THE CONTEMPORARY DEBATES

The political economy literature widely refers to “neo,” or “societal,” or “democratic” corporatism as the centralized, state-sponsored wage pacts between business and labor that started in the World War II aftermath and produced better trade-offs between inflation and unemployment after the 1973 Oil Crisis (Cameron Reference Cameron and John1984; Calmfors and Driffll Reference Lars and Driffll1988). Since the early 1990s, however, enhanced capital mobility and exchange rate (and later monetary) unification limited government’s inflation management and its capacity to compensate labor with social policy—key parameters of the neocorporatist pact (Scharpf Reference Scharpf1991). In Latin America, neocorporatism—that is, genuine national wage bargaining between a democratic government, unions, and employers—seldom existed in contexts of authoritarianism, low autonomy of social actors, or class polarization.

In sum, after the golden age of the 1970s and 1980s, centralized, peak-level wage pacts had lost effectiveness. However, mainstream comparative political economy scholars hastened to note that multisector “wage coordination,” with varying degrees of centralization and involvement of peak-level union confederations, business chambers, and the state, continued to be a central feature of many European Continental and Nordic political economies. Cost-effective competition in a post-Keynesian, globalized world still required forms of concerted wage moderation and cooperative class relations. The concept of “corporatist countries” became, in practice, extended to different ways of multisector “wage coordination” (Wallerstein and Golden Reference Wallerstein, Miriam, Iversen, Pontusson and Soskice2000, 110).

Thus, the study of wage bargaining since the 1990s in traditionally corporatist countries followed two paths. The first discussion centered on the historical prerequisites for the launching of coordinated wage models in the context of broader welfare states. A novel “employer-centered” approach was pioneered by the work of Swenson (Reference Swenson1991), who claimed that cross-class coalitions in the export manufacturing sector enabled corporatist wage agreements in the cradle of corporatism in Denmark and Sweden. It was later most fully systematized by the Varieties of Capitalism (VoC) school (Hall and Soskice Reference Hall and David2001; see also Mares Reference Mares2003) and its larger typology of Liberal (LMEs) vs. Coordinated Market Economies (CMEs). VoC’s basic distinction in the labor market is between average workers in LMEs, who embody general, transferable skills across sectors, and those in CMEs, who carry firm or industry-specific skills.

Crucially, in the microfoundations of social policy laid out by VoC scholarship, the rational worker will invest in specific skills only if he or she has life risks covered. Therefore, both employers and unions in CMEs will favor policies that protect skilled workers from the vagaries of the market. Among them, coordinated bargaining figures prominently, as it insures the real wage of employees that invest heavily in training schemes. In short, nonmarket wage arrangements in this perspective are a public good provided by cross-class coalitions of employers and workers, rather than the outcome of distributive struggles. As Estévez-Abe et al. (Reference Estévez-Abe, Iversen, Soskice and Hall2001, 181) contend, coordinated capitalism “often stems more from the strength rather than the weakness of employers.”

This thesis was more recently disputed by authors who point out the decisive role played by left power and state activism in the origins of coordinated capitalism and in the prevention of unilateral, labor cost–savings paths for business thereafter (Korpi Reference Korpi2006; Martin and Thelen Reference Martin and Kathleen2007). Korpi’s Reference Korpi2006 reformulation of the Power Resources Theory posits that employers in advanced European economies were not the main “protagonists” in the crafting of welfare policies and centralized wage models but mostly “consenters” to institutional arrangements largely imposed by left parties and allied unions. Both Korpi and Hacker and Pierson (Reference Hacker and Paul2002, 285–86) warned that apparent ex-post consensus between employers and unions on established welfare mechanisms (among them coordinated bargaining) did not imply a joint previous effort to introduce them in historical perspective.

The second major discussion relates to the feasibility of corporatist arrangements in a post-Keynesian, globalized world. Contrary to neoclassical economists, VoC scholars argue that even in a world of capital mobility, labor market organization could have real policy consequences in the long run. They point out that “signaling games” between independent central banks implementing nonaccommodating monetary policies, and concentrated labor movements, still produce better inflation outcomes with low unemployment. A centralized and encompassing labor movement has incentives to moderate individual unions in the face of central bank independence and a credible threat of a nonaccommodating (i.e., potentially contractive) monetary policy that could produce unemployment. Conversely, an independent central bank will be more inclined to monetary deterrence when challenged by uncoordinated, militant unions than when confronting a labor movement that can credibly commit to moderating its wage pattern (Hall Reference Hall1994; Iversen Reference Iversen1999; Franzese and Hall Reference Franzese, Hall, Iversen, Pontusson and Soskice2000).

