Capitalists and Revolution in Nicaragua: Opposition and Accommodation, 1979-1993

By Rose J. Spalding

By tracing the complex relationship between the Sandinista government and the Nicaraguan business elite, this book examines the shifting mix of alliances and oppositions that shaped the Sandinista revolution. Rose Spalding takes issue with models of the business sector that assume a high degree of class cohesion. Drawing on carefully structured interviews with ninety-one private-sector leaders at the end of the Sandinista era, Spalding documents responses to the Sandinista government that range from extreme ideological hostility to enthusiastic support. To explain this variation, Spalding explores such factors as the prerevolutionary social and economic characteristics of the elite, their organizational networks, and their experiences with expropriation and government subsidies. She is one of the first scholars to look at the ways in which these groups have evolved in the postrevolutionary era under the Chamorro government. In addition, Spalding provides a valuable analysis of four other cases of attempted structural change, thereby drawing broader, cross-national comparisons and developing theoretical insights about the political character of the 'bourgeoisie.'

Originally published in 1994.

A UNC Press Enduring Edition -- UNC Press Enduring Editions use the latest in digital technology to make available again books from our distinguished backlist that were previously out of print. These editions are published unaltered from the original, and are presented in affordable paperback formats, bringing readers both historical and cultural value.

• Language: English
• Publisher: The University of North Carolina Press
• Release date: Nov 1, 2017
• ISBN: 9781469639901

Rose J. Spalding

Rose J. Spalding, associate professor of political science at DePaul University, is editor of The Political Economy of Revolutionary Nicaragua.

Book preview

Capitalists and Revolution in Nicaragua

Capitalists and Revolution in Nicaragua

Opposition and Accommodation, 1979–1993

Rose J. Spalding

The University of North Carolina Press

Chapel Hill and London

© 1994 The University of North Carolina Press

All rights reserved

Manufactured in the United States of America

The paper in this book meets the guidelines for permanence and durability of the Committee on Production Guidelines for Book Longevity of the Council on Library Resources.

Spalding, Rose J.

   Capitalists and revolution in Nicaragua : opposition and accommodation, 1979–1993 / Rose J. Spalding.

   p. cm.

Includes bibliographical references (p.   ) and index.

ISBN 0-8078–2150-0 (cloth : alk. paper).—

ISBN 0-8078–4456-x (pbk. : alk. paper)

   1. Business and politics—Nicaragua. 2. Elite (Social sciences)—Nicaragua. 3. Nicaragua—Politics and government— 1979– . I. Title.

JL1609.5.B8S68 1994

322’.3’097285—dc20        93-38430

CIP

98 97 96 95 94   5 4 3 2 1

contents

Preface

Acronyms and Abbreviations

chapter 1. Capitalists and Revolution

chapter 2. From Elite Quiescence to Elite Confrontation in Prerevolutionary Nicaragua

chapter 3. Revolutionary Transition and the Bourgeoisie (1979–1986)

chapter 4. The Recrudescence of the Economic Elite (1987–1990)

