Taxes, Consultation and Democracy in Export-Led Economies: Taxation of Nitrate in Chile By Carmenza Gallo Queens College and Graduate Center, City University of New York [email protected]

Paper presented at the Seminar on "Taxation Perspectives: A Democratic Approach to Public Finance in Developing Countries." Center for the Future State, IDS, University of Sussex. Note: This paper is intended for private circulation. Please do not quote or refer to in publication without the permission of the author. October 2002

Taxes, Consultation, and Democracy in Export Led Economies Taxation of Nitrate in Chile1 By Carmenza Gallo Queens College and Graduate Center, City University of New York Abstract This paper examines the role of taxation in promoting formal and informal consultation and representation of taxed groups. It argues that, in the case of taxation of exports in export-dependent economies, taxation leads to several formal and informal political practices that involve consultation and various types of representation. These political practices depend on the relative power of both states and taxed groups, on the changing international economic conditions under which taxed resources are produced, and on previous institutions. The paper examines taxation in Chile from 1880 to 1930. While consultation and "particularistic representation" were indeed outcomes of the economic interdependence of state authorities and taxed groups, the continuity of such political practices was contingent on international conditions that were out of the direct control of either the state or the taxed groups. The role of taxation in generating consultation and representation was temporary and limited, and with ambiguous consequences on democracy. The idea that taxation is linked to democracy is well entrenched in the historical literature that deals with the origins of western democracies. Indeed, the famous James Otis' dictum that "taxation without representation is tyranny" is at the roots of a commonly accepted thesis held by political scientists, sociologists and historians. In a nutshell the thesis is that under certain conditions (mainly those existing in England during the 14th and 15th centuries), tax payments by rich merchants were exchanged for access to central authorities' decisions and for consultation about how to spend the money and when tax increases were justified. Thus, the kernel of democracy, representation and

1

Research for this paper was possible thanks to a grant from the PSC-Cuny foundation. A previous version of this paper was presented at the Workshop on Contentious Politics at the Lazarsfeld Center for the Social Sciences, Columbia University. Thanks to Andy Buck, Susan Eckstein, Juan Diego Garcia, Paul Ingram, John Krinski, Roy Lickleider, Takeshi Wada and Lesley Woods for their excellent comments.

2

consultation with the capability to check arbitrary decisions, was a result of the emergence of central taxation. But although this is a commonly accepted thesis for early European democracies, the numerous studies on the factors that promote or inhibit democratization in Latin America rarely mention taxation. Rather, studies that deal with democracy, its transitions, and waves have focused on the role of economic development, of cultural values, class coalitions and international contexts (Berins Collier1999; Conaghan and Espinal 1980?; Hagopian 1996; Lopez- Alves 2000; Rueschemeyer, Stephens and Stephens 1984;Yashar 1997; Seligson and Dealy 1996). Yet, the relationship between taxation and democracy is worth examining in the light of the Latin American experience for several reasons. First, most models that explain democratization in terms of the emergence of special class or groups coalitions are vague as to what is it that political actors gain by promoting democracy, in particular, why are state authorities interested in adopting democratic rules. In contrast, an analysis of the relationship between taxation and consultation and representation allows us to establish the specific interplay of benefits and costs exchanged by both sides, the state as well as the taxed economic groups. Second, a focus on political interactions resulting from taxation calls attention to institution building, to political practices that were later encoded into formal laws. It is well known that in a reversal to the European experience Latin America adopted European democratic institutions regardless of whether political practices fitted those institutions. In this sense, key problems with democracy in these countries stem from gaps between the formal and the real rules that govern relationships between groups.

3

Thus, a study of the rules that govern the interactions resulting from taxation can help us understand the conditions and the extent to which potentially democratic practices help to decrease the gap between el pais formal and el pais real, and contribute to strengthen formal democratic rules. Third, the analysis of political practices entailed in taxation leads us to focus on notions of fairness, and rights of taxpayers, and on commitments and obligations on the side of the state. Knowledge of how these rights and commitments played out within the constraints of tax systems in Latin America will help explain the endemic difficulties that these countries have in generating credible and accountable institutions and, overall, in establishing confidence in central authorities. This paper analyzes the set of political practices and institutions that resulted from taxation of nitrate mine owners in Chile during the end of the 19th and beginning of the 20th century. It adopts the emerging concern of recent studies with the impact of institutions on economic development and on democracy in Latin America (Adelman 1998; O'Donnell 1998; Valenzuela 1998; Centeno 1997; Knight 2000), and, simultaneously draws on the conceptions of institutions advanced mainly by new institutionalists (Bates (1997; Hopcroft 1998; Ingram and Clay 2000; Knight and Ensminger 1998). In these models institutions are important in so far as they define a political game, a set of rules that reflect bargaining and power relations among actors. Particularly, in comparing institutions, as Bates (1997) argues studying the federalist system of Brazil and the party system of Colombia, "…it is not the institutions themselves that should be compared; it is the game that they define and the strategic opportunities that they offer." To this extent, the aim of the paper is to look first at the

4

set of political practices that result from taxation, and second, to examine how varying conditions modified those political practices. With respect to the political practices that result from taxation I argue that revenue dependence from societal groups forces state authorities to engage in political exchanges that may take a variety of forms. These forms may include the type of representation that in European countries led to the development of democratic institutions, but other outcomes are possible. Informal consultation, and consultation and representation that over time do not lead to the development (or to the strengthening of already existing) democratic institutions are also possible outcomes. I will show that in Chile taxation of nitrate led to conflict with the taxed group first, later to informal consultation, and finally to formal but particularistic consultation and representation that had a limited impact on strengthening already existing democratic institutions. With respect to the factors that explain those political outcomes, I argue that they depend mainly on the relative power of the state vis a vis taxed groups, on previous institutions and on the technical and economic characteristics of the production of taxed resources. Depending on the state relative power, previous institutions, and economic context of taxed resources, taxation generates various sets of formal and informal political practices including informal consultation and cooperation with nitrate elites, and particularistic formal consultation. In Chile, relative state power was contingent on diverse elements used in bargaining by both sides, mainly the state's technical and bureaucratic capabilities, and its available political allies which were, in turn, highly dependent on the state's effective use of political ideology to mobilize them. Economic and production characteristics included production dependence from international market and natural

5

production cycles of minerals. Last, previous institutions chiefly limited possible effective types of taxation that state authorities imposed. Needless to say the argument here is not that the power relations entailed in taxing are the only source of representation and consultation. Much less that democracy is confined to consultation and representation of the rich, even though historically democracy existed first for the powerful and rich. Rather, the aim of the paper is to look at specific, yet significant, political interactions between state authorities and taxed groups, and to trace the consequences of such an interaction in generating self-regulatory practices that could support and expand formal democracy. Consultation is only one process, although an essential one, among the several political processes involved in democracy. 2 The paper is divided into two parts. In the first I will briefly review the literature on taxation and democracy, particularly with respect to consultation and representation, and the consequences of consultation on the generation of consent as agreement with tax and other specific policies directed to support the production of taxed resources. In the second I will look at taxation of the nitrate sector in Chile. Taxation Consultation and Democracy Models on the relationship between taxation and the emergence of democratic institutions agree about the main large point: centralizing rulers in need of money had to bargain with elites who owned taxable resources, and in that bargaining central authorities exchanged taxes for access to them and for consultation about further taxation 2

