Sebastián Lucas Mazzuca

Interview

Q/ The triple challenge, institutional framework and state capabilities: sustainable development involves objectives related to economic growth, social inclusion and the protection of nature. To meet these challenges, effective public policies and solid institutions are required. What are the key ingredients of the institutional framework and what capacities are required of the States for this challenge?

The main problem in Latin American countries is the lack of state capacity. It is a very serious problem that, in any case, must be put in context. Latin America, in the last quarter of the 20th century, achieved democracy, which is something spectacular, of great proportions.

For most of the century, a large number of countries lived under dictatorships. And in the mid-1970s, those dictatorships began to fall and the region became one of the areas with the largest number of democratic regimes. It is a democratic region and that is a great achievement. Few countries broke democracy and Venezuela is an example, but it is rather an exception. Democracies in Latin America, in principle, if things do not go wrong, will last for a long time. That is a great contributing element, which is a good in itself and helps the economic development of the region.

The main ingredient that is missing in Latin America is capable states. Latin America does not have capable states. What is a capable state? It is a State that provides, that supplies public goods. We all know what private goods are: an iPhone, a car, a meal in a restaurant. These are private goods that are provided by the market and distributed by the market mechanism. The State is busy producing much more important goods, which are goods that the whole population enjoys at the same time, if they are well provided. The most important of these is security. The State is concerned with protecting society against external attacks, it is concerned with protecting private citizens from attacks by other citizens. It also ensures that there is an education and health system.

Latin America has the peculiarity that it is made up of distinctly incapable States, despite having democracy. There are very few democracies that have States as deficient as those of Latin America, that is, it is a region of contrasts: a lot of democracy, little State capacity. This does not mean that the State has to be big or charge more taxes. It simply has to do with the State being more effective and more efficient in providing public goods.

Q/ During the 20th century, most Latin American and Caribbean States have been consolidated under democratic institutions, with legal acts of electoral participation and group representation. At the same time, these institutions are sometimes fragile in the face of the threats of clientelism and capture. How do you evaluate the evolution of institutions and what are the main challenges pending to consolidate institutionality in the region?

Indeed, in Latin America, the regimes are democratic, but the States are patrimonialist. What does it mean to say that they are patrimonialist? States are usually captured by groups of all kinds, they can be economic groups, political factions, political parties, criminal groups that use the resources of the State, not to produce public goods, but private or partisan goods.

So, in Latin America we have democratic regimes coexisting with patrimonialist States. Ideally, Latin American states should be efficient, Weberian, meritocratic, but they are not, and so we have democratic regimes coexisting with patrimonialist states. And this generates what, with my colleague and friend Gerdado Munck, we have called a trap of mediocre or medium quality, which are inefficient States that feed back into low-quality democracies. Low-quality democracies produce low-efficiency states. Why? Well, because low-quality democracies, due to their own mechanisms of representation, end up generating governments that have no interest in improving the capacities of the States, and these in turn have little capacity, which prevents the political leaders in charge of the government from producing public goods that help with the development of the region.

They do not produce these public goods, why? Because they do not have capable States. A politician, whoever the president may be, it is not his fault, it is not that he is bad, he is simply in control of a State that does not have the capacity to produce what the population needs for the long term. Thus, instead of producing public goods that improve the quality of life of society in the long term, it produces goods, partisan, partisan, clientelistic distributions.

So what happens? Low quality democracies feed mediocre states and these do not allow politicians to improve the quality of democracy; it is a trap that feeds back on itself. That is the situation, that is the key. If something has to happen in the 21st century, it is to break this trap. In the 19th century, the great achievement, the great conquest, was independence; in the 20th century, democracy; and in the 21st century, it should be efficient states.

Q/ To what extent is the lack of capacities in the States of the region conditioning inclusive and sustainable development, and what elements are essential to improve them?

Well, precisely, it is October 2024. A few weeks ago, a colleague and friend won the Nobel Prize in Economics. James Robinson, along with Daron Acemoğlu, claim that inclusive institutions are the key to the development of societies. Now, these authors assume that there is an efficient state that already exists.

