest authorities at any moment and under any circumstances. Such “latch rights” are ensured by these groups’ enormous economic power, their central role in financing the political campaigns of the parties in power and their influence on the mass media. It also has to do with the existence of close family and economic relations among the main national groups, which allows them relatively easily access to the circles of state power. The existence of pro-business and business governments has made all this even easier.

More media, less debate

Because of its importance for democracy, the enormous influence the economic power groups exercise through the media is worth underscoring. Most of the major media are under their direct control or belong to national groups with whom they have good relations and ideological affinities. Through these media, the groups make their own personal agendas appear to be the national ones and try to influence public opinion regarding policies they consider critical to their own interests, such as the Central American Free Trade Agreement with the United States (now known as CAFTA-DR following the Dominican Republic’s integration), which most of the media in which the economic power groups exercise direct control supported unconditionally.

The absence of any effective legislation to regulate their access to the media allows these economic power groups to marginalize any voices that question the general orientation of socioeconomic policy. As a result, the quality of public debate on economic issues in some Central American countries has noticeably deteriorated, in turn negatively influencing the legitimacy of the public policies implemented.

Influence and coordination

The interviews show that the economic power groups influence the definition and application of public policies on various levels. The most general—which has been very important in the region recently—is the global orientation of the countries’ economic reform process, especially regarding privatization, liberalization, deregulation and opening up to the outside. The particularly strong pressure they are exerting in this sphere is because these policies largely determine the intensification of international insertion, particularly with the United States, and the opening of greater arenas of accumulation both nationally and regionally—particularly in sectors still closed off to private investment in certain countries, such as telecommunications, electricity and the financial sector.

In El Salvador, the general orientation of the economic reform is particularly important for these power groups, as they are interested in turning the country into a regional-level financial and service industry market. The Salvadoran economic groups have used all their influence on the successive ARENA governments to achieve this.

Given that there are no real differences among the principal economic power groups regarding major policy orientations such as trade opening, liberalization, privatization and the role of the state, they often coordinate their lobbying efforts, bringing all of their national and international alliances to bear. This explains how these groups have held periodic informal meetings in recent years to discuss Central American problems and their possible solutions and have sponsored international and regional meetings that have even involved the Central American Presidents.

The emblematic case of El Salvador

The case of El Salvador is emblematic. One of the most relevant political events of the last 15 years is the emergence and consolidation of powerful economic groups linked to the financial sector, which grew out of the re-privatization of the banks during the Cristiani government (1989-94). During this process—plagued by anomalies and a lack of transparency—some of the country’s most powerful families gained control of the banks, and therefore of the earnings—commonly referred to as family remittances—sent back home by Salvadorans living and working in the United States. Based on their control of the banks, these groups extended their activities into non-banking financial services, including insurance companies, leasing, portfolio administration, stockbroker companies, factoring companies, pension administration funds and foreign currency exchange houses, thus becoming truly regional financial conglomerations.

Given the influence of these groups on ARENA, the party that has controlled the government for the past 15 years, the general orientation of the economic reform has focused on turning El Salvador into a regional financial and service market and on completely integrating it with the United States. Everything deemed necessary to achieve this has been done, including establishing a fixed exchange rate policy in 1993 and then dollarizing the economy starting in 2001 through a law that the rightwing parties pushed through the Legislative Assembly in record time. More recently, El Salvador was the first country to approve CAFTA-DR, also in a matter of days, with no substantial national discussion of its social and economic implications. These groups have also permanently influenced the definition and implementation of financial policy, including regulation of the financial system.

The interests, monopolies and
oligopolies these groups defend

The second level on which the economic power groups exert their influence is the sectoral one, in which one or several groups interested in promoting certain sectoral policies—or in blocking the implementation of others—exert their influence to obtain particular benefits for their companies. This is the case, for example, with the interest groups in the tourism sector, which pressure to obtain the greatest possible privileges from the region’s governments, or those in the sugar industry, where the internal markets of several countries are protected, benefiting the economic groups linked to that activity.

