Peru—The "Outsider" Syndrome

The 2006 Presidential Election

By Alvaro Vargas Llosa

Every presidential election in peru since 1990 has been marked by forces outside the realm of the predictable. Those forces catapulted Alberto Fujimori (1990) and Alejandro Toledo (2000/2001) to power, and have made Ollanta Humala the central figure in the current presidential campaign (he won 31 percent of the vote in the first round of the elections on April 9th). The spectacular rise of Humala, a nationalist former army officer, in the polls a few weeks before the first round of the elections generated a massive reaction on the part of the establishment in favor of Social-Christian candidate Lourdes Flores, who briefly jumped back into the first place but was soon overtaken again. And in the last few days, former president Alan García, a populist, caught up with Lourdes Flores in a dead heat race for second place. Although the votes are still being counted, it looks as if Alan García will now face Humala in an unpredictable runoff in June.

Although Fujimori, Toledo, and Humala are very different, they have something in common—the popular attitudes, perceptions, and sentiments that brought them to the forefront of their respective presidential campaigns. Understanding the role played by “outsiders’ in Peruvian politics over the last decade and a half is a prerequisite for gauging what type of country will be voting in a few weeks. In all these cases the drive behind the meteoric ascent of leaders who came from outside the established parties was a revolt against what people perceived as traditional politics and “official” institutions (even if they are not such).

On the surface, voters have been reacting against the most salient symptoms of the institutional environment in which they live. In the case of Fujimori, voters were reacting against inflation, the terrorist group Shining Path, and government corruption, the three distinct features of Peru’s 1980s-style democracy. In the case of Toledo, they were reacting against “neoliberal” authoritarianism and, yes, corruption. Now, they are reacting against the “macroeconomic illusion” and, yet again, corrupt democracy (by “macroeconomic illusion” I mean the perception that healthy indicators such as a 4 or 5 percent rate of growth of the economy do not translate into progress beyond the segment of the population that traditionally benefits most directly from stable fiscal and monetary environments).

But these are all outward manifestations of something more essential—the disconnect between civil society and the state. Ultimately, voters have been reacting against a certain way of conducting state business. This same revolt has been taking place in other areas for years, with many Peruvians leaving the Catholic Church for various Protestant denominations or creating substitutes for state services at the grassroots level (in shantytowns like Villa El Salvador, the collapse of public education has forced many poor families to set up very modest private schools in their neighborhoods).

These political outsiders, Fujimori, Toledo, and Humala, were all “populists” at the time of their rise to political stardom. Populism in the Latin American sense implies heavy dependence on a caudillo who is above any sort of legal structure and whose will serves as the agent of social justice through forceful state action. Whether these leaders turned out to be (and, in the case of Humala, might eventually become), populists of the left or the right, democratic or dictatorial, is beside the point. What voters expected from them was “populism.”

A host of cumulative factors has led millions of Peruvians to revolt against elites and anything associated with them. The fundamental cause is the two-tier society segregated by almost two centuries of republican governments that failed to remove the pillars of colonial life even if they changed, sometimes dramatically, the façade. In a recent book I have called those pillars the five principles of oppression—corporatism, mercantilism, privilege, wealth transfer, and political law. These essential features of the Peruvian state mean that despite revolutions and reforms, Peru is still a country where cronyism is more important than equality before the law, and political and economic authoritarianism, rather than a market economy under the rule of law, constitute the prevailing environment.

The result is a society in which power and opportunity are concentrated by elites both at the central and at the local level. Matters are complicated by race: in many people’s imagination, the divide also pits a mostly white elite against an “indigenous” population. The divide between “white” and “indigenous” is extremely misleading in a country in which by far the predominant race is mestizo. At the local level around the country, it is actually impossible to distinguish the race of the “oppressors” from that of the “oppressed.” But this widespread perception fuels the tensions that run through the social fabric.

This social divide, a child of the institutional divide, translates into an economy in which only 2 percent of businesses produce 62 percent of the wealth while the rest—some three million small and midsized companies—produce no more than 38 percent. It also means that the centralization of economic activity is in Lima, the capital city. Arequipa, the second most important department of the country, produces a mere 6 percent of the national GDP, and most others account for no more than 1 or 2 percent. It means, in short, that one quarter of the population is extremely poor and one half is poor—the same percentage as four decades ago. Of the other half, a large chunk maintains a modest living standard but makes slow progress. Like those stone crabs whose legs are tied so that only one pair can grow disproportionately into a fleshy delicacy, Peruvian institutions enhance one segment of the population at the expense of the rest.

If we compare this static system with central and eastern Europe, where 40 million people have overcome poverty in the last six years alone, or with Chile, where one million people came out of poverty in the last decade, we have a sense of how remote macroeconomic statistics seem to ordinary Peruvians. Between 1950 and 1980, Peru’s economy grew at an average of almost 5 percent per year. In the 1990s, it grew at an annual average of 4.3 percent, and in the last three years it has grown at a rate of between 4 and 5 percent. In a different institutional context, these numbers would have entailed a significant reduction of poverty. In Peru, the corporatist, state mercantilist, privilege-ridden, wealth-transferring, and political law-dominated system stands in the way of social mobility and opens a gulf between the world of statistics and an emerging grassroots society that fails to actually emerge.