chapter 5. A Profile of the Elite Leadership

chapter 6. From Revolution to Neoliberalism

chapter 7. The Nicaraguan Revolution in Comparative Perspective

appendix 1. Methods

appendix 2. Statistics

Notes

Bibliography

Index

tables

2.1. Financial System Loans to the Private Sector by Economic Activity, 1960–1979 40

2.2. Average Annual Real GDP Growth Rates in Central America 42

3.1. Projected Participation of Property Sectors in Agricultural Production 72

3.2. Land Distribution by Strata and Tenancy 78

3.3. Number of Properties and Area Affected in Agrarian Reform, 1981–1988 82

4.1. Sectoral Distribution of Long-Term Agricultural Credit, 1983–1988 106

5.1. Views on FSLN Government by Producer Strata 134

5.2. Views on FSLN Government by Educational Attainment 136

5.3. Views on FSLN Government by Where Educated 137

5.4. Views on FSLN Government by Private Sector Organization 140

5.5. Views on FSLN Government by Leadership Level 143

5.6. Views on FSLN Government by Expropriation Experience 146

5.7. Investment Level by Views on FSLN Government 151

5.8. Level of Production Change by Views on FSLN Government 153

6.1. Privatization of State Enterprises, May 1990-March 1993 168

6.2. State Farm Land Distribution Program, 1991 175

7.1. Configuration of State-Capital Characteristics and Bargaining Tendencies 190

A.l. Agricultural Production by Crop, 1974/75–1987/88 222

A.2. UNAG Membership Data, 1987 223

A.3. Nicaragua Economic Indicators, 1978–1992 224

A.4. Strata Definitions 226

A.5. UPANIC Membership and Landholding Data, 1985 226

preface

RAMIRO GURDIÁN Ortiz was an up-and-coming banana producer from an elite León family when the Sandinista revolution occurred. On a farm his father carved out of the jungle, Gurdián had built up one of Nicaragua’s larger banana plantations and was moving rapidly up the administrative ladder of Standard Fruit’s Nicaragua operation. He was skeptical of the insurrection that swept the regime of Anastasio Somoza Debayle from power in 1979 and brought in the leaders of the FSLN, and he remained aloof from the political imbroglio that followed. But in 1980, Jorge Salazar, the president of his private sector association, the Nicaraguan Union of Agricultural and Livestock Producers (UPANIC), began organizing a counterrevolutionary expedition and was killed by state security forces during an arms transaction. Gurdián agreed to serve as his replacement in UPANIC. During the next ten years, he became one of the nation’s most outspoken critics of the Sandinista regime. He was arrested, convicted, and placed on probation for violating the censorship provisions of the 1982 National Emergency decree; his farm was confiscated without compensation; his family scattered, leaving him as the sole continuing resident of Nicaragua.

Ricardo Coronel Kautz was a part-time rancher and full-time administrator of the livestock enterprise owned by the region’s largest sugar mill, the Ingenio San Antonio, prior to the revolution. Son of José Coronel Urtecho, a prominent Nicaraguan intellectual who had served as a diplomatic representative of the Somoza regime but became increasingly disaffected, and his muse, Maria Kautz, a Nicaraguan of German descent whose family had been dispossessed of its primary estate by the Somoza regime during World War II, Coronel had developed an abiding antipathy for the Somoza dynasty. As a top administrator of Nicaragua’s most prominent agroindustrial complex, Coronel helped organize an underground political movement among the technical staff in support of the Sandinista insurrection. In 1977 he was named to the prestigious Los Doce, a group of twelve prominent business, religious, and intellectual leaders who lobbied for international political support for the Sandinista cause in the final years of the insurrection. When he returned to Nicaragua after Somoza’s departure, he was appointed a vice-minister of agriculture and agrarian reform. For eleven years, Coronel served in the Nicaraguan government, exercising considerable influence over the state farm sector and agricultural development policy throughout the Sandinista era.

These vignettes suggest the range of views held by Nicaraguan economic elites about the Sandinista revolution. The relationship between the revolutionary government and most of Nicaragua’s traditional business elite was generally antagonistic. Yet during the same period, some endorsed the revolution and became active participants in the social transitions it produced. Others ranged in between, reaching a tenuous accommodation with the regime but retaining a critical distance.

Two broad questions shape this study. The first addresses the theoretical debate about the composition and segmentation of the bourgeoisie. This analysis explores the unity/division of the capitalist class as it interacts with other social sectors. The second focuses on the capacity of economic elites to participate in a process of social change. This discussion evaluates the capacity of the elites to contribute to or to impede equitable distribution and the collective development of the nation.

