From the ECLAC Development Order to Neo-structuralism

in Latin America HÉCTOR GUILLÉN ROMO*

The Latin American development economy emerged, like the Anglo-Saxon economy,

after the World War II. However, in contrast to the latter, it dealt with countries that had

been politically independent since the first half of the nineteenth century. By the mid-

twentieth century, these countries had an industrial system for consumer goods, certain

infrastructures, and a higher-education and scientific research system which was lacking

in the recently independent African and Asian countries that had inspired the Anglo-

Saxon development economy.1

Despite this important difference, the relation that economists of the center

established ––and in many cases still establish–– with those of the periphery was of a

colonial nature. Albert Hirschman explains this situation well with the case of the

French economist and economic advisor Jean Gustave Courcelle-Seneuil,2 whom the

Chilean government hired in 1853 as an official advisor and also to give economics

courses at the University of Chile in Santiago. With his prestige as a foreign expert he

was instrumental in passing a banking law which gave full freedom to establish a bank

to any solvent person. All banks were permitted to issue currency with the only

limitation that the banknotes in circulation should not exceed 150% of the capital of the

issuing bank. With regard to foreign trade, as a good defender of laissez-faire, he

succeeded in considerably lowering the level of protection. In the academic world he

infused a doctrinaire zeal in his students, who went on to become politicians. Courcelle-

Seneuil’s disciples, who scrupulously applied his recommendations, were responsible

for secular inflation, industrial retardation and foreign control of Chile’s main natural

resources. However, Courcelle-Seneuil was not an isolated case. The countries of the

center where economic science first appeared became exporters of a particular product.

The foreign economic expert, firmly convinced that thanks to his knowledge of

economic science he could explain economic problems and contribute the right

1 Martin Purchet Anyul, “Contribuciones teóricas del pensamiento económico al desarrollo

latinoamericano”, Economía UNAM, Universidad Nacional Autónoma de México, September-December, 2004, pp. 119-120.

2 Albert O. Hirschman, “Gustave Courcelle-Seneuil”, in John Eatwell, Murria Milgate and Peter Newman (comps.), Economic Development. The New Palgrave, Economía Crítica, Barcelona, 1993, pp. 137-141.

solutions in any country in the world, more particularly in the underdeveloped

countries. In the face of the arrogance of the foreign expert was the attitude of

submission and self-deprecation of many of the economists of the underdeveloped

world, who awaited him anxiously, convinced that his advice would consist of a magic

medicine that would solve all their problems.3

Towards the end of the forties a group of Latin American economists reacted

against this state of affairs (Raúl Prebisch, Celso Furtado, Juan F. Noyola, Aníbal Pinto,

Jorge Ahumada and Osvaldo Sunkel, among others), grouped around the recently

established Economic Commission for Latin America, ECLAC. They formed what

Furtado would later call the ECLAC development order, whose main mission was to try

to become free of alien ideas to cease explaining, by analogy with the economies of the

center, the problems of the periphery. In short, it was a question that for the first time in

the history of economic thought, as Furtado pointed out, the economists of the center

should not have a monopoly on an explanation of the world.4

BOOM AND DECLINE OF THE LATIN AMERICAN DEVELOPMENT

ECONOMY

ECLAC’s contribution to the history of economic thought should be based on the

“acknowledgment that it is a matter of a specific analytical body, applicable to the Latin

American periphery’s own historical conditions”.5 The objective is to combine an

essentially historical and inductive method with the abstract-theoretical reference of the

ECLAC theory of Latin American peripheral underdevelopment. ECLAC seeks

diachronic, historical and comparative relations that lend themselves more to the

inductive method than to positive heuristics.

There is no question about the fact that Furtado was the Latin American thinker

who did the most to legitimize ECLAC’s historical-inductive theory, despite the

dominance of the standard economy, which became increasingly logical-deductive.