This type of wage coordination is one of the key “institutional complementarities” that drives CMEs’ success in international markets. Of course, monetary unification limited this signaling game in the Eurozone. Nevertheless, the corporatist management that survives globalization in the VoC perspective is one heavily biased toward “supply-side policies”; that is, wage moderation and downward labor costs, central bank–induced deflationary policies, and export competitiveness.

For Thelen (Reference Thelen2014) and the Models of Growth approach (Baccaro and Pontusson Reference Baccaro and Jonas2016, Reference Baccaro and Jonas2019), however, this “supply-side” corporatism masks important distributive differences within CMEs. Thelen (Reference Thelen2014, 30) underscores that in the context of enhanced economic internationalization and deindustrialization, the resilience of coordinated wage models that VoC scholars laud is often accompanied by the growth of a deregulated periphery of low-skilled workers and subcontracting companies. Crucially, this labor market dualization in CMEs, such as in Germany or Japan, serves the interests of (and is often promoted by) both employers and unions in competitive export manufacturing, as it lowers the cost of labor and business services.

From a different but converging angle, Baccaro and Pontusson (2016, 176,186) question how the entire VoC framework downplays demand-side macroeconomics. They argue that coordinated models in a globalized world still have essentially two main “drivers of growth,” exports and domestic market consumption, the latter of which can be bolstered by wages or private debt. In some cases, such as Germany, coordinated models since the 1990s have indeed been based on real devaluation attained through wage and fiscal restraint, strong central bank independence, and continuous export growth. In other cases, such as Sweden, however, the growth of exports and wage-driven, domestic market consumption to boost aggregate demand has been more balanced, and active fiscal policies have been more prominent (Baccaro and Pontusson Reference Baccaro and Jonas2019, 28).

In sum, either from a labor-institutional (Thelen) or a macroeconomic (Baccaro and Pontusson) perspective, these visions illuminate the increasingly inegalitarian form of corporatism implicit in the VoC framework. They oppose an alternative model in which inclusionary labor market reforms (such as sustained, state-backed labor compensation and training) and more active demand management are underpinned by more encompassing coalitions not anchored in core export manufacturing interests. This progressive “social bloc” (Baccaro and Pontusson Reference Baccaro and Jonas2019, 28) may include employers in the construction and service sectors and unskilled workers. The empirics of neocorporatist management in Uruguay tell much about the origins of coordinated wage models and the possibilities to consolidate inclusionary forms of corporatism.

A CASE STUDY OF NEOCORPORATISM

Gerring (Reference Gerring2001, 215) posits four types of case study method: extreme case, typical case, crucial case, and counterfactual. Uruguay between 2005 and 2019 clearly falls into the extreme case category: it is simply the only instance of stable democratic neocorporatism in any historical pattern of interest representation in Latin America. Indeed, with the exception of Argentina under the Kirchners, traditional unions were not main protagonists even in the recent new left projects of the 2000s (Levitsky and Roberts Reference Levitsky and Kenneth2011). Only the Uruguayan model was able to combine centralized, state-oriented wage negotiations with stable macroeconomics and the support of a unified labor movement in both good and bad times.

As Gerring argues, extreme cases are useful when a phenomenon is diffcult to operationalize (2001, 217). Many Latin American countries have experienced some instance of policy concertation, or (as in Mexico, 1987–88) wage pacts. However, Uruguay presents, without question, most features associated with a neocorporatist outcome: a routine of peak-level negotiated wage rounds, an important degree of intersectoral coordination, and a heavily concentrated labor movement.

Moreover, this study intends to exploit the advantages of the case study method in two ways. The first is to tackle the complexity of causal assessment. Watching a single unit over time enables the analysis to present two outcomes relevant to the general phenomenon of neocorporatism (origins and stabilization or performance), with their corresponding sequential explanations. Furthermore, though case studies are obviously less well endowed to study causal effects across a general population, scholars agree that they are especially useful to examine causal mechanisms; that is, the sequence or pathway that connects x with y in a plausible fashion (Gerring Reference Gerring2007, 44; George and Bennett Reference George and Bennett2005, 12). For example, labor empowerment “from above” after 2005 in the dimensions of industrial relations, union organization, and collective action was key to linking the prior general variable “power resources” of the left with the outcome of effective neocorporatist wage negotiations.