Structural analysis, which has provided the dominant theoretical and methodological framework in Latin American studies for the last two decades, typically assumes a high degree of class cohesion. According to this approach, capital has clear interests and needs defined by its structural position in the economy. The dominant class is found to use its resources to impose constraints on other actors, limiting the options for structural change. The state may attain a relative autonomy from the business sector, but this autonomy is ultimately limited by the structural dependence of the state on capital. Capital, therefore, is understood as an increasingly united, cohesive actor. To the extent that segmentation occurs within the bourgeoisie, one fraction tends to emerge as the dominant force and exercise direction over the others.

Because of the fundamental cohesion of the bourgeoisie alleged in this model, any notions of cross-class alliances between the underclass and elements of the bourgeoisie are seen as inherently flawed. The participation of capitalist partners in a reform coalition is seen as ultimately undermining the movement because they are expected to serve the long-run interests of the dominant fraction of their class. For any structural transformation to occur, this exploitative class must be removed from power.

Yet Popular Front struggles and many progressive electoral strategies have been premised on the assumption that movements for social change can draw on the energies of a range of class actors, including elements of a nationalist or progressive bourgeoisie. Both Social Democratic and Democratic Socialist coalitions have understood the necessity for a continually evolving class compromise involving a component of the private sector in their movement. Latin American Populist and Third World National Liberation movements have traditionally drawn on a multiclass coalition that, while limiting the redistributive impact of the outcome, also allows for the participation of economic elites who can insert themselves into the changing economic order.

New research traditions, such as strategic choice analysis, explore more open, less deterministic models of social change.¹ These approaches assume that actors are not fully bound by their structural positions. Participants in political negotiations are viewed as volitional agents who operate with an element of discretion, allowing the use of analytical schemes that are more dynamic and interactive. In these models, changing calculations of costs and benefits, combined with multilevel bargaining, produce highly complex and varied alliance strategies. This relatively open approach may better capture moments of extraordinary politics, when regimes undergo transitions and the social compact is subject to revision.

Attention to complex alliances and ongoing bargaining reopens questions about the character and political roles of capital in Latin America. These questions will become increasingly central in the study of Latin American politics in the 1990s. Throughout much of this region, the fiscal crisis of the state arid the weakness of foreign financial support now move the local business elite toward the strategic center of the development debate. Finding a way to engage the resources and energies of business elites and break the cycle of capital flight, while simultaneously opening new social and economic opportunities to nonelites, will be a central challenge for Latin American leaders in the coming years.

My research on the relationship between the state, capitalists, and revolution began in 1982 when, with support from the National Endowment for the Humanities, I started a research project on the Sandinista concept of the mixed economy. That year my annual trek to Nicaragua began. Support from the University Research Council and the College of Liberal Arts and Sciences of DePaul University allowed me to mount an ongoing research effort on the shifting dynamics of the Nicaraguan revolution.

My attention was increasingly drawn to the anomalous role of the local bourgeoisie in the revolution. Much of the material on Nicaragua during this period focused on the contra war and the conflict with the United States. Less understood were the complex, internal relationships that played a critical role in shaping the development of the revolution. To analyze the way in which the revolution unfolded, I carefully examined these internal dynamics. Given the centrality of the agricultural sector in the national economy, I concentrated on the agricultural and agroindustrial sectors. In 1985–87, I began a series of interviews with leaders of the major private sector organizations.

By the time I began my interviews, a sizable core of the prerevolutionary economic elite had left the country. The effort to better understand elite-state dynamics in the Somoza era and the impact of emigration on the revolution took me to Miami, where I conducted a round of interviews in 1988 with seventeen former and current Nicaraguan private sector leaders. The Latin American and Caribbean Center of Florida International University generously provided housing accommodations during my stay; Mark Rosenberg and Doug Kincaid provided intellectual and logistical support for this phase of my work.

Most of the research for this book was completed in 1989–90 with support from the Joint Committee on Latin American Studies of the Social Science Research Council and American Council of Learned Societies with funds provided by the Andrew W. Mellon Foundation and the Ford Foundation, and with support from the Howard Heinz Foundation. A fellowship at the Kellogg Institute of International Studies at Notre Dame provided a congenial environment in which to begin writing this book. I am grateful to generous and supportive colleagues at all of these institutions for facilitating this research.