In this paper democracy, following Tilly (2001:214) is conceived as a "special type of public politics" one in which the regime maintains "broad citizenship, equal citizenship, binding consultation of citizens with respect to government activities and personnel, as well as protection of citizens from arbitrary action

6

and spending. Parliamentary institutions were largely a byproduct of taxation (Bates and Lien 1985; Braun 1975; Hopcroft 1999; Kiser and Barzel, 1991; Lamborn 1983; North and Weingast 1989; Webber and Wildavsky 1986; Tilly 1990; Zolberg 1980). In these models several elements that affected the power of the central authorities relative to the taxed groups are responsible for producing and maintaining political practices based on consultation and representation of taxed groups. Revenue seeking monarchs found in their advantage to strike bargains with citizens whose assets they sought to tax, mainly when they were taxing mobile assets. This was so primarily because mobile assets offered an advantage to their owners, as they could withdraw them if the terms of exchange with monarchs were not beneficial. And to induce greater willingness to pay taxes they deferred to the citizens' policy preferences so that these elites wrested control over public policy, and could veto new or higher taxes (Bates and Lien 1985:55; Zolberg 1980). Indeed Zolberg (1980:695) argues that the English monarch sought to tax trade and this promoted the growth of parliamentary democracy, while, in contrast, the French taxed assets, such as salt mines and land, that gave monarchs an independent source of revenue. In France lack of a need to consult with elites contributed to the growth of absolutism. Thus, central authorities initial relative weakness vis a vis elites with taxable resources induced bargaining and contracts that eventually became formalized in (democratic) institutions. Continued relative state weakness was fundamental also in maintaining consultation and representation of taxed elites. First, trade, as a source of revenue was unstable, and required the building of a minimal bureaucratic apparatus to collect them

by government agents." So conceptualized, democracy can be studied at the level of political processes as well as at the level of formal rules. Formal definitions of democracy only allow the latter.

7

(Ardant; Hopcroft 1999:70; Tilly 1990). And Revenue instability kept the king dependent on Parliament, which enhanced the latter's power (Norton and Weingast 1989; Hopcroft 1990:83). And because central authorities did not develop an extractive machinery that could be directed to tap other resources, English monarchs continued being economically and bureaucratically weak and this relative weakness made them maintain the terms of the democratic bargain. Tilly (1985;1990) in addition argues that continuos external threats of war and war itself kept rulers in financial need, but critically, war enhanced the value of protection, which was then added to the bargain with elites. Absence of a threat of war, as in England, did not force the issue of new taxes (Hopcroft (1999:71). But why did state authorities not look for sources of taxation other than mobile assets, which would increase their revenues and avoid consultation and possible veto by part of merchant elites? Or else, given the comparative advantage of the state in coercion, what prevented it from using violence to extract all the surplus? First, nonparliamentary taxes generated protest, which were politically and economically costly, and already weak rulers may have avoided other forms of taxation on the basis of rational calculations about the cost of political protest. Second, as North and Weingast (1989:806) argue, by striking a bargain with constituents that provided them some security, the state can often increase its revenue. Nonetheless, these authors argue that consistency over time by part of the rulers in not confiscating assets was insured by institutions that established sanctions for contract violators. Thus the literature proposes the hypothesis that state relative weakness promoted consultation and that consultation was kept alive by keeping the state weak. Four factors

8

promoted that relative weakness: sources of taxation, lack of administrative apparatus, cost of political protest and the value of the protection offered by the state to taxed elites. Taxation, Consultation and Consent. Of particular importance in the political practices and the institutional outcomes generated from taxation is the relationship between consultation and consent. Consent, in the sense of agreement with taxation and with particular state policies geared to benefit the production of taxable resources, stems from taxation when consultation is binding and particularly when it involves accountability.3 As Heneman (in Bates 1985:56) puts it "if we are to understand the constitutional implications of taxation ….we must relate taxation to the use of assemblies and relate both to the question of consent." Also, Alt (1983:185) argues that taxes are legitimate in so far as they are like property rights that are exchanged for the promise of some other benefit" (Alt 1983:184-5). Consent is sought by state authorities because taxpayers can always refuse to pay taxes, and resistance to taxation increases the cost of collection. In this sense, consultation, especially if accompanied by accountability is a source of consent. Yet, consent with the ongoing exchange of taxes for state goods is dependent from policy effectiveness.4 Significant revenue dependence from a few economic sources increases the incentives by part of state authorities to be efficient in providing the public services needed to maintain and expand the business in which taxed groups are engaged, and to modify policies when they fail. In short, expectations by part of taxed 3

Recent studies underscore the importance of credibility, consent and trust in maintaining democratic institutions (Levi 2000; Levi and Stroker 2000; Lathan 2000; Pye 1999; Tilly 2001). There is disagreement as to definitions of consent, methodology to measure it as well as on the particular ways in which trust or consent help democracy. For the present purposes consent is narrowly defined in terms of agreement with or acceptance of specific state policies. I does not refer to the broader normative consent that arguably is present in old functioning democracies, and that occupies most of the authors mentioned above.

9

groups and state self interest in being effective further generates consent among taxed groups, and in turn, as Fauvelle-Aymar (1999) argues, government efficiency enhances the capacity to tax. Both, consultation and policy effectiveness contribute to the existence of consent, and maintaining consent means maintaining the relative terms of the exchange for the parties involved (Przeworski 1991). External shocks however may force changes in those conditions, affecting not only the relative power of each side but the rules or logic of the relationship. State agents, as Kiser and Barzel (1991:402) argue, can make their commitments credible by creating independent mechanisms of contract enforcement and can enhance their credibility by ensuring the continuity of the relationship. But, again, because external 'shocks' change the distribution of resources between subjects and state the greater the number and severity of external shocks, the greater the number of contract violations, and the slower the development of the rule of law (Kiser and Barzel 1991:402). It can be expected therefore that taxation of resources that depend on international demand will expose the 'bargaining' between state authorities and producers of taxed resources to external shocks, and that those shocks have consequences on the relative power of the state and groups taxed. In sum, this paper argues that taxation leads to different sets of political practices, both formal and informal, including among others conflict, and informal consultation. Formal or institutionalized consultation and representation is only one of the possible outcomes that result from a specific configuration of relative state power, economic context in the production of taxed resources and previous institutions. Consultation by

4

Policy effectiveness is widely seen as a source of broad legitimacy for a regime. See for example Huntington's (1991) discussion of authoritarian regimes.