The victory of the FA—a party including socialists, communists, former Tupamaros, and even splits from traditional parties—in October 2004 culminated decades of patient construction by the left (Chasquetti and Buquet Reference Chasquetti and Daniel2005). Soon after taking office, the new president, Tabaré Vázquez, issued decree 105/05, which convened the tripartite, industrywide Salary Councils. The government also assembled, by decree, the Superior Tripartite Council (CST), formed by representatives of the Ministry of Labor, national leaders of employer organizations, and the single union confederation PIT-CNT. This radical U-turn in income policy was soon completed with the creation of new National Wage Councils for public, rural, and domestic workers.

Thus, since mid-2005, wages in Uruguay have been formally shaped by politics as much as by market forces. Systematic data on wages by sector and economic activity are very diffcult to find (or nonexistent) in Latin America in general, and in Uruguay in particular. Therefore, a Labor Contracts Database was manually constructed, collecting the wage levels of the 21 private Salary Councils plus the national state administration. As wage councils are frequently divided into negotiation units, I chose the two largest subgroups in each sector. Overall, the contracts analyzed in all sectors represent about 80 percent of salaried workers in Uruguay (see the appendix for more details on the database).

Figure 1 shows real wage growth in Uruguay from 2005 to 2017. I do not argue that neocorporatism is the single reason behind this phenomenal growth in contract real wages, about 70 percent on sectoral average—especially in times of economic boom until 2012 and after a large currency devaluation in 2002. However, it is evident that for the FA government and its union base, neocorporatism paid off. Real wages grew steadily from 2005 on, though clearly at a slower pace after 2013.

Figure 1.

Uruguay: Real Wage Increase Under Centralized Wage Bargaining

Note: Average top 22 union contracts (2005 = 100)

Source: Labor Contracts Database; see appendix. This is the source for all wage data in all the following figures.

Uruguay’s mode of wage coordination can be aptly labeled as neocorporatist: a democratic state plays a key role, and it is quite centralized in international comparative terms. It would rank only one step below full centralization (e.g., Sweden until the early 1980s) as “nonbinding” central negotiations, in Visser’s Reference Visser2019 index, the most widely used measure in the neocorporatist literature. Wage negotiations are framed by a formal national income policy. Under the FA government, “guidelines” for each wage round are presented to national business and labor organizations at the peak-level CST and thereafter delegated to the tripartite sectoral councils. Guidelines for each round are constructed by the Ministry of Economics and Finance (MEF), in consultation with the Ministry of Labor (MTSS), taking into consideration macroeconomic variables, in particular the inflation target set by the Central Bank.

Though they are discussed but not formally voted on at the CST, governmentcrafted guidelines serve as an important parameter in negotiations in the sectoral Salary Councils. The government implicitly signals that in case of a strong disagreement, it will vote its parameter. Typically, guidelines recommend alternative formulas for wage adjustments and contract length. Significantly, almost every government guideline in this period also deliberately attempted to improve incomes in low-wage sectors.

Thus, good measures of state-oriented coordination in the Uruguayan neocorporatist model are the degree to which wages followed average government guidelines and the degree to which low-wage sectors grew in relation to high-wage sectors. Figure 2 depicts the gap (in absolute percentage points) between the average-year wage increase of the 21 private sector salary councils plus the central state administration, and the maximum wage hike recommended by the government. It shows that in the first three years, the government successfully coordinated wage setting within its targets.^{Footnote 1} In the rounds negotiated in 2008 (third since 2005) and especially 2012–13 under President José Mujica (fifth), more expansive pressures from unions arose. However, in the period 2015–17 (sixth round, under President Tabaré Vázquez, beginning his second term), the FA government increased coordination levels and managed to control wage growth under its parameter again, as in the 2005–7 period.

Figure 2.

Gap Between Government Parameter/Guidelines and Actual Annual Wage Increase

Note: Average 22 Top Union Contracts, Absolute Percentage Points (y axis)

Figure 3 compares the evolution of the five lowest wage sectors (such as cleaning or security workers) and the five sectors with the highest wages in 2005. It is clear that the low-wage sectors did, relatively, much better. Though one could argue that depressed sectors have more leeway to grow, it is hard not to link, at least in part, that growth to the influence of government parameters that formally included the improvement of low-wage sectors in each round. In sum, neocorporatism in Uruguay achieved important degrees of coordination, especially at the beginning and the end of the analyzed period.