Research in Nicaragua would not have been possible without the extensive assistance provided by Laura Enríquez, Amalia Chamorro, Peter Utting, Peter Marchetti, Eduardo Baumeister, Rodolfo Delgado Cáceres, and Paul Oquist. I am also grateful for the research assistance provided by Freddy Quesada, Carlos Molina, and Edith Muñoz. Invaluable intellectual companionship was provided at different phases in this process by Florence Babb, Martin Diskin, David Dye, Dennis Gilbert, Richard Grossman, Barbara Kritt, Shelley McConnell, Alice McGrath, Jack Spence, George Vickers, Phillip Williams, and Daniel Wolf.

Several colleagues read versions of my work as it wended its way toward the final draft. John Booth, Laura Enríquez, Ilja Luciak, Steven Sanderson, Richard Stahler-Sholk, Evelyne Huber Stephens, and Carlos Vilas deserve special thanks for their constructive criticisms, as do my colleagues Mike Alvarez and Pat Callahan. For their useful comments on the comparative framework and some of the theoretical constructs employed here, I want to thank David Collier, Sandra McGee Deutch, Francisco Durand, Jeffrey Paige, and Eduardo Silva. Lisa Milam and Veronica Diaz helped me to polish and produce the final version of the manuscript. David Perry at the University of North Carolina Press gently and efficiently shepherded the manuscript to publication, and Stephanie Wenzel proved a remarkably keen-eyed copyeditor. The usual disclaimers about responsibility for the remaining flaws in this work apply.

I also want to thank the private producers in Nicaragua who gave generously of their time to introduce an unschooled chela to the world of Nicaraguan business and agricultural production. Ramiro Gurdián, for many years the president of UPANIC and currently the president of COSEP, and Daniel Núñez, long-term president of UNAG, provided invaluable advice and suggestions; without their help this book would not have been possible. I am also deeply indebted to Mario Hanón and his family for their many kindnesses over the years. While most of those producers whom I have interviewed will take issue with different parts of my analysis, I hope that they will see merit in it as well.

Finally, I want to thank my patient and generous husband, William Denton, who sacrificed as much as I did to get this book written and who wasn’t able to share much of the fun; my daughter Claire, who walked this long journey right by my side; and my daughter Grace, who was born just as it came to an end.

acronyms and abbreviations

Capitalists and Revolution in Nicaragua

Nicaragua’s Electoral Regions

chapter 1. Capitalists and Revolution

It is a complex problem, but we have not given up the search for ways of integrating the more-or-less large individual producers who live in Nicaragua today into a social formation in which revolutionary hegemony prevails.

—Jaime Wheelock Román, El gran desafío

DEVELOPMENTALISTS, social theorists, and revolutionaries have long puzzled over the problematic role of economic elites in the process of social change. Much of the general literature on revolution and structural reform presents the dominant class as a homogeneous entity intransigent in its opposition to significant change. As beneficiaries of the status quo, economic elites are seen as a primary obstacle to social restructuring, often in close cooperation with foreign capital.

In recent years, however, many of the standard categories used to chart contending social forces, such as workers, peasants, and bourgeoisie, seem increasingly inadequate to describe what are often highly differentiated clusters of people. Workers moving steadily into the informal sector now lack a formal employer counterpart and become self-employed; peasants have weaker ties to the land and rotate annually through a series of job categories and residences; the bourgeoisie is divided into a series of competing layers whose relative fortunes rise and fall. The inability of the traditional conceptual categories to accommodate this acute diversity calls for the use of different analytical methods and the development of new conceptual schemes. For studies of the bourgeoisie, a closer analysis of the social sectors that make up the elite is in order.