3 These attitudes, paternalist on the one hand and submissive on the other, which persist nowadays,

were confirmed by Hirschman in Colombia in the early fifties. Albert O. Hirschman, L’économie comme science morale et politique, Gallimard Le Seuil, Paris, 1984, pp. 72-74.

4 “Any reflection on the legacy of ECLAC should be based on the recognition that it made the only effort to create a body of theoretical thought on political economy that has emerged in this vast area of the world known as the third world.” Celso Furtado, El capitalismo global, Fondo de Cultura Económica, Mexico, 1999, p. 30.

5 Ricardo Bielschowsky, “Cincuenta años del pensamiento de la CEPAL: una reseña”, in Cincuenta años de pensamiento en la CEPAL. Selected texts, vol. 1, Fondo de Cultura Económica, ECLAC, Santiago, Chile, 1988, p. 10.

Furtado felt it was necessary to avoid falling into what he calls an economic illusion, in

other words “the reduction of society to a model and the translation of a historical

process in terms of an elegant system of differential equations”.6 Needless to say,

Furtado “recurred abundantly to his logical-deductive capacity, but he always based him

his thoughts on historical facts and their tendency to repeat themselves, and not on the

presumption of rational behavior”.7 His books on Brazilian and Latin American

economic history8 stand as primary works of ECLAC thinking, in which emphasis was

placed on the importance of understanding underdevelopment as a specific historical

context demanding its own theorization, in stark contradiction with the postulates of

standard economics.9 In his book Desarrollo y subdesarrollo (Development and

Underdevelopment), which expands on this idea,10 the Brazilian economist defines

underdevelopment as an autonomous historical process and not as a stage through

which the economies that reached a higher level of development should necessarily

have passed.

Underdevelopment results from the expansion of the European industrial

economy toward occupied regions, some densely populated, with diverse economic

systems but all of a pre-capitalist nature. Hybrid and dualist structures are created, part

of which tended to behave as a capitalist system and the other to remain within the

previous structure.

ECLAC’s historical approach implies a method of production of knowledge that

was very attentive to the behavior of social agents and the evolution of institutions. The

importance of institutions, which in the nineties became a fundamental topic for the

study of development in the standard Anglo-Saxon approach, was present in Furtado’s

first works, and thereinafter. In particular, it “seeks to grasp development as a global

process: transformation of society at the levels of the means but also of its objectives;

6 Celso Furtado, Los vientos del cambio, Fondo de Cultura Económica, Mexico, 1993, p. 300. 7 Luiz Carlos Bresser-Pereira, “Método y pasión en Celso Furtado”, Revista de la Cepal, number 84,

December 2004, p. 26. 8 Celso Furtado, La formación económica de Brasil, Fondo de Cultura Económica, Mexico, 1962, and

Celso Furtado, La economía latinoamericana desde la conquista ibérica hasta la revolución cubana, Siglo XXI Editores, Mexico, 1973.

9 A certain university tradition categorically denies the specificity of the conceptual dominion of underdevelopment. Thus, for example, Hicks in England, considers that although the economy of underdevelopment is a very important topic, he does not provide material for formalization or for a theory. J.R. Hicks, Capital and Growth, Clarendon Press, Oxford, 1965. In France, Malinvaud holds the same point of view: “I do not believe that economic science can have the ambition of drawing up a general theory of economic and social development”, cited by Alain Caillé, “Plaidoyer pour une science sociale”, Économies et Sociétés, number 6, 2003, p. 983.

10 Celso Furtado, Desarrollo y subdesarrollo, Eudeba, Buenos Aires, 1971.

the process to accumulate and expand productive capacity, but also of appropriation of

the social product and the configuration of that product; social division of labor and

cooperation, but also social stratification and domination; introduction of new products

and diversification of consumption, but also destruction of values and suppression of

creative capacity”.11 Thus, development is not only capital accumulation but also the

incorporation of technical progress, which depends on the class structure, the political

organization and the institutional system. In other words, the study of development is

situated at the crossroads of three theories: that of accumulation, that of social

stratification and that of power.12 In these conditions, Furtado believed that the task of

Latin American economists was to “build a conceptual framework that enables grasping

social reality in its multiple dimensions”.13 That is to say, it was a question of building a

multidisciplinary structural analysis of development (incorporating sociology and

political science) and not a simple economic analysis of development.14 He devoted

himself to this task together with other great Latin American economists, including Raúl

Prebisch.