10

state authorities on tax policies and specific policies beneficial to taxed elites generates consent with the overall exchange, particularly if state policies are effective in providing benefits to taxed groups. External shocks that make the initial exchange untenable have consequences on both consultation and the potential for acceptance of state authority and legitimacy in general by part of taxed groups. In what follows I will present a brief overview of the political and economic context in which taxation of nitrate took place, followed by an analysis of the different outcomes from that taxation. Chilean Nitrate: Economic and Political Overview The five decades of the "Nitrate Era" (1880-1930) were a period of fundamental economic and political transformations. The rapid development of a new export sector supported an unprecedented economic expansion in the northern province and through an increased demand for agricultural products consumed by nitrate workers, it also promoted linkages with agricultural sector in the central region. Additionally, the export sector supported a remarkable state expansion, and through state investment, massive transfers of resources from the North, where nitrate was located, to the Central region of Chile. Economic expansion was however accompanied during this period by economic and internal political instability. On the one hand, demand for nitrate, which was used as a fertilizer, followed the uncertain seasonal fluctuations of agriculture in four European countries. And the First World War introduced instability on its own: it practically stopped consumption of nitrate as a fertilizer, increased its use in weapons, but ultimately induced profound shifts in the industry. On the other hand, the Nitrate Era roughly coincided with a period of struggle about the constitutional division of powers between 11

the executive and congress, known in Chilean history as the Parliamentary Period (18821920). The conflict between executive and congress was intensified in the decade of the 1870s when congress passed a constitutional reform that undermined presidential power, introducing direct election of congressional seats and an electoral law that transferred electoral qualifications to specialized local governing juntas, and that established literacy as the only requirement to vote (Collier and Sater 1997:121-2). Because traditionally the Executive gained some control of Congress by electoral manipulation, the electoral reform, by making such manipulation more difficult, tilted the power in favor of Parliament. An under-powered Executive was then always in the look for alliances with segments, factions or whole political parties represented in Parliament. At the same time, political parties competed for the expanding government jobs and government spending (Collier and Sater 1997). Undoubtedly, expanded revenues through nitrate taxes fueled political competition, as resources extracted from the northern nitrate regions were now available to be invested in other central and southern regions.5 In the War of the Pacific (1878-1893) Chile fought Bolivia and Peru for the control of disputed bordering territory. As a result of victory in the war, Chile annexed the Peruvian province of Tarapaca, and the Bolivian Antofagasta region, desert areas where rich nitrate deposits were located. Nitrate from theses regions became the mainstay of the Chilean economy: during fifty years nitrate was the main export, the main source of foreign exchange, and the main source of state revenues. Thus, from 5

Nitrate revenues were used in the development of a railroad network, which for a large time was unprofitable, in education and in the expansion of state bureaucracies. Mamalakis who extensively studied the nitrate sector argues that productive investment of revenues was seriously lacking and that "French wine exceeded machinery imports" (1976:39). Yet, the contribution of the nitrate industry to the economic development of Chile has been a matter of acute debate among scholars for several decades, both because of the importance of foreigners in it and because of the government use of the resources (revenues).

12

1900 to 1930, for example, more than 50 percent of total state revenues came from taxes on nitrate and iodine (Mamalakis 1976:38). Nitrate of soda (salitre) was found in these regions in sufficient concentration to be exploitable, and due to the richness of the deposits, to their large size, high quality and their easy access, Chile by the end of the 19th century became the sole world producer of natural nitrate. In addition, because nitrate deposits were discontinuous located in a relatively extensive area, mining was extensive and decentralized (Cariola and Sunkel 1985:149). Soon after the war ended the Chilean government recognized the property claims of individuals who had nitrate certificates issued by the Peruvian government and which represented the bulk of the nitrate deposits. In this fashion the mines came to be owned by an almost equal number of Chilean, British and German proprietors (Cariola and Sunkel 1985:154; Blakemore 1974). Scholars Cariola and Sunkel note that the proportion of Chilean mines rose from 18 to 36 percent after the War of the Pacific, with the British share of ownership increasing in the ensuing decades. Indeed, since the 1880s a political split between Chilean producers of nitrate in territory that was originally Chilean, and those producers from the provinces annexed surfaced. Deposits in the Chilean territories were not as rich as those in the annexed north, and therefore, Chilean producers tended to be relatively smaller and less efficient. British owners were the most important in the sector, and among them, one producer, John Thomas North, was the largest. He owned or controlled large nitrate deposits and highly efficient companies for industry standards. He also controlled a railroad that monopolized considerable proportion of the transport of nitrate, a company that supplied water needed for

Comprehensive and, to an extent, contrasting assessments are found among others in Cariola and Sunkel (1985), and Mamalakis (1971a,1976).

13

production, a company importing goods from other parts of Chile and from abroad, destined to supply nitrate communities. He also owned an important bank (Blakemore 1974:35,64). Regional concentration, together with ownership concentration, produced an oligopolistic industry which would facilitate the industry's attempts to control nitrate's world price. Indeed, all nitrate was produced in the North, and in 1912 for example British capital controlled 38 percent of nitrate production, with Chilean capital controlling 37 and German 15 percent (Cariola and Sunkel 1985:199). The analysis of the Nitrate Era in Chile exposes a critical process in the relationship between taxation and consultation and consent. First, taxation of nitrate implied the insertion of a completely new social group into politics, and thus this allows us to observe the emergence of the informal and formal rules that governed the exchange between centralizing authorities and rich elites. Second, as the export sector was radically transformed during the 1930s, it is also possible to look at the conditions that underlined the ultimate demise of these political practices and organizations that had emerged. It is in this respect a period suitable to study the emergence and change of institutions. Last, the Chilean case is relevant for other Latin American countries that also significantly depended on taxation of export sectors, like Bolivia with tin and Venezuela with oil. More generally, the focus on political interactions and on institutions building in relation to democratic processes makes this particular study relevant to study the consequences of taxation elsewhere. In Chile taxation generated three major sets of political practices, formal and informal. These practices involved conflict, from 1880 until 1895, informal consultation and cooperation from about 1895 to the First World War; and particularistic formal

14

consultation in organizations that included only nitrate producers from the end of the First World War to the world economic crisis. Let me discuss each one briefly, emphasizing the conditions under which they existed as well as the institutional outcomes. Taxation of Nitrate in Chile 1880-1930 Opposition between State Authorities and Mine Owners: 1880-1895. This is a period of privatization of the Chilean annexed nitrate mines, imposition of taxes by part of central authorities, mine owners opposition to taxation, and finally, establishment of Chile as the main world supplier of nitrate. In addition as many domestic taxes were abolished, state revenues became significantly dependent on nitrate resources. State officials and nitrate industrialists bargained tax payments in exchange for property rights of nitrate deposits, and concessions for railroads. In addition, central administrations were engaged in protracted negotiations about producers' organizations that aimed at controlling exports and that affected tax revenues. The imposition of taxes on nitrate business came soon after the Pacific War started. Taxes on nitrate exports (and on iodine in a much smaller share) grew from about 4% in 1880, still during the war with Peru and Bolivia, to 48% in 1890 and 58 % in 1894 (Mamalakis 1965:184). Several factors account for the promptness in taping revenues from newly acquired mining resources. First, the state's fiscal crisis and the fact that nitrate deposits were the spoils of war busted the administration's legitimacy to impose taxes. Second, the group of nitrate owners was weak politically, because many large owners of nitrate deposits were foreigners and lacked, then, connections to the