The search for the fissures within the dominant elite is not simply an analytical exercise in social dissection. This task has been a central preoccupation of proponents of social change. Underlying much of this kind of analysis has been the desire of both academicians and political practitioners to locate a progressive sector of the bourgeoisie. Academic analysts such as Barrington Moore (1966) claimed to find such a sector, arguing that there were circumstances under which an urban bourgeoisie could break with traditional landholding elites and nudge the political system toward democracy. Some reform-oriented political leaders also claimed allies within the economic elite. Needing the economic capabilities, international credibility, and domestic leverage that such coalition partners would provide, these politicians searched assiduously for business leaders with whom to link arms.

Leaders of populist movements were particularly inclined to seek an alliance with a nationalist bourgeoisie, Populism as an ideology presented no barrier to the inclusion of national elites; indeed, the overriding nationalism embedded in populism called these leaders to strengthen local economic strongholds. Cultivation of emerging industrialists often secured their support. Juan Perón’s success in building an alliance with small- and medium-sized capitalists through the Confederación General Económica in Argentina has been well documented (Acuña 1991; Teich-man 1981). In spite of its social base in labor, the Peronist coalition anchored the support of emerging elites in the light industry sector, firms that manufactured for the domestic market, and industries that were less dependent on imports. Since these kinds of industrialists benefited from an expanding local market, they could find common cause with unionized labor in its bid for increased earnings. Although old, established elite organizations moved firmly into the opposition, emerging elites included prominent allies.

Even democratic socialist movements typically found it necessary to court a segment of the economic elite, in spite of ideological reservations. To locate a theoretical rationale for this compromise, the concept of a non-monopoly bourgeoisie was sometimes employed. A non-monopoly bourgeoisie was differentiated from the hegemonic, monopoly sector by the former’s unfavorable economic position and tendency to be eroded by the monopoly sector. This alliance was reinforced in dependent nations by the tension between subordinated local capital and hegemonic foreign capital. Alliances between a nonhegemonic, small- and medium-sized local capitalist faction and the peasant and worker underclass, it was argued, would undercut the foreign-oriented, hegemonic bourgeoisie and allow for a process of socialist transition.¹

This form of social theory and consequent alliance strategy had its critics. For analysts of the bourgeoisie like Nicos Poulantzas and André Gunder Frank, the effort to locate a sector of the dominant class that could accept social change was futile and self-defeating.² In a monumental study of agrarian, industrial, and financial factions of the Chilean bourgeoisie, Maurice Zeitlin and Richard Earl Ratcliff add empirical support to this interpretation. Their detailed study of the social structure of the top Chilean elite in the 1960s produced a discovery of great import: an incomparably large effective kinship unit, formed of multiply interinarried banking, industrial, and landowning families, erases any ostensible social cleavages between supposedly contending landowning vs. capitalist ‘upper’ classes in these economic sectors (Zeitlin and Ratcliff 1988,173).

Because of the presence of close family members who straddled sectoral divisions, Zeitlin and Ratcliff concluded that contradictions between top capitalists with different structural locations in the economy were muted. Clashes and divisions between capitalist sectors in the twentieth century, they argued, arose not between ontologically real rivals, but within the bosom of the same class (Zeitlin and Ratcliff 1988, 208). Divisions that other analysts had found to segment the capitalist class—between bankers and industrialists, owners and managers, large landowners and urban capitalists, foreign and local capital—are minimized here, since bonds of kinship ultimately were found to weave these sectors together.³

This discussion of the character and political predilections of the Latin American bourgeoisie reflects two competing visions. In one view, the bourgeoisie, in spite of some sectoral divisions, is essentially a unitary actor. Interpénétration through family, financial, or contractual ties overcomes any tendency toward segmentation. In the other, real differences exist within the bourgeoisie that incline different segments or clusters toward different political projects.