To the evolutionist Rostowian concept of development that deprives the notion

of underdevelopment of all theoretical statute, Raúl Prebish, heading the ECLAC

economists, opposes the idea of an international economy divided between a center and

a periphery, whose objective base is the system of international division of labor (IDL),

instituted in the nineteenth century,15 in which it fell to Latin America, as part of the

periphery of the world economic system, to produce food and raw materials for the

main industrial centers. Prebisch’s point of departure was a critique of the IDL system.

A careful study of neostructuralism shows how in its zeal for commitment it has

incorporated essential positions of the neoclassic approach and ignored others of classic

11 Celso Furtado, Breve introducción al desarrollo. Un enfoque interdisciplinario, Fondo de Cultura

Económica, Mexico, 1987, p. 9. 12 Ignacy Sachs, “L’imagination et le savoir: le développement selon Celso Furtado”, Cahiers du Brésil

contemporain, numbers 33 and 34, p. 180. 13 Celso Furtado, Breve introducción al desarrollo…, op. cit., pp. 9-10. 14 In the historical-structural analysis of ECLAC, the inherited productive structures condition the

dynamics of the Latin American economies, dissociating their behavior from the central countries. ECLAC structuralism is very different from structuralism with an historical functionalist vision of social processes put forward by other theoretical currents in sociology, linguistics and anthropology. Rafael González Rubí, “El pensamiento cepalino y las ideas de Juan F. Noyola”, Comercio Exterior, vol. 51, number 2, Mexico, February 2001, p. 167.

15 Ricardo shows, in the early nineteenth century, that England should leave agriculture to other nations and specialize in what it is relatively better, industry. When England decides to abandon agriculture and specialize in industrial production, it should find countries that do the opposite and accept becoming “deindustrialized”. The industrialization of some implies the deindustrialization of the others. Daniel Cohen, Richesse du monde pauvretés des nations, Flammarion, Paris, 1998, pp. 52-54.

structuralism, which in some way is another form of mental colonialism, placing the

accent on the implications of the static nature of the theory of international trade,

founded on the Ricardian principle of comparative advantages. One of the corollaries of

this theory is that international trade is not only an engine of growth by allowing

countries to participate by means of more efficient use of their own resources, but also a

factor for reduction of the disparities in income levels between countries. For Prebisch,

the empirical data on the long-term behavior of relative prices on international markets

were a long way from confirming the forecasts of the Ricardian theory. The empirical

evidence showed that on the contrary, international trade had provoked a concentration

of income in favor of the countries with higher productivity levels and real incomes. In

these conditions, Prebisch was to demonstrate that the unequal distribution of the fruits

of technical progress and the consequent deterioration of terms of trade give rise to a

structural imbalance between the different nations, thus refuting the premises of

classical theory. For Furtado, no idea meant as much for the perception of

underdevelopment as that of the center-periphery structure, brought to light by his

master Prebisch.16

Development and underdevelopment are thus understood as the simultaneous

result that links this double reality structurally and functionally, coexisting within the

international economic complex. In these conditions, development policy supposes a

new form of inclusion in the IDL by means of an accelerated industrialization process.

