178 Uoiucmpuiaiy xm-^ii-j o. Chapter Summary I have now discussed the historical milieu of growth theory, its logic of explanation, and have looked at two influential early applications of the position. It is clear that these theorists were sensitive to the difficulties of shifting established intellectual tools to the Third World and they appreciated that complexity of the issues themselves. Given the demand that they produce something by way of a theory of development, their procedure was what we would expect, which is to say that they began with the intellectual tools at their disposal and fashioned a plausible scheme around the economics of Keynesian growth theories. Second, we can note that their work subsequently fell out of fashion as it became clear that the basic metaphor was false, because tackling development was not like tackling unemployment. Streeten remarks that they miscast their starting point and confused complex' problems of social, political and economic change with the range of technically detailed aspects of managing sophisticated economies.78 It is also clear, thirdly, that we should not dismiss their work because their work saw both an initial restatement of some of the core con-' cerns of the classical tradition of political-economy and relatedly the initial presentation of a series of ideas revolving around the ideology of authoritative interventionism which in the guise of modernization theory subsequently became part of the common coin of development studies. Í The theory of modernization follows on from growth theory but is heavily influenced by the desire of the USA to combat the influence of-the USSR in the Third World. The theory of modernization offers the | new nationstates of the Third World an easy route to the status of. ,' developed economies and societies. The theory of modernization typ-f ically makes use of the work of all the social sciences to offer a general' "; description of the shift to the modern world. The theory of moderniza-; I tion rests an optimistic version of economic growth models and oh' ( theories of stable change. A simple dichotomy is proposed between j traditional and modern societies with modernization as the process of moving from one situation to the other. The theory of modernization-was very influential in the 1950s and 1960s. However, modernization theory has subsequently been criticized for illegitimately generalizing the model of the West and more particularly the model of the USA* 78 Streeten 1972 op. cit. mm m e 'äStfeiäaä É. 10 The Development Experience of Latin America: Structuralism and Dependency Theory 1» SlSffiäfflí-i4äÍ-' ""Si" Overview of Structuralist and Dependency Theories In the'years prior to the depression of the 1930s the economies of the countries of Latin America had been oriented to exporting primary ' products to the European and American markets. However, the response of governments to the economic dislocation of the depression and sub-' sequent war years had the effect of encouraging import-substituting -industrialization. After the end of the Second World War this situation' ' was "theorized by Raul Prebisch and the social scientists of the UN ^ Economic Commission for Latin America, ECLA. The standard theories I of international specialization and trade which argued for a comple-rnentary international division of labour were rejected. A structuralist'! economics was formulated to model realistically local economies so that governments could effectively plan for national development. ,iThe influence of structuralist economics declined as the drive to indus-l frialize faltered in the early 1960s and theorists came to stress the Tj,more radical political implications of the structuralist centre-periphery, "(motif. As the material of structuralism was reworked the approach known as dependency theory emerged. On the dependency view the upshot of the historical experience of the countries of Latin America l^that the region has come to occupy a position of subordinate incorporation in the global economy. 180 Contemporary Theories of Development Latin America between the Wars After the disintegration of the Spanish colonial empire in Latin America around the turn of the nineteenth century A. G^Erankj, identifies the emergence of two factions amongst the hewly~independent peoples who came into conflict in respect of the future pattern of development: the 'Europeans', who were advocates of free trade and thus a continuing role as primary product exporters; and the 'Americans', who were nationalistic and advocates of industrialization behind,protective tariff barriers.2 In the' - - — ■ "' - — ■■ ... , , . c 1 • ^event the views of the Europeans prevailed and the countries of Latin America embarked < ' ' ' " '"~J primary-product exporting, in rue ycais uciuic mc un.01 uv.ťn.oi,1Uu ^.. ..