This book tackles the question of the unity/division of the economic elite by focusing on the elite’s political interactions with the state during periods of state-led reform. Episodes of structural change put enormous pressure on both the state and the bourgeoisie. Established social hierarchies and resource allocation patterns are called sharply into question. A sense of peril propels the elite into direct political action. This moment can either increase the unity of the elite, as it attempts to defend established privileges or obtain new ones, or divide it, as different segments negotiate for an improved position relative to the others.

The way the bourgeoisie responds, I argue, depends on a series of factors. Central among these are (1) the degree to which oligarchical control over the elite has been ruptured, (2) the organizational autonomy and density of private sector associations, (3) the degree of perceived class-based threat posed by the state, (4) the extent to which the revolutionary regime succeeds in institutionalizing a new political order, and (5) the capacity of the regime to consolidate a viable economic system. The first two factors focus on the inherited character of the economic elite. The last three shift the attention to the nature of the revolutionary state.

To explore the segmentation of the bourgeoisie, this chapter briefly analyzes two types of outcomes: cases in which the bourgeoisie unites in opposition to the reform movement and defeats it, and cases in which the bourgeoisie divides and some sectors reach an accommodation with the regime.⁴ Each of these subtypes will be analyzed by a review of cases in Latin America where the central dynamics diverged. Analysis of the oppositional bourgeoisie focuses on the democratic socialist regime in Chile under Salvador Allende (1970–73) and the reform regime in El Salvador (sputtering between 1979 and 1989). Information about the accommodationist bourgeoisie is drawn from the study of state-capitalist relationships under revolutionary populism in Mexico during the Lázaro Cárdenas era (1934–40) and in Peru under the Juan Velasco regime (1968–75).⁵

Not all of these experiences are conventionally regarded as revolutions, either because they were quickly reversed or because the changes actually introduced were not profound enough to warrant the label. Each of these cases did, however, entail a major effort to restructure what had been core features of the nation’s social and economic order. In this sense they all qualify as major initiatives in structural change. Lessons drawn from the analysis of these experiences will be used to sketch an interpretation of the variations in state-capitalist relations and devise a framework within which to analyze state-capital relations during the Sandinista revolution.

A cautionary note is needed here before we proceed. The literature on these cases has been compiled by hundreds of scholars, most of whom have spent decades working on a single country. Because there have been so few cross-national studies of revolutionary processes and none that focus specifically on the reaction of economic elites, the task of building up this broad comparison is both daunting and perilous. Epistemological assumptions and methodologies vary from study to study. Concepts that are frequently used in this literature such as family clans or oligarchy may refer to different phenomena in different national settings. Standards used in making judgments about the degree of economic concentration may vary from case to case. For example, Chile’s long experience with multiparty electoral democracy allowed it to be linked analytically to the study of Western European politics. Analysts studying the Chilean system, therefore, may be implicitly comparing the Chilean social structure with those found in Italy or France rather than those found in Peru or Mexico.

Since the same set of assumptions and standards is not applied consistently by scholars analyzing each of these cases, similar characterizations (for example, the claim that the economy is dominated by an oligarchy) may reflect rather different realities. I have attempted to look beyond the summary judgments to appraise the evidence on which those judgments are based and to use comparative statistics when possible, but my work is necessarily constrained by these limitations.

The Bourgeoisie in Opposition

Democratic Socialism and the Coalesced Bourgeoisie in Chile

Prior to the election of President Salvador Allende in 1970 and his attempt to introduce democratic socialism,⁶ economic diversification had generated some divisions in the Chilean bourgeoisie, and the deepening of democratic processes had diminished its power. The experience of the Allende era, however, reunited the economic elite and propelled their offensive against the regime. Several characteristics of the Chilean elite and the Allende regime contributed to this outcome.