According to ECLAC, the industrial thrust could only come from a form of

growth based on expansion of the domestic market. To achieve this, it was a question of

defining an economic strategy of industrialization by import substitution capable of

overcoming what the ECLAC economists called insufficiency dynamics of Latin

American development. In this regard, Furtado wrote that “it would be in Brazil where,

together with Chile, ECLAC’s ideas would germinate during that first stage. Brazilian

industrialization, arising from the collapse of the raw materials export economy, and

reinforced by the demands of the war period, felt threatened by the change in the

international setting […] The arrival of the Abbink mission hardened the position of

those who sought to ‘cure the country of the excesses of an industrialization with high

costs’. ECLAC’s ideas ideologically armed the opponents of that doctrine:

industrialization would not be an option in itself, it was the only way out for continuing

16 Celso Furtado, Retour à la vision globale de Perroux et Prebisch, Les conférences François Perroux,

number 6, PUG, Fondation François Perroux, June 15, 1994.

with development”.17 The strategy of industrialization by import substitution should be

accompanied by the modernization of agriculture and by an incomes policy capable of

creating a dynamic pole of self-sustained domestic development. For Furtado, state

action in support of the development process constituted the natural corollary for

diagnosis of the structural problems of the underdeveloped periphery. His idealistic

voluntarism manifested itself in his unwavering faith in planning that would completely

eliminate uncertainty in decisions. Furtado was not only a great economist, but also “a

bureaucrat in the best sense of the word, a man of State, a maker of public policies who

only ceased to form part of the state apparatus when the military dictatorship suspended

his political rights”.18 Thus, based on a strong idealist voluntarism supported by the

conviction that human reason was capable of imposing its will on the economy and on

society thanks to planning, in the fifties ECLAC provided technical support to several

Latin American governments to plan or program development. In particular, the Latin

American techno-bureaucracies benefited a great deal from the work of the Latin

American and Caribbean Institute for Economic and Social Planning (ILPES), created

under the sponsorship of ECLAC.

When the foundations of ECLAC thinking were starting to be laid in the early

fifties, the attacks against this Latin American intellectual production were not long in

coming. In the United States, Dwight Eisenhower’s government did not hesitate to refer

to ECLAC as “a source of state thinking promoting policies contrary to private

enterprise”.19 In Brazil, the School of Economics of the Getúlio Vargas Foundation (in

which the teachers of Creole liberalism led by Eugênio Gudin taught) invited several

personalities of conservative economic thought to restore the good doctrine and clear

the intellectual atmosphere of ECLAC aberrations. Among the guests was Professor

Jacob Viner of the University of Chicago, one of the most renowned specialists in

international trade, who after a few weeks’ stay in Brazil felt authorized to denigrate

Prebisch’s work in the following terms: “All I could find in Prebisch’s works was a

dogmatic identification of agriculture with poverty. That agriculture does not

necessarily mean that poverty is obvious; suffice it to consider the cases of Australia,

17 Celso Furtado, La fantasía organizada, Eudeba, Buenos Aires, 1988, p. 90. 18 Luiz Carlos Bresser-Pereira, op. cit., p. 22. Furtado’s work was fundamental, not only in practice (as

shown by his role in the National Bank of Economic Development of Río de Janeiro, in the founding of the Superintendência do Desenvolvimiento do Nordeste (Sudene) and in the government of Jean Goulart in the planning portfolio, among others), but also in the drafting of studies such as the “Introducción a la técnica de programación”, which appears in Ricardo Bielschowsky, op. cit.

19 Rafael González Rubí, op. cit., p. 168.

New Zealand, Denmark and Iowa or Nebraska”.20 Fortunately, the ECLAC economists

were not impressed by the opinion of such an illustrious central theoretician and,

encouraged by a favorable political climate,21 continued to persevere during the fifties

in what would constitute the central nucleus of ECLAC’ a classic thinking: deterioration

of terms of trade, structural analysis of inflation and external imbalance.