Figure 3.

Real Wage Growth: Five Highest vs. Five Lowest Nominal Wage Sectors in 2005 (2005 = 100)

EXPLAINING SEGMENTED NEOCORPORATISM IN URUGUAY: CONSTRUCTION, 2005–2010

What explains the Uruguayan exceptionalism; that is, the surge of centralized and relatively coordinated neocorporatism after 2005? I will argue, first, that the initial construction of centralized wage bargaining was enabled by two defined institutional legacies; namely, the existence of a “frozen” but valid and enforceable legal framework for sectoral and national collective bargaining, and the unified character of the labor movement at both the sector and confederate levels.

STABILIZATION, 2013–2019

Certainly a good context to launch centralized wage negotiations premised on distributing income in Uruguay was the period 2005–10. The economy grew steadily after the financial crisis of the early 2000s (6.21 percent on average, 2005–10). The big currency devaluation of 2002 gave employers more leeway to afford real wage growth in the coming years. The commodity boom boosted Uruguayan agrarian exports, especially soy. However, by 2011–12, the rate of growth was reduced by half and the economy was showing signs of overheating as inflation approached two digits. In that context, tensions with the union movement mounted.

Controlling Inflation and Labor Tensions

The fifth wage bargaining round in 2013 marked the peak of sectoral labor conflict in the whole FA period. The sixth wage bargaining round in 2015–16, when the fiveyear budget, critical for future state wages, also was discussed in Congress, witnessed a major labor offensive. The PIT-CNT rejected government’s initial wage guidelines (more restrictive in a year of sluggish GDP growth). It called a daylong national strike in August 2015 for the first time in seven years. That same year, the teachers’ union launched the fiercest conflict since the FA took office, involving a series of strikes in public schools and street demonstrations (Pérez Betancur and Piñeiro Reference Pérez Betancur and Piñeiro2016, 358). In 2016, in view of increasing inflation pressures, the PIT-CNT demanded the flexibilization of wage guidelines. After a new wave of strikes, a final direct negotiation between the president and the national confederation settled the issue.

In brief, the economic downturn and a number of wildcat and national strikes threatened the neocorporatist edifice in the period 2013–17. However, this study argues that the FA largely succeeded in managing these tensions in both the political and economic realms. Figure 4 depicts labor conflict trends in the period under study. The index measures both “sector” and “global” conflict (which includes multisector and national strikes waged by PIT-CNT; see appendix for more details).

Figure 4.

Uruguay: Labor Conflict Index (2005 = 100)

Source: Department of Labor Relations, Catholic University of Uruguay (https://ucu.edu.uy/es/ conflictividad_laboral)

The figure evinces that years in which a bargaining round starts tend to be more conflictive, as both labor and business negotiate contracts for the next one or two years. The sectoral index—which basically denotes wage and labor conditions disputes in Salary Councils—peaks in 2013, and global conflict, which essentially captures the tensions between the government and the national confederation PITCNT, reaches its highest point in 2015. Thereafter, however, conflict subsides. Indeed, though conflict always diminishes after the first year of bargaining rounds, the figure shows that in 2016 and 2017, wage council–related (i.e., sectoral) conflict reaches the lowest levels since the beginning of neocorporatist management in 2005. In other words, under much worse economic conditions and with significantly empowered unions, by the end of the period, the government managed to keep labor conflict on similar levels to those in the initial years.

To complete the analysis, figure 5 plots Central Bank expected inflation, actual inflation, and the nominal average wage increase of total sectors each year (left axis) against GDP growth (right axis) for the period 2005–17. It is clear that declining nominal wages accompanied lesser GDP growth after 2013. The figure shows that in 2017 the FA government could “align” expected inflation, actual inflation, and nominal wage growth as never since 2005, when centralized bargaining was just beginning. Indeed, in 2017, for the first time since 2009, “actual inflation” was lower than “expected inflation”; that is, inflation fell within the Central Bank target range. As shown in figure 2, in 2015–17 the government managed to shape wage growth below the maximum “recommended” in its own guidelines to social actors—notwithstanding ongoing the tensions with labor. Despite monetary adjustment in a context of coordinated wage restraint, until 2017 the costs in terms of unemployment were not huge.^{Footnote 3}

Though data are not shown in the figure, a qualitative review of the last bargaining round (2018–19) yields similar results in terms of wage moderation— indeed, with zero real wage gains this time (see El País 2020). Neocorporatist theory is essentially built around the idea of wage restraint—along with economic equality. Thus (some degree of) wage moderation when the economy slowed down was indispensable for the sustainability of the system. The question becomes, how was the government able to appease an allied, but empowered, labor movement in times of economic downturn?

