Social actors located in the middle of the pyramid suffer from political irrelevance and lack of understanding, a condition that is particularly true in the case of small industrialists in Latin America. A brief revision of the discussion surrounding the petty bourgeoisie, as it was originally called, reveals an oscillation between idealistic and realistic perspectives on the matter. While some view these social actors as unimportant, as they lack economic clout or organisational capabilities, others regard them as untrustworthy, given that as weak actors they tend to shift allegiances or become co-opted by powerful forces, including the state.
At various points in time, the perspective of Marxists in the Communist International generated hopes of converting the petty bourgeoisie into revolutionaries in order to confront landlords and foreign enclaves. From a different point of view, development theorist E. F. Schumacher saw these small businesses as key agents of development in the Third World. While discussing ‘the question of scale’, he even declared ‘small is beautiful’. However, neither perspective convinced political forces nor had any lasting influence.
It was the realist efforts of populists in Latin America that became more important, particularly in the cases of Mexico, Brazil and Argentina, all of whom incorporated small businesses into larger corporatist organisations without much discussion. This situation lasted until the collapse of the populist state and the adoption of free market policies virtually eliminated state corporatism. Democratisation complicated matters further since a more open field accentuated internal divisions and saw the emergence of competing organisations. Nonetheless, even though today the market is ruled by capital-intensive corporations, it is small businesses that contribute more to employment, a situation that has generated recognition from multilateral organisations and governments – yet, only as economic agents, not as organised actors.
This rare and useful study by Kenneth Shadlen on the politics of small industry in Mexico helps to draw attention to this rather forgotten set of actors and contributes to enhance our understanding of their logic of collective action. Thanks to archival work and interviews, it offers an internal look at the organisational and political dynamics of the industrial petty bourgeoisie. The starting point is the formation of the Cámara National de la Industria de la Transformación (CANACINTRA) under the auspices of the Institutional Revolutionary Party (PRI), one of the first small business confederations to emerge in the region.
The process of organisational and political development of small industrialists began in the 1940s, when Mexico built a peculiar model of state corporatism that organised and incorporated various social players, including firms of different sizes. By enacting an organisational law that provided compulsory membership and mandatory dues, the party inadvertently changed the political condition of small industrialists. The corporatist system gave them a voice and a place at the bargaining table as organised actors, but in a situation where ‘political autonomy’, as Shadlen puts it, was gladly exchanged for ‘organizational stability’ (p. 58). These rather positive conditions generated from above obliged the leaders of small industry to accommodate themselves to the whims of the PRI. The structure of incentives and constraints – a concept Shadlen borrows from David and Ruth Berins Collier – gave existence to small industrialists as political actors, but not to the point where they could ‘exit’ the system or ‘voice’ demands. These limitations became evident in the 1980s, when small industrialists were trapped in the corporatist system and forced to remain loyal to the PRI at a time when big business became an independent, better organised and more influential political force.
Shadlen argues convincingly that these divergent patterns were accentuated by the peso crisis of 1982, the shift to market economics that followed, and the gradual electoral weakening of the PRI. In this way, the author highlights the role of a changing political context, a critical variable in his analysis since collective action ‘depends on the settings’ (p. 143). CANACINTRA's earlier gains rapidly dissipated as big business became more influential and less dependent on the PRI. Not surprisingly, peak business associations like the Consejo Coordinador Empresarial (CCE) monopolised business representation in the negotiations that led to NAFTA in 1994, while CANACINTRA could not even attend the meetings and express its position, which supported gradual rather than sudden integration into world markets.
As the corporatist model began to fall apart and the PRI rapidly developed a new alliance with big business, internal conflicts among small industrialists accelerated their political demise. Those who dissented from CANACINTRA's game of political accommodation first questioned the leadership and later, frustrated by lack of results and political harassment, abandoned the organisation. To make matters worse, in the 1990s a more independent judicial system, and a Congress influenced by opposition parties, dismantled the corporatist system and eliminated compulsory membership.
Shadlen contends that in this more pluralist, democratic setting the overall economic and political conditions did not generate an environment that encouraged collective action. Small industrialists gained autonomy but also suffered from declining representation and lack of recognition. Democracy in effect ‘orphaned’ this emerging but structurally weak and territorially dispersed actor. A striking corroboration of this trend can be assessed by looking at CANACINTRA's membership: it declined from a high point of 90,000 in the 1980s to only 15,000 in 1997. Moreover, as the old peak association officially representing small industrialists weakened, more than 300 new organisations emerged by 1999, further diluting its political influence.
This useful, carefully researched, well conceptualised and methodologically sound analysis of Mexican small industrialists concludes with a cross-national comparative perspective on corporatism. The lesson to be learned from the comparison of Mexico, Argentina and Brazil is that external sponsorship is needed to overcome the collective action problems of small businesses. An equally important lesson is that state corporatism generates various political risks: (1) weak economic actors may end up subordinated to official associations led by big business, as in Brazil; (2) the party in power can force small business associations to accommodate themselves to governments which in the end will ignore their demands and at the same time favour an intimate relationship with big business, as in Mexico; or (3) associations of small businesses can suffer from repression when authoritarian regimes attempt to dismantle corporatist structures, as in Argentina.