15

formal power structure.6 Third, as with other taxes on exports of primary products, the collection of taxes on nitrate exports was easy and inexpensive. The mines were concentrated in two regions, and the product exited through few ports. Last but not least, imposition of taxes on nitrate was accompanied by the dismantling of some old taxes that fell on the landowning elites and of ceding control of others to local provinces. Therefore, landowning elites, which were well represented in congress, supported taxation of nitrate owners. The quick and successful imposition of taxes did not mean lack of opposition by nitrate industrialists. English and German mine owners, as well as Chileans, opposed government's attempts in 1879, before the War ended, to establish a tax of 1.50 pesos per quintal in all nitrate shipped from the Tarapaca region. They refused to export nitrate and argued for a lower tax on the basis of a low demand for the product. The government responded by creating two commissions to study the matter. But, later, the Chilean government decided to recognize the certificates that had been issued by the Peruvian Government and that were in the hands of owners of nitrate deposits located in the Chilean-annexed territory (O'Brian 1979:111,114). Eventually, in 1882, the Chilean government granted certificate holders definitive titles of their oficinas. As O'Brian argues, this last measure was critical because it avoided claims against the state by foreign holders of Peruvian bonds, particularly by British citizens. Bondholders thereafter had to take property complaints to Chilean courts. In 1880 a uniform tax of 1.60 pesos per 100 kilos of exported nitrate was imposed. When Chilean entrepreneurs protested the tax, the government granted a 50 per 6

This was not the case with several Chilean stockholders or owners of nitrate oficinas who, as O'Brien (1980) shows, were politically well connected and, as it will be mentioned later, used those connections to

16

cent tax exemption. They were promised that the construction of a railroad that would make Antofagasta nitrate competitive with that of Tarapaca --the most productive region- would soon follow (O'Brian 1979:117-8). Scholars agree that this tax of 1.60 pesos per hundred kilos of exports which was unchanged during the entire nitrate period, was high, "all that the industry could bear" (Brown 1863; Cariola and Sunkel 1985; McQueen 1924; Mamalakis 1971). In terms of the value of exports the share of taxes in 1890 was more than 43 percent and remained at this level until 1900. The share of the tax declined to about 30 percent of the value of exports after 1900, and in the 1920s it further decreased to 20 percent (Cariola and Sunkel 1985: 155, 200). For the whole period (until 1924) the average export tax was 33 per cent of the value exports, and the remaining two thirds of the value was equally divided between net profits and cost. Thus, according to Cariola and Sunkel (1985:155) the Chilean state was "able to appropriate for itself approximately half of the gross profits engendered by the nitrate industry." Most of the remaining profits, however, left the country, partly because the higher rates of profits accrued to foreigners. Railroads and other business that provided goods to the nitrate region were also foreign-owned. An additional negotiated struggle between central authorities and owners of oficinas involved the creation of producers organizations called "combinations," that sought to control production and exports of nitrate in order to increase prices. Because nitrate was used as fertilizer in agriculture, it was subject to sharp fluctuations in world demand. When agricultural prices rose, farmers could afford fertilizer and demand for nitrate thus increased, but when prices fell, fertilizer use was quickly cut. Given the

obtain tax exemptions and special concessions from the government.

17

periodic falls in nitrate demand and price, producers attempted to control production and exports in order to avoid price declines. Three conditions made producers' organization viable: Chile had a monopoly of natural nitrate, and thus world output could be controlled; the number of producers was relatively small, which made coordination and consultation relatively easy; last, nitrate was regionally concentrated, so that enforcement of quotas was relatively easy to monitor. The organizations sought to introduce production controls through allocating production quotas to each producer. Producers themselves would monitor and enforce the quotas. As it happens with producer organizations' attempts to control exports of other raw materials, especially oil coffee and tin, these organizations were plagued by internal rivalry between more and less efficient producers, and by problems of compliance with the quotas assigned. Combinations, as the producer organizations were called in Chile, affected revenues by limiting exports and state authorities, to varying degrees, opposed them. The first combination was short-lived (1884-1886). This combination was supported mainly by producers from the province of Tarapaca, that included the largest and most efficient English producers, and reached moderate success. Prices increased only the second year of operation, and the combination was dissolved because of producers' infighting, and because world demand level increased in 1887. But again, as prices decreased in 1889 and 1890, a second combination was developed. This time, the combination, under the English producers' leadership sought wider support from all producers, including the smaller Chilean producers in the West Coast. In 1890 the English share of the industry amounted to 60 percent of the output (Brown 1963: 235).

18

This second combination was bitterly opposed by President Balmaceda (18871891). The President argued that reduction of output would decrease revenues, affected nitrate mine workers negatively, decreased commerce, encouraged the development of synthetic fertilizers, and, finally, would promote the formation of a foreign, that is, English, monopoly, that did not have Chilean interests at heart. This last aspect became the lynchpin of the governments' attack to the combination, and one that resonated during the following decades. Both, President Balmaceda and his successor, President Montt, (1892-1896), who held widely different political ideologies, cast the combinations and their effect on revenues in nationalistic terms. Thus, government officials attacked producers, particularly foreign producers, referring to them as a "Nitrate Ring" and the Triple Syndicate (a reference to the control of production, transportation and finances by English nationals), while promising to support all Chilean producers. In 1893 President Montt threatened to legislate against the combination if output was greatly reduced, and Congress approved the sale in auction of government-owned nitrate land in order to increase production capacity, and diminish the success of combinations (Brown 1963: 235; others). Although the second combination collapsed because the mayor producer, the English Colonel North, The 'Nitrate King', withdrew his companies from the combination, state administrations used, indeed, auctions of nitrate lands to undermine the combinations and to promote the 'nationalization' or chileanization of the industry. Thus auctions of nitrate land were explicitly timed to undermine the combinations as new owners had to pay for their property and were interested in fully working their deposits (TE 2/8/1893:198;1/9/1895: 87-88). In addition, these auctions were also used to

19

increase the share of Chilean owners. With great unanimity --since the Balmaceda administration-- state authorities emphatically believed that increasing the Chilean share of ownership in the nitrate sector would solve the problems (however diagnosed) of the industry in its relation to the country. Thus, at times only Chileans could participate in the auctions, and the government advanced credits to Chileans only to facilitate mine purchases. Another source of bargaining between producers and central governments were official concessions to build and operate railroads in the nitrate regions. The government's interests in greater output generated opposition to the private operation of railroads and to the acquisition of more nitrate lands by the British industrialist North in the belief that such an acquisition would increase the power of the industrialist within the industry. North had a concession to exploit a major railroad in the province of Tarapaca, The Nitrate Railways Co., but producers complained to the government about high tariffs charged by the railroad, the only outlet of exports. High tariffs, they charged, limited exports and hurt producers because they depended on this railroad for transportation (Blakemore 1974:151). Thus, the Balmaceda administration sought to break North's monopoly by giving, through a presidential decree, a railroad concession to a rival British company. Simultaneously, Balmaceda also questioned in Chilean Courts the legality of North's most recent acquisition of nitrate lands. In turn, North challenged the legality of the presidential decree conceding permission to build the rival railroad in the Supreme Court (Blakemore 1974:141-3). Although the Balmaceda regime did not succeed in obtaining concessions from railroad owners, later on after the fall of Balmaceda, in 1893 and 1894, The Nitrate Railroads significantly lowered its tariffs (TE 4/ 24/1897:612).