„., 1930s Latin American countries pursued policies of primary-product export- iLUrupcaiii» jjicv A, A. Dadone and L. E. DiMarco 1972 'The Impact of Prebisch's Ideas on Modern «■onomic Analysis' in L. E. DiMarco ed. 1972 op. cit. p. 23. s Ibid. p. 24. ■I M , 1 s/ H- fc A. 182 Figure 12 Structuralist economics and dependency theory Ricardian theory of specialization Plus neoclassicism Inter-war depression and import-substitution industrialization New role of USA displaces UK STRUCTURALIST ECONOMICS Global and historical structures NATIONAL STATE ECLA STATES ' SECÖWNG NATIONAL 1D)K¥1EL01PMENT DE1PENBENCY THEOICT Latin American social science Centre-periphery motif Centres and peripheric in global system Global rule setting Centres-peripheries Linkages, sectors, structures, subordination KEY EOLE QE NATIONAL STATE ECLA STATES T ©mpCTirVEs AUTONOMY WITHIN «GLOBAL SYSTEM ( v- The Development Experience of Latin America 183 Background concerns -...... - ~"> /r?" The principal position against which Prebisch developed his views?« was the | claim of orthodox Ricardian-inspired economic theses that intfernaShat/ speuahzation conferred benefits upon all those involved." Xgaľns °S ■ argument Prebisch used a version of the centre-periphery idea which wS javadable not only m marxian but also inTndig^dü/irtEXmerican anti-jimpenalist writings which had been produced over the 1930s and 1940 The lines of criticism of the orthodox view of the benefits of international"' T HS A ľ" aiKLexchanSe rr ba^k to the late nineteenth century when the USA, Russia, Germany and Japan all confronted the problems of being late industrializers' withm a global system dominated by the British In all phese cases a preference for industrialization behind protective tariff barriers was favoured. In the light of these considerations, Prebisch:argued that Se lorhodoxthegrxxondemned Latin. American economlSloTifesGiy IHd' . ^atiyely d^mgposmón Wplffi^ V~Tu- "?W^^°™éd in the years priorTdilOiSsloinnd í^h^nho^ in tavour of international specialization and in addition to challenging the orthodox conception of the appropriate position of Latin American Mom-les within the world economy makes a concurrent reworking of the explanations of the nature of peripheral economies. The market equilibrium model ff <*™pü**^ is rejected in favour of an ěmpiricist-style, pragmatic and ř problem-oriented approach known as structuralism which insisted that the t SS~iej^Lthe C?H£HH É Latinjonericashould be'anaiy^e'd as a loosely »^dieLof separate sectors, each oTwhich had a partlcüTaFr^e^itHH #nW iSyStem bTeatíd by tHe d0minM fcjäľf: The new policy solution was to pursue a national programme of Igustnahzation behind protective tariff barriers: precisely the paŠern which lhadjrown up in the wake of the crises of depression and war. \ *-»■ ' vj ' Structuralist economics átiontrrľaCÍk?1ÍSlí aPPr°ach Lstarts with the attempt to model the local situ-, SdaläSn y "Tu í f0rally- In- Place °f" the orthodox neo-i o forma rnnH7CS^f the Self^Sulating market system with its predilection Patterľnf í ' ^ Structuralists look * the actual historically generated ■ eSŽg}£™?™ *<*?*:As soon ™ this procedural change in strat- 1 of theÍconľmiľe n eXľknatl0n ÍS made a Very different storyin re«Pect 1 "fa ňomv ;* «J ,. . Amer,lca emerges. The putative single national eco- ! P'««Sk In nfeS-Tlí mt° a t°OSeIy ÍnteSrÄd set of quasi-autonomous "■ 'singSSr- ?l° he ST°th interaction of the various elements of the . Sie economy there is a diverse spread of conflicts of interest between the >6Lřrw\S^lI>%£M'!°""'%Duvf;/0?We"í °f Latin Amerka and its Principal U SPf> \a ™ ' mted Natl0ns Publications. M. Blomstrom and B. Hettne op. cit. chs 2 3 mMŮ 184 Contemporary Theories of Development various sectors. In the actual historically generated economies of the countries of Latin America each of the various sectors of the economy of the present day represents either a residue of the historical process of the expansion of Western European capitalism or a present requirement of contemporary capitalism. The distinctively national and integrated economy does not exist and instead there is a collection of residues, enclaves and various paras uic forms. In the light of these analyses it can be argued that an 'underdevelojx d , country is underdeveloped precisely because it consists of different stniL jl tures each with a specific type of behaviour'.12 The origins of structuralism lie in the concern which Prebisch had m i respect of the relations between Latin America and the industrialized ecu .. , nomies.13 The notion of the key relationship being between centre and pui phery 'was derived from the preoccupation with economic cycles during the immediate postwar period'.14 It is clear that from this perspective the | distinction .. . was principally inspired by the unequal role played by t he s two segments of the world's economy in the system's periodic fluctuations j! the first playing ah active role; the second a passive or reflexive role' 15 The distinction also pointed to the different roles assigned to 'primary exporte rs , and industrial exporters by the international division of labour, whose aid result was an unequal distribution of technical progress'.16 