A broader comparative study is needed along the lines proposed by Shadlen, one that incorporates non-corporatist settings where small business flourished following a different path of organisational development. In that sense, an interesting case is that of Federación Nacional de Pequeña Industria (FENAPI) of Peru. FENAPI emerged in the 1980s thanks to the support given by European foundations and shrewd leadership. The federation obtained national recognition thanks to Máximo San Román, a quechua-speaking engineer who manufactured and exported small machines, and who later became the nation's vice-president during the first Fujimori administration. Between 1990 and 1992 small industrialists reached an unprecedented level of representation, until the Fujimori autogolpe and pro-market economic reforms disempowered them. Big business quickly supported an alternative organisation and incorporated various small business organisations into CONFIEP, their peak association. Loss of state support and subordination to larger firms thus considerably weakened small industrialists in Peru.
There is no question that Shadlen has written an important book on business politics. The author fills a void in the area of small businesses, deeply enhancing our understanding of an actor that is often under-researched and generally misunderstood. Most likely, the interest on this topic will continue to attract scholarly and political attention. After all, small businesses fared well during the debt crisis of the 1980s, and even expanded under the current economic model, increasing their importance as job creator. The task at hand is to make them organisationally stronger and independent.
The book is a mandatory reference for any scholar or institution interested in learning and expanding this line of inquiry. It highlights the ‘forgotten middle’ of the social pyramid, providing an accurate and detailed assessment of the limitations and potential of small businesses. Shadlen, we may add, compels us to pay attention to this ‘third logic of collective action’, one different from labour unions and big business. In a context ruled by large firms, the collective empowerment of small firms contributes to balancing economic interest groups. The quality of policy, an issue associated with overall political conditions, will undoubtedly increase if political actors and policy experts listen to and negotiate with small business organisations instead of following the established pattern of dictating decisions from above. The question again is that, given the economic weaknesses and spatial dispersion of small businesses, their institutional structure needs to be externally supported by powerful forces, and that, given the risks of state corporatism, organisational autonomy must be guaranteed. On this issue, convincingly illustrated in the Mexican case, Shadlen is right on target. On others, the plight of small businesses needs to be looked at from new angles.
The argument that under neoliberalism large and small firms operate under what ‘might appear to be a level playing field’ (p. 144), a point Shadlen makes in his concluding chapter, is a vague and rather indirect form of arguing about the difficulties that small business face nowadays. Here a pluralist view does not help to see the forest. An alternative perspective based on concepts such as the ‘capture of the state’ becomes necessary. Small industrialists and other actors, labour unions in particular, have suffered more intensely from organisational weakness and political dispersion in the neoliberal policy game. The hypothesis to be more broadly tested is as follows: as the twin transitions to democracy and market economics unfold, not only does the setting change but also the correlation of forces, to the point that big business becomes the most powerful player, one with such an inordinate degree of influence on parties and governments as to contribute to this disempowerment and reallocate scarce resources in their favour. Thanks to these influences, while old populist rents were eliminated, new rents were generated – privatisation policies, tax exonerations, and legal stability contracts – all tailored to favour big business. The end result is the creation of an unfair playing field. Shadlen's references to ‘conflict with those actors that do have … resources’ (p. 144), emphasise material differences more than power asymmetries, a perspective that does not help us to understand fully the overall dynamics of small business politics. Shadlen correctly points out that small industrialists lost access to resources and suffered from lack of attention from parties and governments, PAN in particular, but he does not fully consider whether big business directly contributed to this outcome. It that sense, supporting organised small businesses is an opportunity to right a wrong and rebalance the correlation of forces in the region.
On a separate matter, business politics in reference to small industrialists in Latin America cannot ignore the question of their cultural and social foundations. Cultural arguments have always been considered an important explanatory variable in the development literature that blossomed since the 1960s. Today small businesses have acquired a higher political capital because, unlike larger firms, they represent the economic success of people from poor and indigenous backgrounds. This new cultural dimension of small industrialists as achievers is particularly strong in Andean nations, but also in Mexico and Central America. The fact that countries with strong indigenous roots have witnessed the rise of capitalismo cholo, based on a work ethic with local foundations, has given small business a sense of identity and external recognition that, given their rather scarce resources and capacities, effectively helps them. Although – following Shadlen's line of thought – the hard realities of dispersal and limited economic resources will continue to determine collective action, the question of perceptions and identities needs to be incorporated in the analysis as an intervening variable. By doing so, we can enhance our understanding of small business as a distinct and potentially important political actor.
Overall, given the extent and depth of the author's contribution to understanding small industrialists from the inside out, Democratization without Representation is very much a worthwhile read. Shadlen has presented us with a big book on small business.