Explaining Stabilization: Wage Policy and Monetary Policy Tightening

I argue that state wage policy—that is, increasing government activism in wage negotiations—and a nonaccommodating monetary approach largely explain the stabilization of neocorporatism in Uruguay in the 2013–19 period. In the wage rounds of 2013, 2015, and 2018, the government fundamentally changed its criteria for designing wage guidelines for social actors. First, it drew a clear distinction between “low,” “medium,” and “high” performance sectors according to objective criteria of output, workers under unemployment compensation, and others. Second, and more important, the government sought to contain wage indexation. Until 2013, government guidelines effectively allowed unions to demand “inflation plus some degree of real wage gain.” The problem with this formula was that it fueled the general indexation of the economy and inflation expectations. It also lowered unions’ incentives to bet on low inflation—as they would obtain, in theory, real wage gains no matter the inflation target. In 2013, in order to tame wage indexation, the government negotiated with unions an alternative option: an initial nominal wage increase, that, if lower than inflation evolution, would match the CPI, but only at the end of the contract. Given that this second formula does not ensure real wage gains, in the 2013 round, unions overwhelmingly chose the traditional recipe.

However, in the 2015–16 bargaining round, the government was much more rigorous in enforcing its wage policy. Guidelines to social actors recommended only a nominal wage increase and a “trigger clause” (correctivo) that would match inflation if the CPI were higher than the initial wage hike at the end of the contract (Masoller Reference Masoller2017).^{Footnote 4} Of course, the Ministry of Economy sought to extend the time period of agreements (and move forward the trigger clause as much as possible) in order to contain wages during the contract.^{Footnote 5} This general change in state guidelines oriented toward containing indexation was essential to moderate wages in the 2015– 16 negotiations and again in the 2018–19 round, in which the government replicated the model of “nominal targets” in its wage guidelines.

The new state guidelines gave employers tools basically to avoid real wage gains by situating themselves, according to objective criteria, within the less dynamic sectors. Plus, the new approach strengthened unions’ incentives to cooperate with antiinflationary policies, as (initial) nominal wages higher than (final) inflation became the only way to obtain real wage gains in sectoral contracts.^{Footnote 6} In addition to the fundamental change in wage guidelines, government activism manifested itself in two central aspects. First, the government warned in advance that it would not validate excess wage hikes through state payments in regulated sectors, such as public works or health services to private providers (Vallcorba Reference Vallcorba2017). Second and more important, the government clearly and formally, for the first time since 2005, signaled that it would not support agreements outside its wage guidelines in Salary Councils.^{Footnote 7}

Uruguay is an atypical case, in which salary increases are formally voted in tripartite tables formed by three representatives of the state, two of labor, and two of employers. Table 1 summarizes the voting patterns of government and social actors in all Salary Councils in the six wage rounds between 2005 and 2016. A close look at the data reveals the crucial change in government wage activism in the sixth round. Consensus on wage levels between state and social actors diminished by almost a third between 2005 and 2015–16, and 25 percent with respect to the last 2013 round. Government-business alliances against labor increased almost four times in the same period, and government-labor voting against employers reached the minimum level since centralized bargaining started in 2005. The phenomenal increase in labor-business voting against state representatives is also telling: wage increases outside government guidelines were an entire responsibility of employers that could afford them.

Table 1.

Voting Patterns in Salary Councils, 2005–2017 (percent)

Source: Mazzuchi Reference Mazzuchi2009; Labor Relations Reports, Catholic University of Uruguay https://ucu.edu.uy/es/conflictividad_laboral

Government’s new activism in wage negotiations was complemented with the tightening of its monetary approach. The BCU (Uruguay Central Bank) started to set explicit inflation ranges from 2005 on and used the interbank rate as its main instrument. Thus the government maneuvered monetary policy both to control inflation and to cope with exchange rate appreciation pressures in the context of strong capital inflows. In 2008 it also reformed the Central Bank charter. The reform created a Committee of Macroeconomic Policy, formed by three representatives of the Ministry of Economy and three from the Central Bank, and mandated that the president of Uruguay would have the final word in case of disagreements. This committee sets the inflation target.