The third, more microeconomic level is where one group in particular exerts its influence to preserve privileges derived from a monopoly or oligopoly. This has been the case with the groups linked to the traditional air transportation monopoly, beer companies and cement businesses. One of the areas in which these groups most frequently exert their influence is to obtain tariff or fiscal advantages.

How much influence do they have?
Do they always come out on top?

This analysis leads to two unavoidable questions. First, how effective is the economic power groups’ pressure on the definition and modification of public policies in the region and is it similar in all the region’s different countries? And second, do they always win; and if not, why not?

The interview results and empirical evidence suggest that while their pressure is generally quite effective, they don’t always succeed in imposing their interests and visions on the region’s governments and their interventions don’t always successfully influence public policies. It also appears that the influence of the different groups differs from country to country, which has to do with the different ways they organize and exercise power.

Various factors explain the only relative effectiveness of the economic power groups’ influence in Central America and the different degree of influence they have in each country. First is the relative autonomy the political parties, particularly the presidential candidates, attain once they take control of the state apparatus, as their new political position provides a degree of authority and formal power that allows them to redefine their relations—albeit of subordination—with the economic power groups to some extent. This is particularly true in the strongly presidentialist governments that exist in most Central American countries, in which the figure of the President always has great intrinsic power, despite everything.

At particular moments, then, the Presidents can stand up to the economic power groups, even those who may have financed their election campaign. That happened in El Salvador in 2004, when, despite the open and belligerent opposition of the country’s financial groups, President Tony Saca’s government implemented tax reforms that affected their short-term interests. Another Salvadoran example is the recent approval by the Legislative Assembly of the Consumers’ Law, which certain business groups and print media strongly questioned. A similar situation occurred in Guatemala in 2004, although with greater relative success for the economic power groups, when the government of President Berger implemented a tax reform that fundamentally favored the business sector but contained certain points that the economic power groups had fought against.

Political parties controlled by businesspeople

The role played by the economic groups is limited in those countries where the political parties act as intermediaries; conversely, their influence is much greater where the party system or the parties themselves are weak, such as in Guatemala. Honduras has a traditional political party system that is over a hundred years old and the economic groups know that if they want to exert any influence they have to participate in party politics. Their influence is limited in Costa Rica, where democracy is more advanced with respect to participation.

El Salvador is the extreme case, because the govern-ment’s economic agenda is basically that of the economic power groups, a situation accepted by several of the businesspeople and politicians interviewed. One stated that those mainly responsible for this overlap of agendas are the businesspeople who do not belong to the economic power groups, whom he described as “too wet behind the ears.”

The economic power groups are less influential and effective where the political parties in power respond to broader interests than those only of business and aren’t directly controlled by them. Of course, the influence of the economic power groups is significantly reduced if parties or coalitions that reflect the different economic interests of emerging groups or that have different political or ideological references achieve state power.

Three cases and a necessary distinction

There are only three cases in recent Central American history in which the economic power groups found themselves literally isolated from state power and their influence on public policies reduced: during the Christian Democratic government in El Salvador in the early eighties, the decade of the Sandinista Revolution in Nicaragua, and the more recent administration of Guatemalan Republican Front President Álvaro Portillo in Guatemala. In all three cases, the economic power groups turned their influence to the task of destabilizing and discrediting the governments, using the media and other resources.

It is useful here to make the necessary distinction between business governments and pro-business governments. The former are those whose agenda basically responds to the interests of business and the economic power groups. The ARENA government in El Salvador—particularly during the administration of Francisco Flores—is probably the best illustration of this, because the agenda of the government and the party were basically the same as that of the economic groups. It is very symbolic that the President who succeeded Flores, Tony Saca, is also the ARENA party president. A prominent member of the party recognized that while this double function was inappropriate, it did serve ARENA during the campaign due to Saca’s great popularity.