So they say, well, let’s change the institutions, let’s improve the institutions of that State so that economic development can take place. What are those institutions? Property rights, democracy, avoiding concentrations of power and so on. Those are all rules that these authors, who are my friends, want. Now, the rules, which are, to a large extent, quality rules, are what all the development literature calls for in order for economic development to occur. These rules have to be enforced and for this to happen, there has to be the necessary strength and effectiveness. That is to say, for the institutions to exist, for the institutions of development to take root and produce their effects, in turn, before them, there must be a State that implements the rules. Without the State to implement them, the institutions are useless. The State is the one that enforces, as they say in English, enforces the rules. The main deficiency is the lack of capable States.

Q/ Despite the progress made in decentralization in the region, intermediate and local governments still face institutional challenges and heterogeneous levels of capacity. How do you assess the role of local governments and what are the main areas to improve their capacities and close territorial gaps?

It is a fascinating subject the enormous variety of results that exist within countries. Each country, especially the Latin American federations (Mexico, Argentina and Brazil) contain about 30 countries within them. And those countries go from one extreme to the other. The poorest regions of Latin America, to a large extent, resemble Sub-Saharan Africa, and the richest areas resemble a European state, or more than European. Here we are in Monterrey, and Nuevo León looks a lot like Singapore. And if you go to Formosa, in Argentina, you find a poorer country, more so than Guatemala. In Mexico itself, these contrasts are present, which means that for development in Latin America there is not only inequality between social classes, but also enormous heterogeneity, immense diversity between regions. This, to a large extent, reflects what we were talking about before: there is so much heterogeneity, diversity of situations and divergence in human development among the regions of Latin America that the national State is not very capable, it does not have the scope to reach all the corners of a territory and do things right, that the law is complied with, that the education systems are complied with, that there is drinking water, infrastructure. This does not exist in Latin America.

Precisely, incapable states create uneven development. That is the big issue in Latin America. If you look at the prosperity of the local regions of certain localities, they are perhaps 10 or 20 times richer than the poorest region of the same country. That’s a drama, isn’t it? And that drama, to a large extent, reflects the fact that local governments also diverge enormously in terms of their capabilities. To a large extent, Latin America is full of brown areas. Just as there are black markets, illegal markets in many parts where the state is not, there are also brown areas, places where the law does not rule and are dominated by local politicians, by criminal groups, by economic groups, you name it, that are subtracting themselves from the national order and fragmenting the political territory.

Latin America is plagued by local governments that in reality, we could call them so, are satrapies of low capacity, high levels of corruption and lack of interest in local development. And these satrapies persist and are a major problem, they must be brought to the forefront. And it is precisely this variety of public capacities within countries, between regions, that causes these great contrasts in human development within each country.

Q/ Dynamics, democracy and the State. In some of your works you argue that the quality of State democracy feeds back. Could you develop the main mechanisms or channels that relate the State and its capacities with democracy and its quality? What factors can produce a virtuous circle of better States and democracy in Latin America and the Caribbean?

It is fascinating to see what a politician, a president or any of the people with whom CAF has to interact can do to produce development. That the poor politician, who is usually reviled by public opinion, who loses credit in less than a year in office, who is stigmatized, is actually little to blame for the evils. Why is he to blame for the evils? It is like a pilot who is going to drive a car, but that car is not a Ferrari, it is a 1940 Fiat 600, so he tries to promise that he is going to change the world, but then he does not have the tools. It is the lack of the State. Let’s think about the drama that occurs for democracy in this situation. A politician, a pilot, sits in a car with which he cannot fulfill the promises he made in the campaign, simply because he does not have the capacity, the fiscal resources, sometimes not even the human resources. Faced with this drama, what should he do? Well, he has to be reelected. But if he does not have the capacity and has to be reelected, instead of producing public goods, he has to try to produce private goods. Redistribution, in general, of the few resources there are. That is a drama, that generates a democratic crisis, a political crisis.

States that are not very capable limit the capacity for action, the margin of politicians. How to get out of this situation? It is a very complicated decision, because the situation of politicians who are managing States that are not very capable is very difficult and potentially dangerous for democracy and for the State. Why? If a politician makes promises, does not keep them, and the population is systematically dissatisfied, it will think that the problem is with democracy, when in fact democracy has no defects. It is a regime that is all very well, it provides political equality, political freedom, but if there is no State, no matter how much anyone can get into the car or be elected to get into the car, if it does not work, it does not work. But we blame the pilot or we blame democracy, instead of seeing that the problem is the State and its lack of capacity.