20

Opposition to the second producers' combination and the legal challenges to railroad concessions and land acquisition reached a climax with a decision by the Supreme Court that the railroad dispute was beyond its jurisdiction and that Congress had to decide the issue. As senators split, some supporting North and some others supporting Balmaceda's decision to break North's railroad monopoly, Balmaceda closed Congress, and a major constitutional crisis ensued. The battle between the central administration and nitrate producers over this issue then tapped into the political struggle between the executive and the parliament's political fragments that played out in the country's civil war during 1890-1891. The civil war ended with the defeat and death of President Balmaceda and with the institutionalization of the Parliamentary Republic. Hostilities between producers and state officials were mitigated in 1894 as the second combination broke down. The failure of the combination was the result of North's refusal to include the output of The Lagunas, his most productive deposit, and of government auctions of nitrate land in the summer of 1894 that undermined the reduction in output sought by the combination. Overall, the bargaining between nitrate producers and central authorities was one in which the former, reluctantly, paid taxes in exchange for property rights for the mines and for transportation of nitrate to the ports. The bargaining was sometimes selective, favoring Chilean producers from less productive regions over those mainly foreign and more productive of the Norte Grande. As producers curtailed output to increase prices, affecting tax revenues, central authorities then challenged property rights, by challenging the legality of concessions, by issuing decrees that changed the terms of the concessions, and by selling new land deposits that would break the control of exported output. This

21

period was characterized by little predictability on both the government and the producers' side, as each attempted to increase its share of revenues and profits. Nonetheless, central administrations did not always maximize revenues, and nationalistic principles justified tax breaks and auction of nitrate lands to Chileans. The struggle between the two sides was largely conducted within the context of existing institutions: contracts that allowed nitrate owners to profit from nitrate deposits and to build transportation networks, courts to challenge some of those contracts and the tax contract backed up by Parliament. Yet, a whole new set of political interactions emerged. Finance ministers and executive officials repeatedly contacted nitrate owners individually and those organized in combinations, and set up a new office in charge of supervising land auctions and enforcing property rights. After a brief upsurge in demand from 1893 to 1894, nitrate producers started talking about forming a new combination. This time however the central state accepted its formation and with this acceptance started a period of relatively closer collaboration with industrialists. Informal Consultation and Collaboration: 1895-1915. Consultations and collaboration between state authorities and the taxed entrepreneurs existed during a period marked by the consolidation of the industry's importance in the world market and by stable or growing exports at relatively high prices (Cariola and Sunkel 1985:186). The latter was the result, partly, of producers' combinations that controlled production and exports and partly of an increased demand owing to the United States' entrance into the nitrate market. And as production and exports (and revenues) became more predictable, producers' demands for state goods became also more predictable. State authorities continued to bargain nitrate deposits' property rights

22

(particularly of those newer deposits), for taxes, but they also became a partner in the producers' organizations, helping with their relative success in various ways. Following the fall in nitrate prices in 1895, from 260 to 234 pesos per ton (Cariola and Sunkel 1985:186), and an ensuing industry-wide depression, the central administration admitted the need to regulate output. This marked a shift in the governments' position with respect to producers. Scholars suggest that this change was the result of the fact that Chilean producers increased in importance and they, more than the foreign producers, developed considerable political influence in Congress and with the Executive branch of government (Brown 1963:238). But also, the depression itself was particularly deep and endangered the survival of many producers. Last but not least, after more than a decade of revenue dependence, the cyclical nature of the nitrate industry blatantly exposed the vulnerability of government programs financed by taxes on exports to world fluctuations in nitrate demand. Willingness to support the industry amounted to a recognition that in the long term the interests of the industry and of the government coincided. The Third combination (1896-1897) was thus organized with government support, but it failed to reach export quotas, and prices continued to fall. Internal rivalry furthered the dissolution of this combination. As the depression deepened, English producers proposed centralizing sales of exports in Europe, arguing that production' restrictions alone had proved inadequate to increase prices. Yet, this proposal was rejected by west coast producers (mostly Chileans), who feared that such a centralization would increase the monopolistic power of large, mainly English, producers.

23

World demand started to recuperate by 1899 and a proposal for a fourth combination (1901-1905), that would operate before another cyclical crisis would set forth, was ultimately accepted. The combination operated in the midst of a nitrate boom partly created by an increased use of nitrate in the United States (Brown 1963:241). Not withstanding the auctioning of nitrate lands in 1901 and 1903, bitterly opposed by producers as it increased production capacity, prices did not fall. Although all producers benefited from the boom, Chilean producers of the West Coast and others in Antofagasta province gained in importance. One effect of the boom was an increase in the number of producers and a gain in the share of the industry controlled by Chileans. By 1895, 6 percent of companies were Peruvian, 22 percent were Chilean and 60 percent English. But by 1926 only 1 percent was Peruvian, 42 percent Chilean and 41 percent English (Bergquist 1986:36). Regional rivalry between large, efficient, and mainly foreign mine owners of Tarapaca, and less efficient, smaller, newer, and mainly Chilean producers, came to be significant during the fourth and fifth combinations. As high prices increased the incentives to exceed quotas, the fourth combination collapsed, but a fifth (1906-1909) was formed again with the intervention and full support of the government. This last believed then that free production would be followed by a fall in prices, which in turn, would hurt Chilean producers more than foreign producers. Though the soundness of this analysis is questionable, this belief led to the active mediation of government officials in the process of quota assignment (Brown 1963:242-4). Producers suggested that the government invest in research to discover more economical methods to extract nitrate, demanded and obtained government monies for

24

advertisement (Acta de Sesion de 1913:587), as well as special loans to producers in distress. Demands for a lower tax, that were also common, were however not met. Thus, a bureaucracy specialized in nitrate business emerged during this period. The state created an Office for Credit Assistance to Nitrate Producers to lend monies at low interest rates to producers in need.7 Also the national Delegacion Fiscal Salitrera was created to handle the broad needs and problems of the industry. In practice however, this office had the function of establishing property limits to nitrate lands in the many land disputes between the government and private individuals, and of helping the government in the auctioning of nitrate lands.8 In addition, producers obtained monies for advertisement of nitrate abroad, and finally, state officials provided brokerage in the formation of combinations. When the government refused to support the formation of a sixth combination (1908-09), which faltered without it, the refusal was more a symptom of greater, not less, involvement with the industry. According to Brown, this refusal responded to the introduction in the world market of synthetic fertilizers. Support for high prices (through a combination) could jeopardize the long term health of the industry. In addition, the increase in the number of producers, from 53 in 1895 to 137 in 1914 (Cariola and Sunkel 1985:186), made the formation of producers' organizations more difficult without government intervention. By the onset of the First World War then, government involvement with the industry was irreversible. In the context of relatively greater stability in the world 7

The minister of finance reported that, for example, in 1915, the government gave loans at low interest rates to 40 of 72 firms that had requested them (MH Anexo 1915:421)