The Chilean bourgeoisie was shaped by a centralization of resources at the top and a norm of forceful organization that extended even into the middle sector of the elite. At the end of the 1960s, for example, 2 percent of all industrial establishments produced over two-thirds of all industrial output in Chile; the top five banks allocated over half of all credit (de Vylder 1976, 18).⁷ Land concentration was marked. Prior to the adoption of the agrarian reform law by Christian Democratic president Eduardo Frei in 1967 there were 11,000 large, multifamily estates averaging 2,200 hectares each. These large estates represented 4.2 percent of all agricultural units but occupied 79 percent of the country’s agricultural land (de Vylder 1976,166). (Zeitlin and Ratcliff’s 1988, 163–64) detailed analysis of the upper reaches of the Chilean economic elite in the 1964–66 period identified 24 kinship groups that were located among the top stratum of bankers, corporate executives, and landowners of the country, including one large maximum kinship group that included 56 percent of the top bankers, 16 percent of the top corporate executives, and 30 percent of the top landowners.

In spite of a relatively sustained tradition of political democracy and the dense organization of civil society in Chile,⁸ the business elite retained significant political influence. The economic elite pressured the state directly through leadership of political parties and indirectly through privileged access to state institutions.⁹ Six private sector associations provided an organizational forge for the economic elite. The venerable National Agricultural Society (sna) was formed in 1838; leaders of this association, in turn, formed the Society for Industrial Promotion (sofofa or sff) in 1883, after the minister of finance requested their assistance in promoting the industrial development of the country. The National Chamber of Commerce (previously the Central Chamber of Commerce) dates from 1858, and the National Mining Society, representing Chilean mine owners, from 1883. Of the associations representing economic strongholds, only the Chamber of Construction and the Association of Banks and Financial Institutions were of twentieth-century origin (Menges 1966, 344–46; Campero 1984, 312–18).¹⁰ To defend their collective interests, the four older associations came together in 1935 to form one central peak association, the Production and Commerce Federation (coproco). Chile’s elite business associations tended to be very selective, drew heavily from larger establishments, and had restricted internal democracy.¹¹

Nonetheless, a large population of medium-sized producers had emerged in Chile including small- and medium-sized industrialists, urban professionals, a self-employed petty bourgeoisie, and small- and medium-sized agricultural producers. Reflecting the norm of political pluralism, this medium-sized economic elite had devised its own network of associations in Chile, albeit in more recent decades. The largest of the private sector organizations serving small- and medium-sized businesses, the Chilean Trade Federation of Retailers and Small Industry, was founded in 1938; a host of transportation federations developed in the 1940s-60s (Campero 1984, 316–19). Unlike their larger counterparts, these business associations lacked a central organizing agency that could pull them together, and they were not given the representational prerogatives in government agencies that the elite institutions had acquired. Compared with most other Latin American cases, however, these small and midsized capitalists in Chile were relatively mobilized and autonomously organized.

Allende’s up coalition was designed to divide the Chilean bourgeoisie and incorporate small- and medium-sized producers. The up’s official campaign Programa opens by expressing concern about the suffering by workers, peasants, and other exploited classes as well as in the growing difficulties which confront white collar workers, professional people, small and medium businessmen, and in the very limited opportunities open to women and young people, Against this broad coalition of the disadvantaged are placed the interests of imperialist nations, bourgeois groups who are structurally related to foreign capital and the national monopolistic bourgeoisie (Popular Unity’s Programme 1973, 255–56).

In practice, however, deep divisions remained within the coalition about how to deal with this sector. The traditional Communist party position had favored a broad People’s Front that included progressive sectors of the national bourgeoisie. The Socialist party, on the other hand, raised doubts about the existence of any such progressive sector and favored a more narrowly based coalition of proletarian forces. The up government, composed of Socialists, Communists, segments of the old Radical party, and heretical leftists from the Christian Democratic party, began without consensus on the role of the bourgeoisie. There was agreement that the hegemonic faction of the bourgeoisie should be eliminated, both to undercut the political capabilities of the right and to secure, through expropriation, economic resources with which to finance the new order. But there were sharp divisions within the coalition about what to do with the nonhegemonic faction of small- and medium-sized producers.