Prebisch, anticipating Emmanuel’s theory of unequal trade, maintained that the

deterioration of terms of trade between the center and the periphery resulted from a

different means of allocation of productivity gains between both poles. Whereas in the

industrialized countries productivity gains are transformed into wage supplements, in

such a way that prices are maintained or rise, in the underdeveloped economies

productivity gains are transformed into price reductions. As Aníbal Pinto rightly points

out, “it became evident that the production agents ––entrepreneurs and workers–– of the

industrialized countries, rather than transfer toward the periphery the earnings of

technical progress by means of a correlative drop in prices, tended to absorb those

earnings and translate them into a sustained rise in their incomes”.22 One of the reasons

for this different behavior has to do with the fact that the workers are better organized

and unionized in the central countries than in the peripheral ones. This argument is

compounded by another referring to labor supply: abundant supply in the

underdeveloped economies explains the pressure on wages and costs as much as the

weakness of trade union organization, whereas in the industrialized countries the

scarcity of labor was for a long time a factor of wage rises. To put it another way, in the

industrialized countries, “added to a relative or absolute scarcity of labor force […] are

the soundness and extension of a union organization, vigilant and in conditions of

claiming continual adjustments of wage income according to the evolution of

productivity”.23 In these conditions, the different price- and wage-setting structures lead

20 Lecture given at the Fundación Getúlio Vargas in Río de Janeiro in 1952. Octavio Rodríguez,

“Fundamentos del estructuralismo latinoamericano”, Comercio Exterior, vol. 51, number 2, Mexico, February 2001, p. 100.

21 At present “there is consensus that ECLAC’s classic thinking was contemporary and convergent with ideologies of a populist and nationalist stamp which under state leadership provided strong support to a national industrial business sector and allowed or promoted growing participation by organized workers”. Samuel Lichtensztejn, “Pensamiento económico que influyó en el desarrollo latinoamericano en la segunda mitad del siglo XX”, Comercio Exterior, vol. 51, number 2, Mexico, February 2001, p. 92. More specifically, ECLAC ideas provided the regimes of Getúlio Vargas in Brazil and Arturo Frondizi in Argentina with elements to formulate national development strategies from a Latin American perspective.

22 Aníbal Pinto, “El pensamiento de la CEPAL y su evolución”, América Latina: una visión estructuralista, Facultad de Economía, UNAM, Mexico, 1991, p. 274.

23 Ibid., p. 277.

directly to the deterioration of the terms of trade. It is not a question of opposing

producers of primary goods and manufactured goods, but of two different systems of

price- and wage-setting. Thus, for Prebisch there is no such thing as a curse linked to

mineral or agricultural products.

Without allowing themselves to be impressed by the numerous criticisms made

by the economists of the central countries of the theory of the deterioration of terms of

trade (base year, weighting factor used, nature of the products, etc.), which actually

constituted a theory of forms of domination,24 the ECLAC economists devoted

themselves to studying the delicate problem of inflation.

During the period of triumphant Keynesianism and at the same time as in the

United States monetarism began to pave its way in academic media, the ECLAC

authors rejected the thesis according to which Latin American inflation was the result of

monetary and financial disorder. For them, the explanation of inflation should not be

limited to certain monetary and financial imbalances considered the result or vices of

government economic and financial conduct. Along this path, the explanation of

inflation rests on monetary phenomena and makes the State responsible, since these are

subject to a central state restriction. It is a question of a unilateral and superficial

interpretation which considers inflation a consequence of erroneous monetary and

financial policies or cynical conducts that imply deviations regarding the orthodoxy

applied in the central countries. As Ricardo Torres Gaytán points out, for the

economists of the central countries it was “more comfortable to remain on the surface of

the facts concealed by the monetary veil, launching from there repudiations and

diatribes at the excesses they supposed governments were committing, without

considering the immense needs they were facing in contrast with their limited resources

and scarce international cooperation”.25 The true causes of inflation, according to the

ECLAC economists, should not be sought in the banknotes being put forth by the

central bank nor in the decisions taken by the ministry of finance. If it is true that in

order to materialize and propagate itself inflation requires the implementation of a

certain economic policy, this does not mean that in the latter are to be found all the

causes and even less so the most important ones which explain why government

24 For Furtado, the theory of the deterioration of terms of trade was in fact “a theory of forms of

domination which is at the origin of the dependence alluded to later on by Latin American economists”. Celso Furtado, El capitalismo global, op. cit., p. 30.