Pro-business governments are those that sympathize with and promote the market and free enterprise and have businesspeople among their top officials, but whose agenda doesn’t necessarily match all points on the business agenda. As a result they have more room to promote national policies.

Social participation also reduces their influence

The economic power groups’ influence also depends on the strength and type of democratic institutionality in the countries and, more specifically, the institutional mechanisms of social participation. In countries where the democratic institutionality is greater and allows more social participation in decision-making, as in Costa Rica and to a certain degree Panama, the government and the state in general have more relative autonomy. Where the democratic institutionality is weak and civic participation limited, they obviously have less autonomy.

The economic power groups’ influence additionally depends on the kind of state and the role it plays in each country. The governments have greater scope for autonomy from the economic power groups in countries with a relatively strong and socially legitimized state and a tradition of state participation than in countries where the state has been traditionally weak and with a limited role. Several of those interviewed in countries where privatizations took place expressed their concern about the current control over basic public services by transnational companies and certain regional groups, as this reduces the governments’ maneuvering room for defining and executing public policies and increases the negotiating power of the groups controlling the services, thus reducing the state’s relative autonomy.

The aim is to control the state

The economic power groups learned a major lesson fundamental to their short-, medium- and long-term interests from their loss of control over the state apparatus and the political marginalization of businesspeople in El Salvador and Nicaragua during the eighties with the coming to power of Christian Democracy and the FSLN, respectively, and more recently in Guatemala with the Guatemalan Republican Front government. The lesson was to ensure control of the state apparatus by forces politically friendly to private business and a market economy. Their main priority is thus to prevent governments they consider anti-business from ever taking power.

The economic power groups’ interest in directly controlling the state has had profound implications for their political behavior. In the context of the electoral democracy currently in effect in the region, where the only access to state power is through periodic elections, the main groups have started to change their traditional way of relating to the political parties and their forms of political participation.

In some countries—El Salvador, Guatemala and Nicaragua—they have started to modify the way they finance political parties. Traditionally, these groups have collaborated in financing all or most of the competing parties, although in different proportions depending on their expectations and ideological affinities, under the logic of diversifying the risk and ensuring influence over the future government, whichever party wins. But they are increasingly limiting themselves to financing parties they consider market economy-friendly. When they do finance the campaigns of other parties, they do so with smaller amounts or only support candidates they consider moderates. In El Salvador and Guatemala we were told that some economic power groups only support the campaigns of what they consider to be more moderate opposition party candidates for mayor and parliamentary representative.

They’re democratic because
they’re sure they can’t lose

This behavioral change, together with the absence of effective regulations on the amount of private financing for political campaigns, has led to the over-financing of parties supported by the economic power groups. Added to the lack of legislation to regulate access to and use of media spaces by political parties, this results in a clear case of unfair competition favoring the parties backed by the economic power groups and against those considered hostile to private enterprise or simply not considered real options for power. This is one of the areas that most concerned many of those interviewed, due to its negative implications for the future of democracy in the region. To what extent can we talk about alternatives to the prevailing model when the electoral dice are so loaded?

The economic power groups simply don’t finance political forces they view as radical and enemies of free enterprise. In El Salvador, some of the main economic groups don’t accept the idea of the FMLN, with its current leadership, winning state power under any circumstances and do everything they can to prevent this from happening, including funding dirty campaigns. Some Salvadoran rightwing sectors and economic power groups are now even considering the possibility of creating their own competition to ARENA, supporting the creation of a new centrist force, which could be either slightly to the right or the left, as long as it is pro-market economy and pro-businesspeople.

This is serious for the region’s future, as the alternation of power, which at the end of the day is the essence of democracy, doesn’t appear to be an option entertained by some regional economic power groups. It must be remembered that one of the causes of the wars in El Salvador, Guatemala and Nicaragua was precisely the political exclusion of sectors that wanted to access state power through the ballot box but were stopped from doing so by military regimes backed by the economic power groups.