25

market, producers' demand for state goods was mostly met, and producers began to depend on state provided services. In fact in 1909 some nitrate producers suggested that the government centralize nitrate sales, (SAJ 5/30/34; 6/27:783). This proposal continued to resonate throughout the First World War when special arrangements that included government participation in the sale of nitrate to an Allied consortium of buyers were made (MH 1919), and after the war, when the industry declined. During the First World War state authorities also advanced funds to pay the wages for workers that were going to be laid off (SAJ 9/19/1914:220). Thus there were clear signs that in the eyes of the producers themselves state services in the form of brokerage for combinations, advertisement and low interest loans, were giving them some return for their taxes, even though complaints about the tax burden continued to exist. It should be noted in addition, that governments continued to sell nitrate lands throughout this period. However, now, auctions were carried out with the explicit purpose of raising funds, rather than as a display of the power of the state to undermine producers' limits to production and exports (MH 1914: L). Consultation between central government officials and nitrate producers was frequent but fundamentally informal and not binding under conditions of relative economic stability of nitrate production and exports. The vested interests of the state, which significantly depended on nitrate exports, induced, reluctantly, consultation with industrialists, many of whom --in the eyes of central authorities-- did not have Chilean interests at heart. Although several state organizations were created to attend business of the nitrate sector, they were government created and run, without officially including 8

In 1917 a Senator commented that there was "a tremendous struggle between the nitrate industry and the fisc" and that the state was questioning every title obliging industrialists to incur in the costs of defending

26

nitrate industry representatives. Yet, it was clear that not only there was frequent exchange between industry and government about the former's problems and needs, but that critical industry's demands were being heard. Particularistic Consultation and Government's Increasing Control of the Industry 1915-1930. The severe crisis in the industry that ensued with the First World War brought about great economic and political instability in the country at large, and pitted again state officials with producers when each struggled for an increasing share of the decreasing industry profits. The informal rules of exchange that during the previous period had begun to solidify, were broken by instability in the international market forces. Government assistance was less effective, and in fact failed to lift failing producers and to stabilize production. In addition, political instability, in the form of two military interventions, introduced unpredictability in the administrations' decisions. The First World War brought about a sharp decline in the demand for nitrate as a fertilizer. President Barros Luco (1910-1915) in his annual message said that the war economically affected those countries responsible for 60 per cent of the demand for nitrate, and that the industry survived only because the state provided credit to producers. Thanks to this credit the industry kept 40 percent of production (C de Sen 1915:8). But demand recuperated in the following years because nitrate became a component in the production of explosives, and that consumption more than compensated for the decrease in nitrate as fertilizer. Indeed, exports of nitrate reached a record high in 1916 (Cariola and Sunkel 1085:186). But the bonanza stopped after the WWI ended, and the demand for nitrate for fertilizer never recovered. Exports in 1919 fell to a fifth of the 1918 level them (Cam de Sen 1917:215).

27

in real value, and during the 1920s the index of export prices fell rapidly and continuously, declining by 43 percent (Palma 1984:53-55). There followed instability in the terms of trade, fluctuations in import prices, and dramatic fluctuations in Government revenues. Total ordinary revenue, for example, was about 153 million dollars in 1918, but in 1921 it decreased by 66, and in 1924 by 41 percent (Cariola and Sunkel 1985:185). Fear about the demise of the nitrate sector together with fiscal crisis led authorities to initiate fiscal reforms. New direct and indirect taxes and increases in old taxes, none directly affecting the nitrate industry, were imposed. The new taxes included a surtax on agricultural properties. Taxes on agricultural properties had been transferred to municipalities in the 1880s, during the Balmaceda administration. A 1916 law however established that Congress, when approving the yearly budget, could assess an additional tax of 2 per thousand of the self-assessed land value for the central Government. As land was undervalued and there were numerous deductions before the tax was assessed, revenues from this source were not significant (McQueen 1924: 15, 33). But over the period these reforms in the tax law were followed by other tax proposals, which included an income tax, finally imposed in 1926 by a military government. Nitrate crises mobilized workers as well as producers. The repercussions of the crisis cycle on employment were severe. In 1918 Senators talked about the risk of having 200,000 workers unemployed, and the need to establish a program of public works (CS 1919: 559). Unemployed workers in the north had to be moved to the south, in order to avoid starvation. After 1918 employment in the mines fell precipitously, particularly during the recession of 1920-22 when the labor force was reduced by half, from a total of

28

57,000 workers. In 1925 the labor force rose to over 60,000 workers to fall again two years later to only 36,000. In 1932 it was 8, 535 (Bergquist 1986: 29). Labor agitation, which had become important since a major strike in 1909, was now widespread. A partnership between state authorities and nitrate producers was fully established in The National Association of Nitrate Producers created in 1919 by a governmental decree and with four directors nominated by the executive. The association fixed selling prices for nitrate producers and centralized activities related to nitrate: advertisement, research for new methods of production, and statistics of the industry (MH 1919; 1922: CLXV). This was the first organization of its kind where government officials and industry representatives formally worked together in the multiple fronts of the industry. It was done, however, bypassing the political process by which claims were regularly made. Cooperation of both sides existed, yet in an organizational form that isolated it from competing claims of other economic groups and from formal political channels. If anything, during the 1920s the government increased its involvement with the combination of producers. On the one hand, it helped producers in their handling of workers unrest and layoffs, advancing money for wages of workers and assisting them with the standardization of the firing practices of workers. The state also increased military force (jointly supported by producers and the government) in the nitrate region with the aim at controlling workers' protest. Interestingly enough, the office in charge of this task was called the Oficina de Bienestar Social (Office of Social Welfare)(MH 1925:CXIII). On the other hand, the government also negotiated with producers the production quotas, the prices, as well as the minimum share of producers that had to participate in a combination in order to become a legal combination (TE 7/26, 1919:127-

29

8; 2/19/1921:326; 10/15/1921:576-7). Congressional records of these years strongly suggest that, many producers, although certainly not all, recurrently asked the government to centralize nitrate sales. Such centralization would have implied the government to advance capital for stockpiling and absorb cost differentials between prices paid to producers and those in the international market. Yet, cooperation did not exclude conflict. In the 1920's some oficinas stopped producing in order to decrease supply and increase prices, and in response the government threatened to impose new taxes to those producers who did not continue producing (Montero 1953:71-73). Simultaneously, by the end of the 1920s pressures to reduce the export tax increased, particularly because taxes in countries where synthetic nitrate was produced, had been reduced in order to make it more competitive with natural nitrate (TE 7/24/1926: 153). By then the share of Chilean nitrate in the world market had declined from about 55 percent in 1913 to 24 in 1922 and about 35 percent in 1924 (Cariola and Sunkel 1985: 196). Tax relief did not come. On the contrary, producers complained that the government was managing to change surtaxes on nitrate by manipulating the exchange rates at which taxes had to be paid (CS 1919:151; 1917:1474). And these manipulations became a law in 1917 that stipulated that tax payments had to be paid partly in gold and partly in paper, in proportions fixed by the President (Mamalakis 1971:201). The nitrate industry had a short recovery in mid 1920s when a new method to speed extraction of nitrate was introduced by the (North American) Guggenheim group. But the new technique was unable to revive the salitreras. Indeed the number of oficinas decreased from 96 and 91 in the mid-twenties to 38 and 21 in 1929 and 1930 (Collier and