How do you get out of this? The main way I can think of is, first, luck, as happened in some of the countries of the world. They were lucky in achieving it. There are few countries that managed to produce high quality democracy and high capacity states. We know of some high-capacity ones, such as Singapore and China, but nobody wants those states because they are all dictatorships. The capable states of Scandinavia, Europe and the US, in general, achieved their capabilities under dictatorships. So, first they had their capable states and then they changed their regime.

Latin America already has democratic regimes, but it has incapable states. How do you do that? It is a unique challenge. The advanced world did not go through this juncture. Latin America has a pioneering situation, in a sense, because it is the first time that there are countries with democracies and States that are not very capable. How do you build that capacity? It would be ridiculous to rely on luck and something has to be done. The advanced countries, I repeat, were, to a large extent, lucky to have capable States before the population asked for democracy. In Latin America, the population asked for democracy before having States. We have democracy without States, or with States of low quality.

What is the solution? The solution will come, at some point, because some crises will be big enough for there to be a political agreement among all parties to invest tax money, that is, fiscal resources, in building State capacity without stealing it, without redistributing it, without giving it to favored groups, even if it is a large number of poor people, but in a way that is not sustainable. This must be avoided. Populism, clientelism, must be avoided, but it is very tempting.

If a politician really wants to transform reality and produce capable States that put an end to all the vicious circles that Latin America has, he must be very clear that it is something very similar to a war economy. This in the sense that they have to save all possible resources to build efficient States, meritocratic public services, capable above all, that are immune to corruption, to being co-opted or captured by pressure groups, by criminal groups.

The politician has to be very clear with his audience that, as Churchill or Kennedy -the great Western leaders of the 20th century- said, perhaps we are not going to see the fruits, our children are going to see them. We are going to have to change these countries with super-capable States. Latin America does not know capable states. Perhaps only in very small countries like Costa Rica and Uruguay.

In order to build such a State, many sacrifices are required, perhaps twenty years of proven policy oriented almost exclusively to produce capable States. A political leader must succeed in convincing the population that this need has reached the point where we cannot wait any longer and that if we continue to wait there will continue to be poverty, crime and economic backwardness in Latin America.

For this to be solved, the politician has to not campaign or make the campaign of his life, which is to make it clear to the population that they have to be patient, that there is a moment of construction of the State, of institutions, which may last ten or twenty years. In all the countries of the world it lasted ten, twenty or thirty years, these are not built overnight. So, it starts there, it starts with the politician, and what he can do is to make it clear to the population, without demagogic promises that «tomorrow you will be fine». That does not exist in Latin America. You have to tell them that they are going to be fine in five years, in ten years and that, instead of producing short term consumption, you have to postpone it and make long term investments in state capacities.

Q/ Political polarization is a global phenomenon that threatens the continuity of policies pursued by countries. Climate change response and tariff policies are examples of areas frequently affected by changing risks. How can the continuity and effectiveness of policies be ensured in a context of political polarization and changes of course?

Indeed, polarization is a problem that affects everyone. We see it in the U.S. in a dramatic way. The U.S. is seeing for the first time things that in Latin America already happened in the middle of the 20th century, in the 60’s, 70’s. Polarization is a global phenomenon, it is very complicated. It paralyzes politics and generates these oscillations that are not new in Latin America, but now, for some reason, they are more noticeable.

Why do these things happen? Here we can do a bit of science fiction and realize that, although I am a defender of the State and its capacity, we must think a bit about what is going to happen in fifty years. Where does this polarization come from? I warn that this almost universal phenomenon does not happen in dictatorships, because opposition is not allowed. Even if you look at Venezuela, there is polarization. And , what did the polarization consist of? People alienated to the regime of Maduro and Chávez, either emigrated -eight million people left Venezuela- or, if they stayed, they did so as resistance and opposition to the regime. Polarization exists everywhere.