Interestingly, the reform clearly subjected the monetary authority to the government’s macroeconomic goals, and the Central Bank president continued to be, in practice, appointed by the Ministry of Economy. Thus, the reform was far from neoclassical conceptions. Indeed, in one of the most cited world datasets (Garriga Reference Garriga2016), Uruguay Central Bank’s score of “independence” actually diminished under the FA. However, at the same time, the new charter gave the Central Bank ample leeway to pursue the government’s inflation goals with its chosen instruments, it confirmed money stability as the bank’s main task, and it put strict limits on treasury finance.

Overall, it is clear that in the context of a centralized income policy that empowered unions—that is, one that, depending on tripartite coordination levels, may be prone to wage-push inflation—monetary policy was geared to thwart inflation pressures. For example, both after 2007 (see Lorenzo Reference Lorenzo and Bustos2010, 159) and in 2011, the BCU lifted the monetary policy rate to avert inflation. Not coincidentally, 2011 signaled the peak year in terms of nominal average wage increases in the whole FA period (see figure 5).

The monetary approach was further tightened in the 2013–17 period of stabilization, labor tensions, and sluggish growth. In 2013 the BCU switched to using monetary base targets instead of the interest rate in order to tame increasing inflationary pressures. Figure 6 depicts real (i.e., deflated) interest rates in Uruguay. It clearly shows how the BCU tightened its monetary approach and doubled the interest rate between 2013 and 2016, taking it from 3.9 to 8.5 percent—and lifted the rate 2.3 points in the context of the new bargaining round 2015–16, the biggest one-year jump since 2009. Of course, this anti-inflationary approach ran parallel to an important exchange rate appreciation, facilitated by Uruguay’s continuous capital inflows (see figure 1 in the appendix).

The point is that government’s ability and will to control inflation had to be minimally credible, especially in the “stabilization period” 2013–19, to shape wage negotiations and induce union moderation. If unionists were to agree to a nominal wage parameter that would not ensure real (i.e., higher than inflation) gains in advance, a credible inflation target (and an “independent” Central Bank to pursue it) was essential to lower the labor movement’s nominal wage expectations and to moderate demands. Figure 5 shows that FA’s bet was successful: monetary contraction helped bring down inflation in 2015–17, within the BCU target range. Thus, initial nominal wage increases still produced real wage gains in that period, even in the context of union restraint and slower growth—though not, as mentioned earlier, in the years 2018–19, not shown in the table.

Figure 5.

Uruguay, 2005–2017: Average Nominal Wage Growth, Top Expected Inflation (Central Bank), Actual Inflation, and GDP Growth

Source: Wages: Average of top 22 sectoral contracts (Labor Contracts Database, see appendix). Expected Inflation: top of target range, BCU. Inflation: National Statistical Institute of Uruguay.

Figure 6.

Uruguay: Real Interest Rates, 2005–2016

Source: Active interest adjusted by inflation with GDP deflator. IMF, international financial statistics; World Bank for GDP deflator.

A REASSESSMENT IN COMPARATIVE PERSPECTIVE

At first glance, during the last years of the FA period, business consensus with the wage coordination model seemed unquestionable. In the Salary Councils’ votes in the sixth round (2015–17), for example, employers opposed only 2 percent of total wage settlements. The majority of negotiations resulted in either tripartite consensus or alternative forms of business support (see table 1). Despite an important conflict with the rural business sector in 2019, employers did not stage a major cross-sectoral mobilization, or lockout, under the centralized wage model in Uruguay. Indeed, as the analysis has shown, the main tensions and conflicts in wage negotiations during 2015–19 originated with labor, not with employers, who more or less formally backed the new, stricter government approach to income policy.

However, as the critics of employer-centered and VoC approaches to welfare policies analyzed earlier caution (Korpi Reference Korpi2006; Hacker and Pierson Reference Hacker and Paul2002), we should not conflate ex-post class consensus with initial business support for coordinated models. In Uruguay, centralized income policies were largely imposed on employers by a labor-based left; that is, organized workers using their nonmarket, political “power resources.” The view of Juan Mailhos, head negotiator of the National Chamber of Commerce and Services of Uruguay (CNCSU), the most traditional and powerful business association of the country, is eloquent:

Thus the Uruguayan example clearly reinforces the Power Resource theory in explaining centralized income policies, over the need of business to stabilize a skilled workforce, as stressed by the VoC literature.^{Footnote 8} One should not build a strawman with employer-centered views of coordinated bargaining; both Swenson (Reference Swenson1991) and Mares (Reference Mares2003), for example, point out the important role played by labor in the initial organization of welfare and centralized wage policies. However, it is undeniable that in this view, cross-class coalitions with employers are decisive to push forward nonmarket wage arrangements.