30

Sater 1997: 218). In response to the persistent crisis, in 1928 the Minister of Finance was reorganized and the government created a Centralized Selling Corporation, which fixed a level of tax yield, and after the fixed yield had been reached, it would reduce tax on additional exports (TE 10/13/1928: 645). That reorganization was not final. As the Guggenheim group, now the major nitrate producer, argued for a lower tax in order to make Chilean nitrate competitive again, Military president Ibanez decided to go into partnership with the group, and in 1931 created the Compania de Salitre de Chile (Nitrate Company of Chile) (Collier and Sater 1997: 218). In that arrangement, half of the capital was provided by the state. The world economic crisis however altered this scheme once more. In 1934 the Corporacion de Ventas de Salitre y Yodo which gave the state "effective control of what was left of the industry, and 25 percent of all profits" (Collier and Sater 1997: 229; Sobrados Martin 1953:31). The nitrate industry experienced a rapid decline during the post World War I period. Such a decline that was primarily the result of external shocks by means of a decreased international demand, changed the balance of power between the taxed elite and the state. The state was then is a more favorable position to carry out critical tasks that could ameliorate the decline of the industry. It was not so much that the state was particularly well suited to fix prices, enforce quotas among producers and centralize sales, as the fact that, given the vested interests of the state in the survival of the industry, there were few other options open. By default, a central state had to intervene in a key industry for its survival. Political interactions in this period were crystallized in formal state-led organizations that included representation of members of the nitrate elite. Undoubtedly,

31

the National Association of Nitrate Producers, and other organizations that followed, required collaboration of both sides. Yet, these organizations limited consultation to industry affairs, and separated these affairs from the larger political struggle. Conclusions and Further Research Overall, political interactions between state authorities and nitrate producers distinctively involved conflict initially, informal cooperation and consultation later on, and finally formal consultation and cooperation within the confines of organizations specifically created by the central state to deal with nitrate industry needs. Conflictive practices were shaped by power relations in which state authorities used various resources to successfully impose taxes. These resources included the power to grant and protect property and the use of political allies to support taxation. In turn, alliances were forged in two ways: by eliminating taxes on politically powerful groups, mainly the landed class, and second, by using a nationalistic ideology that mobilized popular sectors and liberal segments of the ruling elites against nitrate owners. Rather than institutional legacies, a main outcome of the conflictive stance of both sides in this initial period was the development of a nationalistic ideology, which central authorities, since then, and until the 1930s and beyond, repeatedly used in their relationships with foreign producers of mineral products. Consultation and cooperation with state authorities were quite low or not existing during the first period when the role of the state was mainly one of imposing and collecting taxes. State interventions geared to support the industry were few, and the interactions between the two sides were marred by legal disputes, accusations of contract violations by both parts, and by hostility toward

32

producers' organizations that had the power to affect revenue yield. As consultation and cooperation were low, consent for taxation was equally low or nonexistent. This picture changed during the consolidation of the industry, when state authorities consulted and cooperated with producers in order to respond to their demands. Informal consultation and cooperation were the result of a relatively more balanced relationship between state and taxed groups, and of a relatively stable economic environment. In terms of a balance of power, during this period state authorities developed a vested interest in the success of the industry and nitrate producers begun to depend on goods that the state produced. Economic context however was critical in that it provided relative stability within which the terms of the exchange between central authorities and nitrate producers held. In this context, state policies were relatively effective, and acceptance of taxation was likely to improve with respect to the previous period. External shocks that were out of the control of both producers and the state, altered the political balance between them and their bargaining terms, and the state more permanently reorganized the industry under its own auspices. There was consultation and formal representation but in state controlled organizations that separated the industry's claims from the formal broader democratic process, and that restricted, if not eliminated, the accountability that could potentially have followed from formal consultation. Government responsiveness to the industry needs increased during this period, as it created a more centralized organization intended to improve coordination and efficiency of previously separate efforts. But under unfavorable international

33

conditions the effectiveness of these interventions declined, as they failed to stop the industry from rapidly declining during the 1920s. Very broadly, as predicted by the European experience, taxation generates a political exchange that entails consultation but that only under specific conditions, can lead to binding consultation and consent. In Chile taxation of exports and significant revenue dependence from these exports led to informal consultation by state authorities with a group of nitrate owners that was largely out of the existing structure of power, and that was looked by state authorities as 'un-Chilean'. To this extent, then, taxation is a powerful mechanism that can force reluctant sides to a mutually beneficial exchange that requires consultation for the exchange to be effective. Yet, binding consultation and consent, essential processes in democracy, seem to require at least much greater economic continuity and stability than what was possible with taxation of exports of primary products in the context of developed capitalist markets. Furthermore, under a segmented consultation that basically eliminated public accountability of state authorities, acceptance by part of taxed groups of state authority was harder to achieve. Further research is needed in terms of how central states heavily dependent on revenues from a single source manage to gain consent and credibility from largely not taxed economic elites. Taxation is certainly not the only source of consent and binding obligations but it is a powerful source of both. Precisely, in Chile during the nitrate era, the landed elites that were in control of political power were not taxed. In the absence of taxation state goods and services are 'free' for these elites, and access to them is dependent on these elites' (changing) political power. And because states are in possession of resources obtained elsewhere, they have fewer vested economic interests in

34

developing credible commitments, and in turn, lower likelihood of generating consent from these not taxed elites. One can speculate, then, that in export led countries where state revenues heavily depend on a single source, consent and overall legitimacy of state interventions is not only difficult to achieve among taxed elites, but also, form elites that largely control political power. Whether this in fact is the case is important for the possibilities of democratization and legitimacy in a considerable number of countries in Latin American and around the world.

35

References - Taxation and Consultation Adelman, Jeremy, 2001. "Institutions, Property, and Economic Development in Latin America," in Miguel Angel Centeno and Fernando Lopez-Alves, editors, The Other Mirror: Grand Theory through the Lens of Latin America. Princeton, N.J.: Princeton University Press, 27-54. Alt, James E.,1983. “The Evolution of Tax Structures.” Public Choice 41: 181-222. Ardant, Gabriel 1975: "Financial Policy and Economic Infrastructure of Modern States and Nations" in Charles Tilly (ed.) The Formation of Nation States in Western Europe. Princeton N.J.: Princeton University Press. Bates, Robert H. 1997. Open Economy Politics: The Political Economy of the World Coffee Trade. New Jersey: Princeton University Press. Bates, Robert H. and Da-Hsiang Donald Lien, 1985. "A note on Taxation, Development and Representative Government," Politics and Society, 14:1. Berins Collier, Ruth, 1999. Paths toward Democracy: The Working Class and Elites in Western Europe and South America. Cambridge, U.K.: Cambridge University Press. Bergquist, Charles 1986. Labor in Latin America Comparative. essays on Chile, Argentina, Venezuela, and Colombia. Stanford, Ca.: Stanford University Press. Blakemore, Harold.1974. British Nitrates and Chilean Politics, 1986-1896: Balmaceda and North. University of London: The Anthlone Press. Brown, J.R. 1963. ΑNitrate Crises, Combinations and the Chilean Government in the Nitrate Age.≅ Hispanic American Research Review, vol 43(2):230-245. Cariola, Carmen and Osvaldo Sunkel 1985. ΑThe Growth of the Nitrate Industry and Socioeconomic Change in Chile 1880-1930≅ in Roberto Cortes Conde and Shane Hunt eds. The Latin American Economies. New York: Holmes and Meier. Centeno, Miguel Angel, 1997. "Blood and Debt: War and Taxation in NineteenthCentury Latin America." American Journal of Sociology 6(May):1565-1605. Coffee, Jr., John C. 2001. "Do Norms matter? A Cross Country Evaluation". University of Pennsylvania Law Review, 149 (6): 2151, 27 pages. Collier, Simon and William F. Sater. 1996. A History of Chile 1808-1994. Cambridge, England: Cambridge University Press.

