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Concern with Policy-Relevance in the Latin American School of Economics Ana
Maria Bianchi (Universidade de Sao Paulo, Brazil) © Copyright 2003 Ana Maria
Bianchi As I understand it, one of the main goals of the post-autistic movement is to stimulate the economics profession to transcend autism and communicate with the rest of the world, non-economists included. One of the ways of attaining this goal is to look back at the history of economic ideas, which is full of interesting episodes that can help us to understand what happened in the past and what is going on today. Historical reconstruction may attract our attention to some currents of thoughts which developed outside the mainstream of the profession and were never made part of the academic textbooks, although they brought up significant new perspectives on the functioning of the economic systems. In this connection,
is is worth recalling the episode that concerns the
building of the Latin American School of Economics in midst 20th
century. This school of thought originated in the United Nations Economic
Commission for Latin America and Caribe (ECLAC),
founded in 1948. Its best known leader is the Argentinean economist Raul Prebisch. After holding important executive positions in
the Central Bank of his country, Prebisch taught
economics at the University of Buenos Aires and soon after joined the ECLAC staff, where he stayed for 15 years. His conception
of the growth processes in Latin America was developed in several essays
published by the ECLAC1 and turned to be the basis of what is now
known as the Latin American school.
Under the leadership of Prebisch, the institution became
a think tank for a whole generation of heterodox economists and social
scientists in general, the so-called cepalinos,
whose ideas provided theoretical justification for the economic development
of Latin America countries during the second half of the twentieth century. The main thesis
advocated by the Latin American School was that the “peripheral” countries ,
which specialized in exporting raw materials and primary products in general
to the “central” industrialized countries, suffered from a longterm decline in their terms of trade. The benefits of
external trade were unequally shared by these two groups of countries, the
producers of manufactures, on the one hand, and the producers of raw
materials and primary goods, on the other. Due to this asymmetrical
relationship in their foreign trade peripheral countries faced a vicious
circle of low productivity and low rate of savings. Regarding the central
countries, market imperfections such as rigidity of wages and monopolistic
conditions were such that the gains in productivity derived from
technological improvements did not result in decreasing prices for industrial
goods exported to Latin America and peripheral countries in general. The
balance of payments deficits were detrimental to Latin American´s
economic growth, as receipts deriving from exportations did not create the
import capacity needed to provide the region with the capital goods that it
required to develop its industrial sector. In order to
overcome this situation, Latin American countries should protect their
foreign trade and concentrate on the production of an array of formerly
imported manufactured goods. Import substitution was a necessary condition
for peripheral growth, in association with structural reforms in the economy.
The focus should be placed on the strenghtening of
the domestic market, which was seen as the crucial element of an
inward-looking model of development. Exportations were still necessary
because they would guarantee the foreign exchange needed for importing capital
goods, but the hallmark of the cepalinos´s
conception was the focus on the domestic market. Within Latin America,
economic integration between countries would allow them to take advantage of
economies of scale, in the sense of providing larger markets and favoring the
dissemination of modern technologies. These were, in a
nutshell, the main theses defended by the cepalinos,
who worked hard to gather statistical data about Latin America
countries and their patterns of foreign trade. It its important to notice that this was
not a widespread procedure in the 1940s and 1950s. On the contrary, in many
economic texts, mostly those meant for a lay audience, there was no
systematic concern with the role of statistical evidence in economic
analysis. The cepalinos prompted a break
from the prevalent discursive style. Concern with the empirical support of
economic theses was present in the very spirit that presided the conception
of the ECLAC. The entity´s
staff was put in charge of assembling statistical data about Latin America,
in order to compensate the chronic deficiency, and they did the best they
could do in this area. Another important
point about the cepalinos is the fact that
they were severe critics of the conventional theory of international trade,
both in its Ricardian and neoclassical versions. In
a late interview, Prebisch (1987) stated that,
although he was raised in the neoclassical tradition, the Great Depression
forced him to review his ideas. Already in his writings as a member of the ECLAC staff, he argued that the main mistake of
neoclassical economics was to attribute a general character to something that
was geographically circumscribed. From the viewpoint of the periphery,
conventional economics suffered from a “false sense of universality”, as its
general laws did not apply to the world economy as a whole. The international
division of labor which this theory pictured as a “natural” outcome of the
world system of trade was of much greater benefit to central than to
peripheral countries. A new investigative effort was thus necessary for a
correct interpretation of Latin American problems, one that would bear in
mind the need to tailor the neoclassical theory to the specific conditions of
peripheral economies. This did not mean, however, that the new generations of
Latin American economists had to start all over again, building a completely
different economic theory. On the contrary, they had to learn neoclassical
economics before being able to make the necessary adaptations.2 Prebisch and the cepalinos
were influenced by the German Historical School, especially its forerunner
Friedrich List, from whom they borrowed the “infant industry” argument.
According to this argument, a potential manufacturer in a developing country,
faced with an initial period of high costs, should be put under State
protection. Temporary intervention would make entry into the new industry
profitable provided that, on the longer term, its production costs would
decline below the imported cost. This argument was combined with an appeal
for import-substitution industrialization as the only way out of poverty and
underdevelopment. Although not an end in itself, industrialization was the
principal mechanism at the disposal of peripheral countries to obtain a share
of the productivity gains achieved through technological progress. In this
scenario a major role was attributed to the state, which should provide
protection for the newborn domestic industries. The cepalinos also placed great emphasis on economic
programming and planning techniques. The development process should follow an
orderly strategy, and it could not be conceived as the spontaneous process
which characterized it during the nineteenth century. On the empirical
counterpart of this ideological and institutional movement, the cepalinos succeeded in mobilizing the energies
necessary to give a new impulse to the state-led industrialization process.