Given this, one wonders whether certain economic power groups really believe in democracy at all. Everything seems to indicate that some of them only support it when it’s a way to keep themselves in power. As Edelberto Torres-Rivas has pointed out, “The Central American Right, due to the force of circumstances not of its making, has found itself in scenarios where power is vied for without military support. Now, these are citizens who accept the messiness of participatory democracy because until now they’ve been certain they can’t lose...”

Political businesspeople and business parties

The anti-democratic attitude of some Central American economic power groups is contradictory. On the one hand they say they’re opposed to the alternation of power, worried that a leftwing government would change the rules of the economic game established during recent decades by governments of the Right. On the other, however, they have encouraged an exclusionary, authoritarian style of imposing public policies that impedes the construction of genuinely state policies, undermines the credibility and legitimacy of the economic policies applied and endangers the future viability of the reforms. That’s why these groups should be the first to support a style for defining economic policies based on discussion and concertation, as this is the only way in a real democracy to construct the permanent, stable rules of the game they insist on so much.

The traditional reluctance of big business from some countries in the region to participate actively in party politics has started to change. Businesspeople belonging to the economic power groups now participate directly in politics, affiliating to the parties of their choice, which are those in which they have most influence or control.

In this as in other aspects, there are differences according to countries. In those with stable political party systems and parties with a long tradition and heterogeneous membership, such as Costa Rica and Honduras, the main motivation of business leaders is to indirectly influence political decisions. This means recognizing the parties’ representative role. But in countries such as Guatemala where the political party system simply doesn’t exist or is unstable and the political parties that do exist are weak or narrowly pro-business, the main motivation for big capitalists to participate in party politics is to directly control the parties and use them to promote and impose their particular agendas. They achieve this by founding their own parties—as some of the main businesspeople have done in Panama—or by financing existing parties, as in all the other countries.

What happens most frequently is that the economic power groups use their money to influence the political parties represented in the country’s legislative assembly. It is worth stressing here the illegal practice employed by certain economic groups of distributing considerable amounts of money among the legislators to buy enough votes to pass laws that interest or directly benefit them.

To ensure a democratic future, Central America needs to strengthen its political party systems so the parties can truly fulfill their role of representing the different social interests and thus serve as a counterweight to business power.

Increasingly complex interests

For some time now, Central America’s institutionality has been passing through a quite complex and somewhat traumatic transition, due in good measure to the changes in the business environment caused by economic globalization, the increased differentiation and polarization of the sector and greater business diversification resulting from the emergence of new economic actors. This has made the diversity of business interests even more complex.

The new economic actors are those linked to the new dynamic activities (nontraditional export agriculture, tourism, and maquilas, construction and real estate); to the group made up of executives from transnational corporations operating in Central America; to the new economic groups linked to political sectors, such as those related to the FSLN and former President Alemán in Nicaragua; to the region’s armies, some of which, like Guatemala’s, have considerable power and influence and compete with the traditional groups; and, last but not least, to illegal activities such as drug trafficking.

In addition to helping reduce the incentives for businesspeople to engage in formal collective action, these factors have helped erode the representative function provided by the traditional business chambers, which in turn has reduced the capacity of these institutions to influence the definition of public policies. The behavior of the economic power groups themselves has had a lot to do with the loss of social and political influence by such business institutions.

The end of the business chambers?

The economic power groups are located nationally but think regionally. They meet two or three times a year to analyze the political situation in Central America, make plans for the region and decide on actions. They no longer see six different countries, but rather view the region as a single reality. This has led to a crisis of traditional business institutionality. Previously, these groups influenced the governments through the umbrella organizations of business chambers (CACIF, ANEP, COHEP, COSEP). But they use them less today, preferring to employ their “latch rights” with the President, ministers and judicial branch magistrates. They only need the business chambers when they have to wage ideological battles and exert pressure to defend their group interests, for example when they have to unite to defend private property or a determined economic reform, or when they join voices against communism, or the FSLN or FMLN. With different nuances in each country, the business institutionality has stopped being a reference point and has no real power.