36

Conaghan, Catherine M.. and Rosario Espinal 1986. "Unlikely Transitions to Uncertain Regimes? Democracy Without Compromise in the Dominican republic and Ecuador." Journal of Latin American Studies 22:553-574. Delacroix , Jaques,1980. “The Distributive State in the World System,” Studies in Comparative International Development 15:3-21. Fauvelle-Aymar, Christine, 1999. "The Political and Tax Capacity of Government in Developing Countries," Kyklos, 52 (3): 391, 23 pages. Hagopian, Frances 1996. "Traditional Power Structures and Democratic Governance in Latin America in Jorge I. Dominguez and Abraham F. Lowenthal eds., Constructing democratic Governance: Latin America and the Caribbean in the 1990's- Themes and Issues. Baltimore: The Johns Hopkins University Press. Hansen, Susan B., 1983. The Politics of Taxation: Revenue without Representation. New York, N.Y.: Praeger Publishers. Hopcroft, Rosemary L., 1999. “Maintaining the Balance of Power: Taxation and Democracy in England and France, 1340-1688.” Sociological Perspectives, 42(1): 69-95. Huntington, Samuel P. 1991. The Third wave. Democratization in the Late twentieth Century. University of Oklahoma Press: Norman and London. Kiser, Edgar and Kriss A, Drass. 1995. "Ruler Autonomy and War in Early Modern Western Europe." International Studies Quarterly, 39 (1): 109-138. Kiser, Edgar and Yoram Barzel, 1991. "The Origins of Democracy in England." Rationality and Society, 3(4): 396-422. Knight, Alan, 2000. "The Modern Mexican State: Theory and Practice," in Miguel Angel Centeno and Fernando Lopez-Alves, editors, The Other Mirror: Grand Theory through the Lens of Latin America. Princeton, N.J.: Princeton University Press, pp.177-218. Knight, Jack and Jean Ensminger. 1998. "Conflict over Changing Social Norms: Bargaining, Ideology and Enforcement, " in Mary C. Brinton and Victor Nee eds., The New Institutionalism in Sociology. Stanford, CA.: Stanford University Press. Lamborn, Alan C., 1983. “Power and the Politics of Extraction”. International Studies Quarterly 27, 125-146. Latham, Mark, 2000. "The Search for Social Capital." Social Capital, p.7. Levi, Margaret, 2000. Consent, Dissent and Patriotism. Cambridge, England: Cambridge University press.

37

Levi, Margaret and Laura Stroker 2000. "Political Trust and Trustworthiness." American Review of Political Science 3: 475-507. Lopez-Alves, Fernando, 2000. State formation and Democracy in Latin America 18101900. Durham, NC: Duke University Press. Mamalakis, Markos J.,1989. Historical Statistics of Chile. Government Services and Public Sector and a theory of Services. Volume 6. New York: Greenwood Press. Mamalakis, Markos J.,1971. "The role of Government in the Resource transfer and Resource Allocation Processes: The Chilean Nitrate Sector, 1880-1930." The University of Wisconsin, Milwaukee: Center for Latin American Studies, No.19. Mamalakis, Markos J.,1976. The Growth and Structure of the Chilean Economy: From Independence to Allende. New Haven: Yale University Press. Nee, Victor and Paul Ingram, 1998. "Embeddedness and Beyond:Institutions, Exchange and Social Structure," in Mary C. Brinton and Victor Nee eds., The New Institutionalism in Sociology. Stanford, CA.: Stanford University Press. Przeworski, Adam 1991. Democracy and the Market: Political and Economic Reforms in Eastern Europe and Latin America. Cambridge, England: Cambridge University Press. O'Brian, Thomas F. Jr..1979. Chilean Elites and Foreign Investors: Chilean Nitrate Policy, 1880-82." Journal of Latin American Studies, 2:101-21. O'Donnell, Guillermo. 1998. "Horizontal Accountability in New Democracies." Journal of Democracy 9(3): 112-126. Palma, Gabriel. 1984. From Export-Led to an Import-Substituting Economy: Chile 19141939. In Rosemary Thorp ed., Latin America in the 1930s: The Role of the Periphery in World Crisis. Oxford, England: MacMillan and St. Anthony's College. Pye, Lucian W.,1999. "Civility, Social Capital, and Civil Society: Three Powerful Concepts in Explaining Asia," Journal of interdisciplinary History, 29(4): 763-783. Ratner, Sidney, 1942. American Taxation, Its history as a Social Force in Democracy. New York: W.W. Norton &Co. Steinmo, Sven, 1993. Taxes and Democracy: Swedish, British and American Approaches to Financing the Modern State. New Haven: Yale University Press. Sobrados, Martin, Francisco.1953. Influencia de la Mineria en las Economias de Chile y Bolivia. Madrid: Ediciones Cultura Hispanica.

38

Tilly, Charles, 2001. "Processes and Mechanisms of Democratization" in Charles Tilly, Stories Identities and Political Change. Forthcoming Tilly, Charles, 1990. Coercion, Capital, and the European States. Cambridge, MA: Basil Blackwell. Tilly, Charles 1985: "Warmaking and State Making as Organized Crime," in P. Evans, D. Rueschemeyer, T. Skocpol eds.,Bringing the State Back In. Cambridge, England: Cambridge University Press. Tsai, Ming-Chang, 1999. "State Power, State Embeddedness, and National Development in Less Developed Countries: A Cross National Analysis." Studies in International Comparative Development, 33 (4). Valenzuela, Samuel, 2000. "Class Relations and Democratization: a Reassessment of Barrington Moore's Model" in Miguel Angel Centeno and Fernando Lopez-Alves, editors, The Other Mirror: Grand Theory through the Lens of Latin America. Princeton, N.J.: Princeton University Press. Webber, Carolyn and Aaron Wildavsky. 1986. A History of Taxation and Expenditure in the Western World. New York: Simon and Schuster. Primary Sources Camara de Senadores (CS) The Economist (TE) Memorias de Ministro de Hacienda (MH). South American Journal (SAJ)

39