The upshot is "■ that the powerful core economies both drive the system generally and ti nd to accumulate an ever greater technological lead in industry which in tin n ... secures their dominance. Overall it became clear to Prebisch that the relative Jack of advance of the economies of Latin America could not be explained in terms of deficiencies within the local economy but should be explained \ with reference to the debilitating structural circumstances of the economics. , of Latin America within the global system. — The major claims of the structuralist position were constructed on"the basis of these analyses. There was a more particular occasion for the present x-tion of structuralist economics insofar as they 'dealt with the impliclti >ns of the substitution of the US for the UK as the system's principal cent« \17 As the disruptions of the inter-war depression gave way to the greater ívs temic upheaval of the Second World War the metropolitan centie to which the economies of Latin America had looked over the long period of their independence, which had been secured from Spain and Portugal in the earlv nineteenth century, namely the UK, became enfeebled and was eclipsed by the USA. It was the USA which became the dominant centre to which the economies of Latin America looked in the post-Second World Warpenod, 1 12 P. J. O'Brien 1975 'A Critique of Latin American Theories of Dependency' in I Ojwal et al. Beyond the Sociology of Development, London, Routledge, p. 9. * 13 J. Knakal 1972 'The Centre-Periphery System Twenty Years Later' in DiMarco (.u op. cit. ' 14 Ibid. p. 97. : 15 Ibid. 16 Ibid. 17 Ibid. VU*,'1» f a ine Development experience Ol .Lanu milenca lö.} In general terms the ECLA line of analysis involved a series of interre- í J>-lated claims. The first claim was that the economy of the, USA_was jceíat-: j , T,/jv< ively self-contained and therefore its responsiveness to the periphery was \ SV" less in comparison to that of the previously more open economy of the UK.^ ' ' The shift in focus from the UK to the USA found a more advanced liberal market economy whose centres of power were not particularly disposed ito continue the styles of interaction established by the British over their long period of association with the countries of Latin America. In brief, a new/ metropolitan centre entailed a new schedule of demands.....upon the peripheral countries of Latin America. The second area of concern was with ■*—- j the terms of trade between centres and peripheries which were seen to have ' f'^"" moved against the peripheries as primary product prices fell relative to , the prices of manufactures. In this situation the general position of thelrfi/^ periphery is weakened significantly as the capacity to finance imports is reduced. The third related concern points to the capacity of the centre to-* import independently of its exchanges with thé^peripKérý^ other wořBš [he^ntře^ould~šouřčé^ffš~irnpořtš"fŕOŕh'äňy number öf locations within the global periphery. In the case of Latin^America the freedom_of thecentre weakens the position of the periphery in vital trade "relations".. Again, fourth,, tfieŤnŕíports of the centre are of raw materials and their prices fluctuate j sharply which is to the detriment of the periphery which cannot rely upon a steady stream ofmromerATid4rngJ:l^lhě3heorists-pf ECLA took the view; that the post-Second World War |ddlar_^hortagel181 revealed that the USA is amused to a world role, in contrast to the.JJK, and that this impacted ',' negatively on the peripheral economies. Overall, the ECLA analysis of the \ situation of the peripheries in relation to thenew metropolitan centre of the c ^ ť, USÄjsvas_pessimistic in that the new"centre was seen to be both powerful. "~äíld unsympathetic. * . <^; •~j It is with the addition of one further set of reflections that the full ECLA ^ t^' argument emerges. In this early formulation the rok of global financial '^, ijj v mechanisms was omitted but this was quickly remedied and it was pointed' \.'^ ■,, out that the major global sources of finance were controlled and regulated' ' y\j rby the'metropolitan capitalist countries, and indeed that the major hew W*,. institutions,of the Bretton Woods system were located within the Arnér- \'v> / ican capital. It is at this point that the ECLA structuralist diagnosis of a / i:-.f. i. y^Jglobal economy divided into a powerful autonomous centre surrounded tby'dependent peripheral economies was finally stated.19 The policy conclusions« flowed from the analysis and revolved around the affirmation of a Strategy of industrialization in the peripheries such that they could over nme become non-dependent economic agents within an interdependent global svšrpm WT' no * lmmediate post-war period the US economy was dominant and all other eco- ) " ^, mies were'war damaged. In this situation they could not export goods to the USA in order Dm»-™ , t0 pay for their imports - hence a shortage of dollars. In Europe the aid programme known as the Marshall Plan solved the problem. W Knakal 1972 op. cit. p. 100. 