In some countries, these groups have already stopped using the business chambers as instruments of political intermediation between themselves and the state and now simply influence public policies through informal direct mechanisms. In some of those cases, leadership of the business chambers has passed into the hands of medium-sized businesses managers.

They’ve created their own institutionality

The economic groups have created their own business institutions—social action foundations, educational institutions, think tanks—which not only compete with the traditional ones but also question their lack of pro-active capacity and their inability to deal with the new international environment. Unlike the traditional institutionality, the new one is private in nature, in that it doesn’t seek formal collective action but rather aims to contribute to social development, and its expressions are financed by the groups themselves, very often with foreign support.

For formulating economic policy proposals, the economic power groups turn to regional academic institutions such as the Central American Business Administration Institute and the think tanks created with USAID funding in the eighties, i.e. the Salvadoran Economic and Social Development Foundation and more recently the Guatemalan Development Foundation.

On the regional level, the economic power groups have in practice created their own institutionality, again informal, which consists of holding periodic meetings to discuss the region’s problems and their possible solutions. In addition to weakening the existing national business institu-tionality, this counters the efforts being made to strengthen what little regional business institutionality actually exists, which is already exceedingly weak and without a regional vision. There’s also no regional vision in either academia or among the political class. When I asked a major Honduran businessman why they look down on and bad-mouth politicians so much and don’t want to interrelate with them, he answered, “How are we going to talk to them when we’ve already regionalized and they only think about Honduras? What discussion are we going to have if they don’t know anything that’s happening outside their own borders?” And when asked, “Why don’t you dedicate any time to Guatemala and the Guatemalan chambers?” a Guatemalan businessman responded, “I can only dedicate 35 minutes of my agenda time a day to Guatemala. The chambers only think about Guatemala, but we now have to think about many countries.”

Given this situation, which is not at all favorable to democracy, we must recover the link between academia and politics that was broken at some point. In the sixties and seventies, Central American academics and politicians worked together on many projects. Now, they maintain a radical divorce. If you ask politicians, they say, “The academics don’t know anything,” while academics answer, “Don’t mix us up with politicians because they’re all corrupt.” It’s worrying, because both are key sectors for thinking through and executing alternative economic and political projects.

What about small and medium businesses?

The lost importance of the political representation function of the region’s business institutions is also worrying, as institutions that are strong and represent the diverse business interests help consolidate democracy and are an important counterweight to the strength of the economic power groups. One challenge for the Central American countries is precisely to create a democratic business institutionality that provides effective participation to the small, medium and big businesses that don’t belong to the economic power groups.

In the last 20 years, Central America has experienced important business diversification, with new businesses of all shapes and sizes: small, medium, big and enormous, in maquilas, service industries, tourism and industry. They don’t necessarily have common interests. This diversification is positive, but there is also polarization, which is negative: the so-called “Central American group,” made up of the big groups that are already regionally integrated has more power than all of the sectors put together.

The positive and negative
sides of being internationalized

In administrative terms, i.e. how they run their businesses, the main Central American economic power groups have no reason to envy any transnational corporation. They are totally modernized and globalized. Some say that while they may no longer hide their money under the mattress, they are still political reactionaries. Is this true? It’s a challenge for academics to interpret how this economic modernization has been or is being expressed in these elites’ political behavior.

Leaving aside political culture for the moment, the internationalizing of the main economic power groups has had important repercussions on the region’s business culture. First of all, their presence has helped make the other economic actors aware of the need to modernize and prepare to successfully deal with economic globalization. Second, it has helped promote business social responsibility in the area, a vision that most groups share—if only formally—and promote through various mechanisms, including creating, strengthening and actively participating in institutions that specialize in the subject.