Now, why does it become so universal in 2030? I am almost certain that polarization is a universal problem because not even states in advanced countries, in Sweden or Canada, can provide an effective response to the problems of globalization.

Globalization was a beating for the States in the sense that it generated forces and problems that the State cannot solve. Let’s think about this for a minute: if we want to know what is the optimal scale for creating solutions to problems such as international security, environmental crisis, trade, these are solved not by countries, but on a higher scale, such as the European Union or the union of the entire U.S. In other words, countries, nations, have become anachronistic, obsolete, as the optimal place to produce solutions to contemporary problems.

To a large extent, many contemporary problems require a larger scale than that of the country. The US, originally, was a bunch of countries, 13 countries that saw that they alone could not produce solutions to their problems, and that these were protection from the European powers, not to be invaded, to generate free trade among themselves, to create a rule of law, a justice system. To all this, the 13 countries said, «we cannot do it on our own because it is too expensive», so we got together and saved that money and let a national State provide these solutions in the same way.

Now, these problems exist in the same way in Latin America and in the world, and it is the cause of polarization. Polarization happens, people become alienated, angry and think of different options because the state cannot respond. If you have to provide security, it is at continental scales. NATO tries to do that, but it failed. All of Latin America, all of the West, would need a large army to protect itself from Russia and China. It would need large macroeconomic coordination institutions to achieve monetary and fiscal stability, etc., so it is obvious that by 2050 countries will probably cease to exist, or there will be a lot of pressure for them to cease to exist, and that they will combine as in Europe, where countries have been combining to produce monetary policy. NATO is the other side of producing a continental-level military. Obviously, this institution has failed, but it is going in the direction in which the world is asking it to go.

On the one hand, the world is asking for continental solutions. On the other hand, if we think of any large Latin American country with 50, 100 million inhabitants, what national State can understand what is happening in every corner of its country? It is unfeasible. That capacity does not exist and will not exist, it is too late. Unfortunately, the National State of Mexico, the National State of Argentina or the National State of Brazil cannot understand what is happening to all their populations.

Therefore, some public goods, for example, health, education, to avoid polarization or, for example, the states of Mexico, which are close to the United States, need very different solutions to the problems that San Francisco de Campeche or Chiapas have to solve. The same in Argentina as in Brazil. Therefore, , just as some goods, security, rule of law, perhaps economic stability, must be produced by multinational economic blocs, there are other problems that must be solved by subnational entities. Small steps, very small, where people can participate better, have more influence on governments, etc. What does it mean, then? That this level of the national State that is providing solutions for all the problems of pollution, health, infrastructure, security, all that is overloaded at this level. Some solutions have to be provided at supranational level and others at subnational level, so, although we are all very nationalistic, patriotic, we like the tricolor, the blue and white in Argentina, all that should disappear and the governments should manage at other levels. This is going to happen, it is going to happen. The question is how much we oppose or how intelligent we are in the face of this reality that is appearing.

Q/ The global geopolitical context may affect the configuration of investments and value chains. What changes in the geopolitical context do you consider important for the region and how can the region take advantage of them to promote its development?

The world we thought existed after the fall of the wall no longer exists. It was the world dominated by liberal, democratic, free-market Western powers, and the world was going in that direction. The big change here was obviously the emergence of China, which at the beginning seemed like a vegetarian power, right? Only interested in producing and trading. However, in the last 20 years, in addition to China, there are countries like Russia, North Korea, Iran, which have geopolitical aspirations. And as long as China exists with its economic power, even if these other countries have no economic relevance compared to China or the US, they can tip the balance in favor of China which is no longer vegetarian, it became carnivorous. It has geopolitical aspirations, not only commercial but eventually to go to war. And this series of small countries, but of the wrong axis, let’s say, like Korea, Iran, Russia, Venezuela, can promote China to develop its challenge to the world of liberal globalization that existed and, in fact, has happened.

In a globalized world, between COVID-19 and new geopolitical threats, value chains are breaking down: the Suez Canal, trade with China. And here is something interesting that I would like to point out. All these challenges are opportunities for Latin America in what sense? The most obvious one is that the US is stopping investing USD 300 billion in China and Latin America can catch them. It is the ideal candidate. US foreign investments suspend their actions in China and relocate them in Latin America, which in Mexico is known as nearshoring, affecting mainly the northern and some central states.