186 Contemporary Theories of Development The broad sweep of structuralist analysis can be summarized in terms of the three key implications of the rejection of the Ricardian-inspired theories i of international specialization and exchange: (a) the analysis of relation-I ships in terms of centres and peripheries, rather than equal market players; ; (b) a focus on industrialization as a means to catch up and join in with the , core economies, in preference to continued dependence; and (c) a concern for the social and cultural implications of dependency.20 The crucial element of the overall position was the view that technical progress was concentrated at the core and in character was slowly diminishing the importance of primary product inputs - hence, over time, the declining terms of trade, j The expectation was that industrialization would address directly the issue j of the technical advantage of the core and would help mop-up unem-1 ployment by providing new industrial jobs. Government finances would ■ be improved by broadening the economy and thus the tax base, and the I balance-of-payments position wouldbe improved by making at home what | had previously been imported. These policies met with early success and there was extensive industrialization and urbanization. However, there were unanticipated problerns in that industrialization depended on foreign supplies of sophisticated manufactures and thereafter served relatively small ,local markets. The benefits were thus less than expected and the financial f costs were higher than expected. The strategy of import-substituting induř ; trialižätion turned out to have only limited effect and in the case of Latin i America a mix of overenthusiasm, incompetent and corrupt First World : bankers and a subsequent flood of petro-dollars led to economic, pohticali i and social problems which culminated in the debt crisis of the late 1970s| I and 1980s.21 « t The practical record The practical record, of structuralist-inspired policy advice has been mixed. In Latin America the move towards industrialization, which,was begun in the difficult period of the depression and which continued over the wartime episode, has continued as a central concern of the policies of governments in the post-Second World War period. In all cases the drivejtowards an índus-trial developed economy continues. It is also clear that the record is_uneven äricTshöws a mixture of partial success and clear failure. The approach has seen as series of phases. "" A __ The reformist structuralism of ECLA belongs to the first of what ihe noted dependency theorist'Celso Furtado has called 'three easily idenfijř able periods' in the economic history of post-war Latin America.22 The firMj 20 H. Brookfield 1975 Interdependent Development, London, Methuen, pp. 139-42 21 See S. George 1988 A Fate Worse than Debt, Harmondsworth, Penguin, P KormT et al. 1986 The IMF and the Debt Crisis, London, Zed. 22 C. Furtado 1976 Economic Development in Latin America, Cambridge University Press, p. 298. The Development Experience of Latin America 187 is characterized as one of rapid growth based on favourable terms of trade, accumulated reserves from""the"war"years, and currencies strong enough to be able to withstand gradual devaluation in the face of already active infla-/■"tionary pressures. However, by the mid-1960s the position had changed and; fc» 1 i the strategy of import-substituting industrialization was apparently failing. C^Jja« y In this second period there was a jiharp deterioration in the terms of trade ■ and a slackening of the rate of growths On top of this the Cuban revolution] f\,,,i--o^ provoked widespread questioning of the nature of Latin America's recent! (h^ -development history. A third period is also identified in the early 1970s) .;"\ which saw something of an economic boom on the back of vast impöffs"' J of capital as petro-dollars were' recycled and a little latter the debt crisis of the 1980s emerged. / - -----...........-... '" 'The deteriorating situation of phases one and two was interpreted by ECLA m terms of problems with small local markets, and the associated difficulties of securing overseas markets, and the disadvantageous nature for"] / Latin American economies of established patterns of international exchange.J .In response to these problems ECLA 'pursued a two pronged strategy of /'pressure and persuasion in the 1960s: the first, on Latin American gov^~] ernments in favour of regional integration; the second, on governments of the developed countries for more liberal trade and financial policies'.23^ However, by the late 1960s the ECLA model of development was in severe crisis. " "A variety of problems were noted. There was, firstly, th^continuatign of 7 economic dependency despite import substitution (as the drive to upgrade | *■ lóčärindústry"progressed ä strong demand for the import of First World f sophisticated technology was created). Once the drive to industrialize was j initiated the demand for further imports of technology and supplies continued to grow. The paradox of import-substituting industrialization was > that it demanded a significant supply of foreign imports all of which had ii to be paid for by export earnings or by the accumulation of debt. In thel .