These positive influences have been accompanied by others with negative implications for the region’s democracy. For example, the anti-democratic practices employed against trade unions by certain economic power groups—particularly Salvadoran, Guatemalan and Nicaraguan ones—and the aberrant culture some display by flouting the labor laws, including payment of minimum wages. Some people interviewed told us of the negative influence of certain groups with authoritarian visions that oppose the social concertation practices in Costa Rica or Panama. Such behavior underscores the need for additional studies on the political culture of the regional economic power groups.

Yes to social responsibility,
no to paying taxes

Another subject that must be investigated further is whether the economic modernization of these groups has also implied political and social modernization. I have a dual take on this. In their formal language, these economic groups strategically assume the issue of being socially responsible businesses, and most of them have their own foundations, linked to business development. Some of the main economic power groups vehemently defend and promote social responsibility by business, but no analysis of their behavior related to taxes reveals any changes. They continue not paying the taxes corresponding to them and oppose more active state intervention in social matters, which undermines the possibility of the Central American states to solve any of the many social problems. The state and taxes are still taboo subjects for these groups. They don’t see themselves paying taxes and don’t see them as an expression of their social responsibility, which they want to exercise directly.

As one Salvadoran businessman told me, “I’ve got 7,000 employees and that’s how I contribute to the country.” Another said, “Through our foundation we’re building houses, giving credits, financing food. What more do you want us to do?” And when we asked them about taxes, they replied, “The state steals them,” and launched into a very vigorous anti-state ideology. They don’t conceive of a redistributive state. They’re willing to support narrowly targeted anti-poverty strategies, and some economic groups are very interested in education and health, but they start backpedaling when broader state policies to redistribute wealth come up in the conversation.

A lead role in a not very participatory process

The economic power groups are significantly contributing to Central American integration, in fact are acting as the motors behind the process. This has increased the region’s competitiveness through the application of more efficient production and distribution processes and modern administrative and managerial techniques, which is particularly important in the case of those groups with international alliances. The very existence of the economic power groups is helping make Central America more attractive to foreign investment, because the transnational companies look to link up with big conglomerates that have a regional presence. Their investments also help generate employment, but not enough to counteract the strong trend towards concentration of income and wealth in their own favor.

All of this is worsening regional and national inequality, because the business integration these groups promote increasingly concentrates wealth and political power. In this sense, the new Central American integration is similar to the integration of 40 years ago, which was characterized by unequal distribution of the process’ benefits among the different countries and within each particular country, which in the long run led to crisis and then war.

The institutional integration being carried out by the governments and the formal, official Central American integration institutions has received a great deal of interest—and therefore pressure—from the economic power groups, which want it to move as quickly as possible to eliminate controls and obstacles to trade and capital flows within the region. As one of the area’s most powerful businesspeople pointed out during the interviews, “Central American integration should be total; there should be absolute freedom; free movement of both goods and people.”

In reality, the growing importance of the regional market as a space of accumulation for the power groups is one of the main factors behind the renewed interest shown by the Central American governments in the regional integration process. In El Salvador, for example, the government of Alfredo Cristiani (1989-94) dedicated only a few lines to Central American integration in its first government program. But by a few months later he was the President most interested in the process. He changed his tune because of the interest shown by the financial groups— of which he was part—in expanding their businesses to the region as a whole.

It should also be pointed out that the economic power groups’ influence on the institutional integration has not been very effective, due to the counterweight provided in this sphere by the non-globalized businesses, particularly those in industry and agro-industry, whose owners resist greater regional integration for fear of losing their monopolistic and oligopolistic control in the national markets in which they operate.

The power groups’ interest in Central American integration is positive in that it forces the governments to try to honor the commitments they’ve already acquired—such as a customs union—and keeps the integration issue on the national agendas, even if only formally. Nonetheless, there’s a risk that the resulting institutional integration process will only take into account the interests of these particular groups and thus institutionalize and formalize a process that so far has been highly exclusionary and not very participatory.

What to do?

The big Central American economic groups are more economically and politically powerful today than ever before in the region. It’s paradoxical that after wars that sought more equitable and less polarized societies we now have even more exclusionary and polarized societies in which the wealth is much more concentrated in a few families than 20 to 30 years ago.

