Business-State Alliances and the Paradoxical Prosperity of Conglomerates in Leftist Governments in Latin America

How do business groups prosper in hostile governments? This question is critical for developing countries, especially in Latin America, where since the late 1990s business groups witnessed the arrival of leftist governments promoting policy reforms aimed at reducing their economic and political power. However, in spite of the adverse context, business groups are thriving. Using the government of Rafael Correa (2007-2017) in Ecuador as a case study, this paper aims to provide a preliminary explanation to this contrasting business success. It presents an empirical analysis combining Social Network Analysis and Analytic Narratives to trace the variations in the structural composition and in the instruments of power of business groups in Correa’s government. Specifically, I built an original firms’ network dataset to measure changes in the market power and the ownership structure of the business groups occurred before and after Correa’s administration (2004 -2014). I also incorporated 40 open-ended interviews conducted with business groups’ executives, legislators and government officials to capture new mechanisms, agents and institutions that businesses used to penetrate the technocratic networks of government and protect their private interests. The analysis revealed three bargaining strategies - cooperation, opposition, and moderate opposition – that business groups crafted based on their sources of power, to overcome the policy challenges. Business strategies had varied levels of success. Cooperating business groups obtained institutional and distributional incentives to enhance their power in exchange for supporting the government’s economic and political agenda, while antagonist businesses suffered retaliation and economic obliteration. For Correa, forging alliances with businesses gained him support for his policy agenda without contradicting his anti-business discourse or affecting the support of his constituencies. It also allowed him to counterweight opposition groups and to acquire political and economic stability during his government. The paper corresponds with a wider research agenda that systematically intersects business power, preferences, and resilience in contentious scenarios and contributes to an influential body of scholarship that seeks to answer the perennial question of how businesses get what they want in the political arena.