25 Ricardo Torres Gaytán, Teoría del comercio internacional, Siglo XXI Editores, Mexico, 1976, p. 315.

expenditure exceeds its revenues, why the demand for foreign exchange is greater than

its supply and what is the reason for the diverse imbalances that lie at the origin of

inflation.26

The fundamental ECLAC reference in the analysis of inflation is the brilliant,

progressive Mexican economist Juan F. Noyola, who was a member of the ECLAC

development order.27 Noyola does not believe inflation is a monetary phenomenon;28 it

is the result of imbalances of a real nature that come to light in the form of a general

price increase. This real nature of inflation is much easier to see in the underdeveloped

countries than the developed nations. But for Noyola it is not enough to say that

inflation is a phenomenon stemming from real imbalances in the economic system; to

understand this phenomenon one must have a theory or at least a series of explanatory

categories. In this regard, Noyola considers that one must not be satisfied with the

mechanical application of theoretical plans such as the Keynesian plan: he prefers to use

the approach of Michael Kalecki, who stresses the inelasticity of demand and

companies’ monopolistic power,29 and particularly in the approach presented by Henri

Aujac, who in 1950 examined the behavior of the diverse social strata and their capacity

for conflict.30

This latter approach, in which inflation is the expression of a competition

between social groups, shows ––according to Noyola–– that inflation is no more than

one aspect of the much more general phenomenon of the class struggle. But Noyola also

considers that even Kalecki’s and Aujac’s analyses cannot take us very far in the

analysis of Latin American inflation if we forget a series of elements deduced from

observation of the structure of the functioning of the economies of Latin America. Thus,

26 Samuel Lichtensztejn, “Sobre el enfoque y el papel de las políticas de estabilización en América

Latina”, Economía de América Latina, CIDE, number 1, September 1978, p. 25. 27 Unfortunately, none of the works of this great economist, who disappeared in dramatic circumstances

in 1962 and who worked successively in the IMF, ECLAC and in the Cuban government, have been translated into English. Colin Danby, “Noyola’s Institutional Approach to Inflation”, Journal of the History of Economic Thought, vol. 27, number 2, June 2005.

28 Juan F. Noyola Vázquez, “El desarrollo económico y la inflación en Mexico y otros países latinoamericanos” (1956), in La economía mexicana, selection by Leopoldo Solís, Fondo de Cultura Económica, Mexico, 1978.

29 For Kalecki, prices are not formed on the markets according to Walrasian precepts of perfect competition, but result from the relationships of force exercised by entrepreneurs by virtue of their power of monopoly and the mark-up practices that this power confers on them.

30 Henri Aujac, “L’influence du comportement des groupes sociaux sur le développement d’une inflation”, Economie Appliquée, April-June 1950.

Noyola was the first Latin American economist who set forth the problem of the

structural origin of inflation in his important 1956 article.31

In said text, Noyola shows that inflation is a specific and different problem in

each Latin American country, although common traits can be found in all of these

nations. To analyze this point, one has to bear in mind all of the elements that are

capable of giving rise to imbalances in the economic system. These elements can be of a

structural nature (population distribution by occupation and productivity differences

between the different economic sectors), dynamics (different growth rates among the

productive sectors) and institutional (behavior of the public and private sectors). Noyola

combines these elements into a plan in which he distinguishes two facts: basic

inflationary pressures and propagation mechanisms. Basic inflationary pressures

normally have their origin in growth imbalances almost always situated in two sectors:

foreign trade and agriculture. The propagation mechanisms can be varied, but are

generally reduced to three types: fiscal, credit and readjustment of prices and revenues.