Allende began his presidency by avoiding that divisive issue; he sought national consensus by focusing attention on foreign capital. In nationalizing the copper mines, he fulfilled a broad, national aspiration and secured unanimous support within the legislature. Although the subsequent decision to impose a retroactive tax on the mining companies’ excess profits and not pay compensation was more controversial, the initial expropriation was a widely supported move that rallied even local elites against foreign control.

The government’s subsequent move to acquire control over the commercial banking system was more controversial and had a much deeper impact on local elites. Financial institutions were often the linchpin that held together large economic groups. Their expropriation undercut the ability of these groups to assure capital flows to their affiliates. But the government’s willingness to pay handsomely for the buyout of existing stockholders muted the opposition to this measure.

The UP’s agrarian reform initiatives were yet more controversial, and the majority opposition in congress prevented the government from securing more sweeping change. Forced to use the agrarian reform legislation passed previously by the Christian Democrats, the regime possessed limited redistributive capabilities.¹² Consequently, the Chilean agrarian reform program was somewhat smaller than that which took place in Mexico or Peru.¹³

The regime’s most controversial property reform measures were in the industrial sector.¹⁴ In spite of formal plans to delimit narrowly the firms that would be expropriated, and repeated official guarantees to small- and medium-sized producers that their properties would not be affected, the actual expansion of the state sector proceeded according to a different dynamic. As Peter Winn points out in his study of the expropriation of the Yarur textile factory, the Chilean revolution was not encapsulated by political leaders but often flowed from base-level initiatives. When union leaders and factory workers at the Yarur plant decided to seize the factory and called on Allende to incorporate it into the state sector, for example, Allende’s resistance was eroded by labor militancy and the defection of his own cabinet officials, like the independent socialist Pedro Vuskovic who ran the powerful Economic Ministry (Winn 1986,193–95).

Unceasing pressure to expropriate led to the rapid expansion of the state sector. Unable to get congressional authorization for these expropriations, the government resorted to the use of a little-known piece of legislation passed during the brief Popular Front government of the 1930s that allowed the government to intervene in industries producing items of basic necessity when labor disputes threatened to halt their operation. The requisitioning of such factories, followed by offers to buy, allowed the state to expand its domain. Beginning with 46 enterprises in 1970, the state sector grew to 507 firms (plus 19 banks) by September 1973.¹⁵ This rapid expansion of the state sector to include 44 percent of industrial production by mid-1973 (Bitar 1986, 189) in spite of congressional opposition led to a constitutional crisis that contributed to the institutional breakdown of the regime.¹⁶

Initially, the private sector’s reaction to the new government was ambiguous. There was a brief run on the banks, and stock values plunged, as some of the wealthy panicked. Some of the most prominent elites, such as key members of the Matte and Edwards families, sounded the alarm and actively conspired with the Nixon administration against the confirmation of Allende by the Chilean legislature.¹⁷ Other bourgeois leaders, however, while not pro-up, adopted a wait and see attitude toward the new government. Indeed, a few private sector organizations, such as the Chilean Trade Federation of Retailers and Small Industry, even publicly congratulated the new president on his victory. Others, like the Central Chamber of Commerce or the president of the National Mining Society, expressed a willingness to work together for economic growth and development (Campero 1984, 46; Silva 1992, 3).

The private sector responded to the uncertainties surrounding the new government with a general decrease in investment. According to calculations made by Barbara Stallings (1978, 248), the private sector’s portion of fixed capital investment in industry dropped from an already low 43 percent in 1970 to only 20 percent in 1971, and declined still further to around 10 percent of the total in 1973.¹⁸ Outside the construction sector, private domestic investment reportedly dropped 71 percent between 1970 and 1971 (Valenzuela 1978, 56).

This reluctance to continue investment did not, in the initial phase, signify open political rebellion. By the end of 1971, however, concerted opposition swept through the national bourgeoisie. Both the outcome of the April 1971 municipal elections, in which the up vote