£ -'wider economy, secondly, as the drive for industrialization continued the/ ,v Urban employment structure began to become sharply divided as those with ) V1 ' fempToyrnent in industries sponsored by governments, or overseas com- '| .\ vt panies became relatively prosperous, whilst those in the unprivileged local /Q}" * Sectors found their incomes falling behind. This situation was to become/ i 'títore problematical as inflation took hold and various groups moved to fc. protect' themselves from any loss of earning power. In the rural areas the ^established primary product operations continued but with diminished £political support. As poverty increased there was pressure for rural-urban j 'migration. It was clear that the impact of the economic developments of the fÄ",0^ was tnat income inequality was becoming worse. So, thirdly, large 'í sections of the population were marginalized as they shifted out of any formal K; *~23 ' M £*. , ^. Girvan 1973 'The Development of Dependency Economics in the Caribbean and '^a " Amerlca: Review and Comparison', Social and Economic Studies, 22. /* O'Brien 1975 op. cit. p. 11. 188 Contemporary Theories of Development employment and into the myriad activities which are summed as the 'in-1 formal sector'.25 Then, fourthly, the role of foreign capital was increasingly in evidence as the state, the industrial sector 'and' the rural'primary producers sought to support their activities by drawing in foreign capital. In general, fifthly, a consequence of the economic, social and political problems of the period was that the military came to seize political power in many places.26 Overall, it could be argued that the approach favoured Iow-quälity~KigR-cost manufactures, neglected agriculture and entrenched the role of foreign capital.27 In the light of these developments it soon came to be argued :. khat the structuralist remedy was better seen as 'the cause of the economic v'jillness'.28 It was at this point that the argument moved out of the structuralist frame used by Prebisch to embrace work from wider traditions within~thlTš"ocial J sciences. A significant area of concern was the critique of the model of modr vi ernization which had been assiduously developed by US theorists in the late ) 1950s and throughout the 1960s. The exchange with modernization theory can be taken to have issued in the representation within Latin American social science of the concerns of the classical nineteenth-century tradition of social science with its concern to elucidate the dynamics of complex change.29 A series of objections were made to the modernization theory analysis of the countries of Latin America. The idea that they were dual societies with a traditional and a mqiiernsegtÔirwäšTgJected las''the whole of J;hS"territories were influenced by the demands of the global system). The idea that 1 fhodernizingimpulses would spread to the backward areas"was rejected (as jrthe impact of global system on poor areas was at best unpredictable). The idea that the poor traditional areas represented a handicap to progressive national bourgeoisies was rejected (as such an elite did not exist).30 The" general strategy of looking to a series of stages of economic development , "VI was rejected in favour of a more richlyelaborated historical analysis whidi -ofej I would deal with the normality of the pattern of underdevelopment wit hi n ^ | Latin" America given itsparticular position within the global systems1 '■■'"It is out of this complex pattern of debate which revolved around tlu h 25 On urban poverty and the vitality of the informal sector, see P. Worsley 1984 The 77 ' Worlds: Culture and World Development, London, Weidenfeld. " ~^l 26 On the collapse into military rule, see J. Linz and A. Stepán eds. 1978 The Breakdt 1 /1**| of Democratic Regimes; see also for a discussion of the return of democracy, D. Reuschemi if ,y et al. 1992 Capitalist Development and Democracy, Cambridge, Polity. « ,, "V^ 27 R. Peet 1991 Global Capitalism:. Theories of Societal Development, London, Routled i pp. 43-5. 28 Ibid. p. 45. . 29 See for example, F. H. Cardoso and E. H. Faletto 1979 Dependency and Developrr •' „ r in Latin America, University of California Press. See also J. A. Kahl 1976 Modermsati Exploitation and Dependency in Latin America, New Brunswick, Transaction i ^» 30 See R. Stavehhagen 1968 'Seven Erroneous Theses on Latin America' in J Petras .i"J ÖTä M. Zeitlin eds. Latin America: Reform of Revolution, Greenwich, Fawcett. «líf 31 See O. Sunkel 1969 'National Development Policy and External Dependency in Let ' ** America'. Journal nf Denelnhmpr/t Stud!/»: (• The Development Experience of Latin America 189 exchange of metropolitan centres andXatin American economies that thef