Diane Ethier

The Economic Context of Democratic Transitions

The transition from authoritarianism to democracy (1974–78) in Greece, Spain and Portugal occurred in the context of an economic crisis characterized by slower growth rates, mounting inflation, worsening balance of payments records, increased state budget deficits, and higher unemployment (see Table 1). Although aggravated by the oil crisis of 1973 and the recession of 1974–75, this crisis was fundamentally the result of the limitations of the new and more liberal import substituting models experienced during the period 1960 to 1975 (Hudson and Lewis, 1985, 1–54). These models were aimed at speeding the growth of the existing essential consumer goods (ECG) industries through the development of intermediate goods and equipment industries (IGE)1 and at a partial opening-up of the economic system to the outside.

The Governments’ Ability to Implement Reforms

The third decisive condition of the success of adjustment is a government’s ability to apply the SMs and the SCMs in a systematic manner for at least a decade. This means that it has to be able to avoid the development of opposition movements that are likely to hinder its progress, in spite of the many serious transition costs (TCs) - unemployment, higher interest rates, increased tax burden, reduced social spending, precariousness of jobs, lowering of real income, and so on - generated by SMs and SCMs. As pointed out in the Introduction, most of the authors cited consider that the realization of this condition is mainly determined by the nature of the relations existing between the executive, the major institutions of the political system and the civil society, on the one hand, and by the harshness and the duration of TCs, on the other. In every case, the room to manoeuvre of the executive or its autonomy toward main political actors (army, bureaucracy, parliament/parties) and interest groups (IGs) decisively conditions the implementation of SMs and SCMs. The executive benefits from a large autonomy when it controls the political institutions and the organizations of civil society or when it is supported by the latter. Most of the authors cited prefer by far the second pattern for it implies the existence of a democratic consensus.

Spain: An Early and Durable Process of Adjustment

The Pactos de la Moncloa had established the framework (joint action between government, political parties and unions) and the orientation (heterodox liberal) of the economic policy to be developed by the new democratic regime. These pacts, which were negotiated under the first democratic government formed by the UCD and led by Adolfo Suarez, were naturally to serve as a guide for the economic initiatives of this government (1977–79) and for the second UCD government led by Calvo Sotelo (1979–81). Depending to a large measure on joint social action, the two administrations began applying the stabilization and structural reform policies set out in the Pactos de la Moncloa, while at the same time pursuing, in several respects, an expansionist, demand-side economic policy. During the period 1977–82, the negotiation of the membership treaties,1 officially begun in February 1979, was to have a limited impact on the adjustment process, since it was centred on examining the problems inherent in the entry of the Iberian countries, and slowed down by various conflicts between the member states.

Comparative Results of Southern European Economic Policies

Specialists in the field do not necessarily all use the same criteria for measuring the success of the adjustment process. Nelson and colleagues (Nelson, 1990a) consider the latter to be successful when the government has managed to adopt and apply a coherent set of SMs and SCMs of a period of several years. The content of the preceding three chapters and Tables 2, 6 and 7 reveal that as regards this criterion, economic adjustment has been a failure in Greece and a relative success in Spain and Portugal. Other authors, notably Haggard and Kaufman (1992) and Haggard and Webb (1994a) justifiably consider that the evaluation of the degree of success of the adjustment process must also take into account the attainment of the specific economic objectives targeted by the SMs and the SCMs. It should be remembered in this regard that the goal of the SMs is to offset, even eliminate, macro-economic imbalances, whereas that of the SCMs is to liberalize the laws and institutions which govern the functioning of the economic system, in order to increase its openness and competitiveness.

Introduction: Democracy and Successful Adjustment

In the period following 1975, all the countries that had opted for inwardlooking capitalist or socialist development strategies found themselves, as a result of the limitations of these strategies and the growing liberalization of markets, confronted with an economic and financial crisis. The progressive worsening of this crisis, in the context of the petroleum shocks of 1973 and 1979 and the recessions of 1974–75 and 1980–83, brought these countries face to face with the increasingly urgent need to instigate a process of economic adjustment. This process, which was defined notably by the authorities of the International Monetary Fund (IMF) and the signatories to the Washington Consensus (Williamson, 1993), involved the adoption and application of a consistent set of short-term (one to five years) stabilization measures (SMs) and long-term (over ten years)1 structural change measures (SCMs) aimed, on the one hand, at correcting macro-economic imbalances (inflation, balance of payments deficit, government budget deficit) and, on the other, at increasing the openness, liberalization and competitiveness of the national economy. This transition towards a new outward-looking development system, a condition judged to be indispensable for a sustained recovery of growth in the context of globalization, entailed major long-term economic costs, particularly for the social groups that benefited from the former inward-looking development strategy (civil servants, enterprises focused on the local market, recipients of state assistance programs, and so on) (Nelson, 1990b, 3–4).

Portugal: A Late but Accelerated Process of Adjustment

In Portugal, the tasks of establishing political democracy and reforming the economy beyond capitalism were attempted at the same time. This was to produce considerable political instability and to aggravate the economic situation. (Maravall, 1993, 85) The transition from authoritarianism to democracy in Portugal began with the coup d’etat of the AFM2 on April 25, 1974, and ended in April 1976 with the adoption of a new constitution and the election of a first legislative assembly. During the transition process, the country experienced six minority provisional governments, directed by the AFM. The first seven years of the new democratic regime saw three successive legislatures (1976–79; 1979–80; 1980–83) and six governments: a minority socialist government (1976–77); three coalition governments composed of the socialists (PSP) and the social and democratic centre conservatives (CDS) (1978–79); two governments directed by Alianga democratico (AD), a coalition formed of the forces of the moderate right-wing social-democratic party (PSDP) and the CDS (1979–80; 1980–83).

Greece: Timid and Fruitless Attempts at Adjustment

In Greece it was the forces of the moderate right, which, under the leadership of Constantin Caramanlis, took charge of the process of re-establishing democracy between July 24 and November 17, 1974.1 It was also these forces, which, grouped together in Caramanlis’ new party, New Democracy (ND), formed the first two majority governments of the post-authoritarian period (1974–77, 1977–81). During this six-year period, the ND negotiated and signed the EC membership treaties (1976–79), and at the same time pursued an expansionist economic policy, in spite of the persisting economic crisis. It is important to stress here that although Greece received financial assistance from the EC2 during the negotiation of the membership treaties, signature of these treaties was not conditional on reform of its industry and agriculture, as in the case of Spain. The expansionist policy of the Caramanlis and George Rallis governments3 resulted in a strong growth in government spending, growth which was fed by the progressively higher external indebtedness and recourse to public deficits.

The Governments’ Commitment to Undertaking Reforms

Comparative analysis of the decision making processes that determined the economic choices of the new democracies shows that most of the factors that are judged apriori to be favourable to a government’s committing itself to undertaking adjustment measures do not in fact constitute a constant decisive influence in this regard. Governments are not necessarily more inclined to undertake a process of economic cleansing and liberalization when an economic crisis is serious or when they are at the beginning of an electoral mandate; they are not necessarily more resolved to adopt an adjustment program when they are in the majority, dominated by a party of the right or submitted to pressure on the part of their partners and foreign investors. The comparative analysis of the Southern European cases largely confirms these conclusions.