Therefore, the new geopolitics represents an opportunity for Latin America. In addition, the region has to understand that it might be better not to ignore China, but also to make its own agreements with it. Is it advisable to ally completely with the U.S. or is it better to maintain a certain degree of independence and receive investments from both blocs? Well, there is an opportunity that Latin America did not have and now has, and it is the opportunity of a lifetime. To a large extent, it could become a lever to change the reality of Latin America.

Now, how interesting this is, and that is that despite the enormous investment potential that a country like Mexico has, it does not receive all the investment that it could precisely because it does not have capable States. Imagine the amount of investment that Mexico would receive if it did not have cartel problems, problems with the rule of law. If instead of Mexico, Uruguay, Chile and Costa Rica were the countries on the southern border of the U.S., in twenty years they would be Switzerland. Why? Because they have rule of law, they are small, they have capable states. The subnational states of northern Mexico fulfill these functions to some extent, but here again we see the importance of state capacity. In spite of this great opportunity for investments to rain, they do not rain as much as they could, precisely because there are State deficiencies. There is not enough rule of law, too many levels of criminality, there is no investment climate because the rules of the political game are manipulated. So, there is a great opportunity for entrapment. We return to the usual theme, a capable State.

Which State is the most capable of obtaining these advantages, of taking advantage of the geopolitical advantages or geopolitical bonuses that the world offers? Well, they are capable states. The question again is: Is the nation state, the state that we know, countries as we know them, are they capable of maximizing these opportunities or should it be other levels? For example, should it be an association of Latin American and sub-national States, should it be Nuevo Leon and Tamaulipas, and other States should do other things?

Q/ To what extent can global integration target or affect the institutional quality of the countries in the region?

That’s a fascinating question, one that I’ve asked myself several times. The question is whether it is possible. Given that Latin American states are deficient, is there an international force to improve the capacity of these states, and strictly speaking, yes it is. If a State wants to take advantage of what we were talking about just now in terms of investments, it has to get itself in order, it has to reduce the levels of corruption, it has to make the justice system independent. As long as it does not do so, investments will not come and this means a constant cost. What happens is that as every year it is a little bit, nobody feels it. Ten or twenty years go by and the effects of the low state capacity are felt, so, effectively, the world can create incentives for Latin America not only to be democratic, but also to have more capable states.

Q/ What is the role of multilateral organizations in the region? There is a lot of heterogeneity in the region: how does this role vary across countries and/or sub-regions, for example, Southern Cone, Northern Cone, Central America, Caribbean? What do you think is CAF’s differentiating role in the region?

CAF and other multilateral development banks, taking it with a pincer, can play the role that the Japanese State played for the development of Japan, or the U.S. State played for the beginning of the capitalist take-off of the United States.

Latin America finds it very difficult to produce endogenously in its countries, to produce capable states. Japan produced and developed it, the USA produced and developed it, Sweden produced and developed it. Latin America, considering its complex reality, could, instead of developing each country, develop its own State, borrow it, import capacities.

What capabilities can a country import from banks? Human capital, knowledge and resources that are also applied to the creation of public goods that favor development. To a large extent, the capacity deficiencies of Latin American states can be filled by the capacities of multilateral development institutions. This is perhaps the main function. The capacities that the countries do not have, the multilaterals have, so they can import them, to put it very crudely. On the one hand.

On the other hand, if one looks at multilateral banking, it is precisely the potential origin. We will see how the future turns out, how the movie goes on, but multilateral banking is precisely the recognition that national states are not enough to produce effective solutions to many problems. And that for those problems, such as infrastructure, supranational entities are perhaps needed that operate at another level. And that is what development banking is. In particular, what distinguishes CAF is its strong focus on human capital, on knowledge, on local development through multilateral banking. In other words, CAF could be one of those characters that in a futuristic tale could be the protagonist of the reality of Latin America, where the national states have less responsibilities and those responsibilities are distributed upwards, towards multinational or multilateral entities, and downwards, towards local governments. And what is CAF? CAF can be a multinational or multilateral entity that provides, that helps the development of regions, localities, states or municipalities.