Unfortunately we still know very little about this new and broad integration of Central American economies and societies. The power imbalance being created by the integration of the big economic groups puts democracy at serious risk in the region, as it contributes to the shaping of societies that are more economically unequal and more socially and politically polarized.

This represents a risk because these economic groups have become economically and politically stronger while other sectors that serve as a counterweight in a democracy have grown weaker, including the state, the middle classes, unions, “civil society” and left-wing parties. In this context, democracy is dangerously imbalanced. Central American civil society is weaker in certain areas following the peace than it was during the conflict. Some sectors have become stronger—a number of them from the Right—but as a whole, civil society doesn’t appear to be any stronger, and thus fails to provide any counterbalance to the economic powers.

Although many Central Americans are disenchanted with democracy and think that it can’t be taken any further than what we already have, I still believe the solution is to strengthen democracy, strengthen the counterbalances and push the state to regulate, invest, promote and strengthen the social sectors, unions, social movements and civil society.

Power is now more concentrated and regionalized and that forces us to think not only about how to get into power to change things, but also about what we would do the day after taking office, about what real possibilities there are to govern our countries and under what rules. The alliances needed to obtain power aren’t necessarily the same as those needed to be able to govern. Some of Latin America’s current leftwing governments came to power as the result of grassroots alliances, but when they started to govern they found themselves face to face with the real powers that be, the ones that make their countries tick. What’s the point of seeking power when the room for maneuver to change things is so limited once that power is taken?

How to channel the discontent?

Central America needs a “second generation of political reforms” to strengthen and intensify democracy. Faced with the business power, we are left with no alternative but to intensify democracy and participatory democracy, with a strong state, strong political parties and strong social sectors. The change we need won’t be provided voluntarily, but rather through the correlation of forces. And right now that correlation of forces does not favor building a participatory democracy.

Some compare the drastic changes experienced by Central America with a tsunami, something so powerful that it’s impossible to deal with. Is there any way out? There has to be, because the economic model isn’t working well. In recent years the concentration of power and wealth has intensified and poverty has increased, even in the two countries—El Salvador and Costa Rica—in which it had started to drop. Not only has poverty increased, but so has inequality. Even the middle classes have started to experience deterioration and are discontented; people are starting to say that things aren’t on the right track.

How can this discontent and these energies be channeled into alternative political projects? In the words of the now out-of-vogue Marxist terminology, the objective conditions are in place. Most people aren’t doing well socially and economically while a handful are doing really well. The day that people make the link between government administration and their daily lives, the Central American governments and economic elites will be in real trouble. Will such a connection be made spontaneously? If not, who will be capable of making it? If there’s now a new kind of economy in Central America, we need to discover a new way of doing politics.

We’re convinced that one of the most urgent tasks facing the Central American societies today is to progress with the construction and strengthening of counterweights that will help balance regional power and therefore contribute to the installation of real participatory democracy. This is particularly important as CAFTA-DR comes into effect.

All of this places the inevitably conflictive relationship between democracy and the market at the center of debate, as on the one hand a more equitable and socially balanced economic integration necessarily implies the intensification of democracy beyond the electoral sphere; while on the other, it means reconciling the interests of the businesspeople—the main actors of economic integration—with those of the states, which play a central role in achieving social and political integration. For all these reasons, taking up a broad debate on the relationship between democracy and the market is one of the most urgent tasks faced by Central America’s societies at the start of the 21st century.

Alexander Segovia is research director for the “Structural Transformation of Central America” Project at El Salvador’s “José Simeón Cañas” Central American University. envío edited and condensed the above three-part article from the study “Real Integration and Economic Power Groups in Central America: Implications for development and democracy in the region,” financed by the Friedrich Ebert Foundation, and a talk given by the author during the Annual Seminar of the Social Apostolate of the Society of Jesus in Central America, held in San Salvador in September 2006.

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