Industrialization through import substitution had begun ealier
in countries such as Brazil, Argentina and Chile, but it gained a new
momentum with the diffusion of structuralist ideas
and policies. Burger (1999) claims that with the ECLAC
industrial policies came to represent a logical continuation of this early
process, systematized into a more coherent body of ideas. All in all, this
industrialization model worked in Latin America, if by “working” we mean
driving the per capita output for a quite extensive period of time. During
the three decades that followed World War II, Latin America saw a continuous
growth of its industrial product, its gross domestic product, and its per
capita income. Between 1950 and 1978,
Latin America´s gross domestic product grew at an
annual rate of 5,5%, a rhythm that far exceeded the world average. The Latin
American industrial product was multiplied by six in the same time period,
growing at rates far superior to the populational
growth, which grew 2,8% a year. The
continent as a whole exihbited a persistent growth
of its GNP per capita of about 2,6% a year.
Yet the import-substitution industrialization model had shortcomings and the cepalinos quickly came to acknowledge this fact. In a book published in 1971, called Change and Development, Prebisch pointed out to the limitations of this model as it had actually evolved. Latin American economies, he claimed, could no longer continue to rely on import substitution alone. Rather than concentrating on the production of basic goods for general consumption, the newly created industries had tended to concentrate on the production of consumption goods that benefitted a small portion of the urban consumers. The industrialization model adopted by the Latin America countries produced growth but failed to produce equity, as it was unable to absorb the excess labor force, marginalizing large masses of people from its benefits. In this sense, the
import-substitution model adopted by Latin America after World War II was
inefficient in achieving a significant reduction of poverty and income
concentration in the continent. Latin America became less poor in the second
half of the 20th century, and this is something to be praised, but
its indices of inequality, which were already comparatively high in 1950,
remained so throughout the 1950-1980 period.
The costs of this process included high inflation levels – a further
object of concern of Prebisch and the cepalinos -, which accelerated at an unprecedented
rate near the end of the century.
These costs also included a growing foreign debt and a bloated,
inefficient, and corrupt public sector.
The integration of the continent itself, a dream nurtured by ECLAC from its very beginnings, moved at the speed of a
turtle. From the academic
point of view, the Latin American School of Economics did not leave many
followers outside the continent. There
are very few mentions to it in the international literature of history of
economic thought, macroeconomics and growth economics. One exception is found
in Thirlwall and McCombie
(1994, pp.256-7), who refer to the importance of Prebisch
in the construction of center-periphery models of growth and development.
(The authors build an equation which would be later adopted in post-Keynesian
growth models.) Be as it may, the
most important feature of the Latin American School is the fact that its
authors were thourougly concerned with the
practical relevance of their writings. This is not a prerrogative
of this school, as we learn from Milberg (1996), who claims that in the field
of international economics researchers have been persistently concerned about
policy-relevance. Nevertheless, this is something to be praised, in times
when ultraformalism tends to dominate a significant
part of the academic scene. Influenced as they were by the German Historical
School, the cepalinos fully recognized the prescritive nature of economics. Their writings show an
explicit commitment to values such as economic development, social welfare
and equity. The cepalinos wanted to learn
the relevant theory and to assemble the relevant statistics, but they also
wanted to tell something important and true about their Latin American world.
In this sense, they mobilized some broad-based economic expertise in order to
propose economic and social changes, thus bridging the gap between what they
learned in the textbooks and the world out-there. Notes
2. This is what Hodgson (2001)
would call the neglected problem of historical specificity, which he
considers to be a problem of vital significance for the social sciences,
fully recognized by all the leading members of the German Historical School.
It addresses the limits of explanatory unification in the social sciences, in
the sense that they must build theories that are sensitive to historical and
geographical variations. In the author´s own words:
“... differences between
different systems could be so important that the theories and concepts used
to analyse them must also be substantially different, even if they share some
common precepts. A fundamentally different reality may require a different
theory. This, in rough outline, is the problem of historical specificity.”
(Hodgson 2001, p. xiii) References Burger, Hillary. 1999. An
Intellectual History of the ECLA Culture, 1948 to
1964. Boston, MA: Harvard University Press. Hodgson, Geoffrey, 2001. How Economics Forgot History. London
and New York: Routledge. Milberg, William, 1996. “The Rhetoric of Policy Relevance in
International Economics”, Journal of Economic Methodology 4 (2):
199-200. Prebisch, Raúl,
1971. Change and Development: Latin America´s
Great Task. New York: Praeger. Prebisch, Raúl, 1987. “Cinco Etapas
de mi Pensamiento sobre el Desarrollo”. Comércio Exterior 37 (5). Prebisch, Raúl. 1948. “Desarollo Económico de América Latina y sus Principales
Problemas”. Santiago: CEPAL, E/CN.12/0089, 87 pp. (published in English as “The
Economic Development of Latin America and its Principal Problems.” UN E CN. 12/89 Rev.1. Thirlwall, A. P. and McCombie, J.S.L., 1994. Economic
Growth and the Balance of Payments Constraint. St. Martin´s
Press. United Nations, Economic Commission for Latin America, 1951. Economic Survey of Latin America 1949. Santiago: UN. ______________________________ |