Yet in Uruguay, centralized and state-oriented wage setting did not originate in the needs of firms or sectors to enhance international competiveness. The FA government and its congressional majority’s impressive organizational push in industrial relations in 2005–9, as described here, was fiercely contested by all employer organizations (see Bogliaccini Reference Bogliaccini2012). Though heavily concentrated by international standards, the Uruguayan union movement had been decimated in the previous neoliberal decade. It needed institutional support to become a viable interlocutor in peak-level negotiations and to include new groups like public, domestic, and rural workers in centralized negotiations. The new labor relations law that consolidated PIT-CNT unions’ representation and extension rules to nonunion members, the protections from layoffs afforded to union negotiators, and the tacit government approval of plant seizures built a context that severely increased the costs of noncooperation for business. While traditional large-N studies in the Power Resource theory often analyze left influence through static variables, such as share of cabinet positions and union concentration, this case study has shown how class power set in motion defined regulatory mechanisms that made neocorporatist negotiations unavoidable (figure 7).

Figure 7.

Origins of Segmented Neocorporatism in Uruguay

However, in Uruguay, left power combined with two central perquisites for the functioning of coordinated models in a globalized economy underscored by VoC scholars: institutional independence of the Central Bank and a nonaccommodating (i.e., occasionally contractive) monetary policy. It is appropriate to read the stabilization of neocorporatist management in 2013–19 in light of the interaction between the economic (and monetary) authority and a centralized labor movement theorized by Iversen (Reference Iversen1999) and Franzese and Hall (Reference Franzese, Hall, Iversen, Pontusson and Soskice2000). On the one hand, the Central Bank used monetary policy to avert inflationary pressures, particularly in rounds with high nominal wage averages after 2011, and in 2015–16. On the other hand, a concentrated labor movement was able to restrain nominal (and real) wages in the period of slower growth in 2015–19.

Thus, to some extent, the virtuous cooperative game posed by the post-Keynesian corporatist theory of the late 1990s and early 2000s unfolded: the Central Bank and the Ministry of Economy could bet on wage restraint by a concentrated labor movement to help control inflation. Indeed, the new state activism in wage policy during 2015–19, in a way, increased bargaining centralization. At the same time, labor and party leaders knew that the government would let the Central Bank punish excess wage demands with higher interest rates to (try to) meet a credible inflation target. In brief, stabilization and inflation control after 2012 were the result of both a stricter income policy and some monetary restraint. Indeed, the Central Bank could set the inflation rate within target only in the 2017 bargaining round, when it put a firmer grip on income policy (figure 5).

Finally, although it is undeniable that the Uruguayan model incorporated central aspects of post-Keynesian macroeconomics just mentioned, it does not fit the type of export-oriented, deflationary neocorporatism that is hegemonic in the VoC literature. As noted, Baccaro and Pontusson (2016, 2019) argue that in a deflationary corporatism, growth is based on exports, strong wage restraint, and the relative dampening of household consumption (e.g., Germany). A second model of CME growth (e.g., Sweden) deploys a more balanced combination between export growth and domestic consumption growth (Baccaro and Pontusson Reference Baccaro and Jonas2016, 186). Table 2 compares the macroeconomics of neocorporatism in Uruguay with another (weakly coordinated) corporatist country in Latin America (Argentina 2003–15), a liberal country (Chile), and—despite obvious differences in development—with Germany and Sweden, CME’s symbols of “dualized” and more egalitarian corporatism, respectively.

Table 2.

The Macroeconomics of Neocorporatism: Uruguay in Comparative Perspective

^aAnnual growth

Note: All columns average 2005–18 except Argentina, 2005–15

Sources: All data WDI Database (https://databank.worldbank.org/), except IMF Fiscal Monitor (https://data.imf.org/) for fiscal balance

Uruguayan macroeconomics under corporatism display, on average, no trade surplus (i.e., a balance in the development of external and domestic markets), high levels of total (private and state) expenditures in comparative terms, more fiscal profligacy (on average, almost 3 points more than liberal Chile), more inflation than all countries except Argentina, and a ratio of export growth to private consumption growth that is closer to the more egalitarian Sweden than to Germany. In other words, table 2 suggests that Uruguayan neocorporatism is relatively “Keynesian”; that is, tends to rely more on domestic consumption, inflation, and fiscal policy than the European version—which predictably shows a higher trade surplus and a higher ratio of export growth to consumption growth, especially in Germany. In Uruguay under the FA, exports grew, but so did private consumption. Plus, figure 3 shows that the coordinated model in Uruguay favored low-wage, low-skill, nonexport sectors. Interestingly, the table suggests that the main difference between the Uruguayan coordinated model and inflation-ridden corporatism in Argentina is not fiscal policy or domestic consumption but the nonaccommodating monetary policy and the capacity to coordinate wage restraint to control inflation analyzed here (see also Etchemendy Reference Etchemendy2019).