Attempts to reform the system have served to reinforce the prevailing institutions. The socialist military dictatorship of Juan Velasco attempted a “revolution” in the 1970s against the oligarchy. That “revolution” included the expropriation of haciendas and the creation of 600-plus state-controlled cooperatives in their place, as well as the nationalization of more than 200 industries. The result was a catastrophic drop in the rate of capitalization of the economy and therefore in the standard of living, and, in the specific case of agriculture, a stagnation that lasts to this day, except for a dynamic sector in the southern coast (starting in 1976, about 60 percent of those agricultural cooperatives were illegally sold to peasants associations in what constitutes a case of clandestine privatization). Another strong attempt to change the state of affairs came in the 1980s under Alan García. The result was hyperinflation and, after a short period of artificial growth, a severe drop in the amount of goods and services produced by the country.

There have also been attempts by the right to reform the status quo, most recently under the dictatorship of Alberto Fujimori. Although he successfully combated inflation and opened the economy, he practiced a systematic form of cronyism that translated into the emergence of powerful private monopolies under legal protection, a judicial corruption that reached new heights, and a political centralization that destroyed the already precarious checks and balances the previous government had left in place. Economic growth was less impressive than it could have been, and poverty was not reduced during that whole decade. (The small reduction in poverty over the last few years has to do with massive emigration, which has slowed the population growth to a rate of 1.4 percent a year as opposed to 2 percent previously.)

The return to democracy, first with the caretaker government of Valentín Paniagua and, for the last five years, the government of Alejandro Toledo brought about an improvement in areas such as freedom of expression and human rights. However, lack of reform, patronage, the subservience of the judiciary to the various political factions and the numerous barriers to entry into many markets because of legislation that preserves the privileges of special interest groups have deepened the sentiment of revulsion against the establishment. Until Fujimori was detained in Chile and it became clear he could not run in the upcoming elections, a significant portion of voters were expressing the wish to see him back in power. If this sounds contradictory with the mood of a country that is against the “traditional” political caste, it is because the goal posts keep moving in unexpected and irrational ways. Fujimori, who has been fighting efforts by the political caste to extradite him for human rights violations and corruption, is now perceived by some as an “outsider” again despite his ten-year rule in the 1990s. Now that Fujimori cannot personally run (he has been replaced by a close ally who is campaigning with Fujimori’s family) the protest sentiment has been captured by Ollanta Humala (though the Fujimori movement still managed to obtain 7 percent of the vote in April.)

Humala is a former army officer who led a quixotic coup attempt against Fujimori in the final moments of his second term. He was brought up by a father who was a Communist and who believed in racial discrimination in favor of “copper-colored” people because, according to him, of the four races of the world—white, black, yellow and copper-colored, the last one is the most unjustly treated. Humala is an admirer of Hugo Chávez, who has publicly endorsed him. He proposes “nationalism’ and expresses deep admiration for Juan Velasco, another nationalist army officer who led a coup against the democratically elected government of Fernando Belaúnde in 1968.

What we have seen in the last couple of months now is a fight between Humala, who expresses the cynicism against the traditional elites, and Lourdes Flores, a Social-Christian moderate who represents a desire to conduct affairs within the existing rules of the game. Postulating a woman in a country that has never had a female ruler has helped give somewhat of a dissident quality to a candidacy that in different circumstances would have been perfectly traditional and conservative. However, her links to traditional parties, something that was well exploited by her adversaries, held her back and allowed Alan García, whose party (APRA) is better organized, to catch up with her. It is by no means certain that Humala, the candidate of the angry masses, will win even of revolt if he expresses that sentiment against the elites. The reaction against him on the part of a segment of the population that cringes at the idea of a Hugo Chávez at the top and at the thought of going back to the days of Velasco or García may be enough to defeat him. People who would never have considered voting for Alan García are now expressing the need to do so in order to stop Humala. But the sentiment behind his rise—and behind whatever figure might replace him—is going to be the dominant factor in Peruvian politics for years to come. The fact that he obtained the greatest number of seats in a highly fragmented Congress (about a third of the total) is already an indication of that.

The immediate and near future of Peru depends on whether reform of the prevailing system generates the expectation of social mobility and diffuses social tensions or whether the failure to engage in reform brings into government a new Humala (or Humala himself, as was the case with Evo Morales in Bolivia, who lost in 2002 but won this time). In other words, it comes down to whether a Lourdes Flores or Alan García administration will spell a change of direction and sow the grass under the feet of authoritarian populists or whether the next president will signify a mere postponement of the rise to power of a radical nationalist caudillo of the type we have seen in Venezuela and Bolivia.

The deep-rooted cynicism of millions of Peruvians is perhaps best summarized by a phrase used by sociologist Stanislav Andreski a few decades ago in a book about Latin America: “Once a society is pervaded by parasitic exploitation, the choice is to skin or be skinned.” The challenge for the next president is not so much a macroeconomic one as a reform of the state that will bridge the gap between official institutions and everyday people and, by producing a reasonable legal framework, encourage a much more dynamic and less cynical civil society.

Alvaro Vargas Llosa is the Director of the Center on Global Prosperity at the Independent Institute, Washington D.C., and the author of Liberty for Latin America.

See also: Peru, Elections