In brief, the Uruguayan coordinated model tends to be more Keynesian than deflationary. It also developed as relatively egalitarian in institutional terms. Unlike the classical European version, neocorporatism in Uruguay is segmented in the sense that between a third and a quarter of wage earners not registered in social security were not covered by negotiations. However, it largely avoids further dualization of the labor market between a core of protected insiders and a periphery of precarious outsiders that Thelen (Reference Thelen2014) identifies in CMEs of Continental Europe.^{Footnote 9}

Like other progressive governments in Latin America in the 2000s, the FA substantially expanded social policies for the informal sectors (Pribble Reference Pribble2013). It incorporated precarious workers, such as rural and domestic workers, through the creation of special Salary Councils, and legislated to protect the subcontracted workforce. All these “pro–labor market outsiders” policies are largely related to the institutional features of the FA and its alliance with labor. First, unlike in Argentina, unions were incorporated into several social policy councils in the areas of health and social security, which oversee informal sectors (Schipani Reference Schipani2020). Second, as a mass organic party with high levels of grassroots organization, the FA is strongly embedded in Uruguayan society (Pérez Betancur et al. Reference Pérez, Verónica and Fernando2019). Informal sectors became a central part of the FA’s lower-class electoral base (see Luna Reference Luna2014).

Of course, the relatively inclusive character (in both macroeconomic and institutional terms) of neocorporatism in Uruguay may be diffcult to sustain in the medium and long run. First and most obviously, exports in Uruguay are based on price-sensitive agrarian commodities, not on manufacturing industry, as in corporatist Europe. This article shows that the coordinated model navigated relatively well the period of sluggish growth and lower commodity prices after 2012. Still, a permanent fall in export prices could exert downward pressure on the exchange rate and (thus) on wage levels, which would disrupt centralized negotiations. The well-developed labor-training systems that enable international competition in Europe are absent in Latin America in general and in Uruguay in particular (Schneider Reference Schneider2013; Bogliaccini and Madariaga Reference Bogliaccini2020).

Yet perhaps the most important challenge to the coordinated model is coalitional. Both Thelen (Reference Thelen2014, 31) and Baccaro and Pontusson (Reference Baccaro and Jonas2019, 27) note that the more inclusionary contemporary versions of corporatism have two essential coalition blocs: precarious workers and women, and multiemployer organizations that include a competitive, employment-generating service sector. As we have seen, Uruguay fares rather well in the first dimension. Domestic, rural, and informal or precarious workers were, in one way or another, part of the FA version of the welfare state. The women’s movement, actively involved in domestic workers’ labor regulations and care social policies, is an important FA social base.

However, business in Uruguay has largely resisted the coordinated model. At best, employers have cooperated passively: only the construction chamber openly backs the coordinated system (Otegui Reference Otegui2018).^{Footnote 10} As Bogliaccini (Reference Bogliaccini2019) shows, Uruguayan employers have historically organized along sectoral lines. Centralization at a peak level has been rather weak, and occurred only briefly during the 1990s. The chronic organizational weakness of business in Uruguay may undermine neocorporatist management. Multisectoral business organizations are more likely to discuss general cooperative outcomes in economic policy, beyond sectoral pressures (Martin

and Swank Reference Martin and Duane2012). A solid, encompassing business association may counterbalance the alliance between the left and the PIT-CNT confederation to discuss regulatory issues, and thus give employers more stakes in the system.^{Footnote 11} In brief, what Baccaro and Pontusson (Reference Baccaro and Jonas2019, 1), with a Gramscian echo, call the “social bloc”—that is, the constellation of multiclass organized interests that underlie stable models of growth—has not taken shape in Uruguay. A strong, competitive service business sector, embedded in a strong, classwide sectoral organization, would need to complement the alliance with formal and unskilled and informal workers.