These mechanisms enable the initial price rise to be transmitted to the rest of the

economy. For Noyola, the intensity of inflation depends above all on the importance of

the basic inflationary pressures and afterwards, on the presence of propagation

mechanisms. In other words, once the inflationary conditions have been established,

inflation is activated or delayed by the propagation mechanisms that explain the effects

of inflation on income distribution. Noyola considers that inflation is the product of

specific conditions in the domestic economy, international economic relations and

social dynamics, and concludes his 1956 article with three statements that clearly

express the ECLAC position regarding inflation at that time. The first is that if the

alternative to inflation is stagnation or unemployment, then inflation must be chosen.

The second is that the most serious aspect of inflation is not price increases as such, but

their consequences on income distribution and the distortions they originate between the

productive structure and the structure of demand. The third is that inflation must be

fought with different economic policy instruments (progressive fiscal policy, price

controls, provisioning…) more than with monetary policy, which begins to be effective

31 It should be noted that the article was prepared by Noyola based on a conference given at the

National School of Economics of the UNAM in early 1956. Celso Furtado, who attended that conference, pointed out much later: “Nobody like Noyola expressed the essence of our approach so clearly”. Celso Furtado, La fantasía organizada, op. cit., p. 162. Prebisch similarly expressed: “Juan opened my eyes on the structural reasons for inflation”, in Raúl Prebisch, “Intervención especial”, in Asociación de Economistas de Cuba, Memorias del Seminario sobre la vida y obra de Juan F. Noyola, Havana, 1982, quoted by Rafael González Rubí, op. cit., p. 169.

only when it reduces economic activity, increases unemployment and strangles

economic development.

The ideas presented by Noyola in 1956 formed the basis on which structural

analyses of inflation were developed, such as that of Oswaldo Sunkel, which allowed

IMF monetarism to be confronted.32 These ideas were closely linked to the thesis on

external imbalance defended by Noyola in 1949,33 which constitutes the point of

departure of the ECLAC analysis on external imbalance.34 For ECLAC, the demand for

primary products in the central markets not only oscillated periodically with serious

disruptions for the peripheral economies, but tended to grow slowly and with strong

delay with respect to increase in income in the industrial centers. This was due to the

fact that: a] primary goods represent a decreasing proportion of expenditure as income

rises; b] substitution of commodities becomes generalized; c] technical progress reduces

the share of primary inputs in the value of end goods, and d] the protectionist policies of

the industrial countries narrow the entry into their markets of the basic products in

which the periphery specializes. Faced with the slow growth of demand for raw

materials and foods from the centers, there was a high propensity for the periphery to

import manufactured products. Thus, while the former increased at a much lower rate

than that of the increase in income, the demand for industrial imports from the periphery

tended to grow at a much higher rate than that of the growth of its earnings. Under these

conditions a chronic structural balance-of-payments imbalance is generated, explained

in the final analysis by the difference in the income elasticity of demand for the two

types of goods.

The sixties and early seventies continued to be very prolific for the ECLAC

thinkers and some of their leftist critics. Those years were marked by the analysis of

structural obstacles to continue with import substitution in light industries, according to

the theses of structural heterogeneity and dependence.

For the ECLAC, there were two key variables that explained the exhaustion of

the industrialization process by import substitution, the balance-of-payments crises and

32 Osvaldo Sunkel, “La inflación en Chile: un enfoque heterodoxo”, in Cincuenta años de pensamiento

en la CEPAL, op. cit. 33 Juan F. Noyola, Desequilibrio fundamental y fomento económico, graduate thesis, vol. 1, National

School of Economics, UNAM, Mexico, 1949.

the resulting inflation in several Latin American countries: 1) the limited capacity to

import, the result of not very dynamic exports, scarcely diversified and concentrated in

primary products subject to a traditional deterioration in their purchasing power, and 2)

the growing difficulties in advancing in import substitution by virtue of the greater

technological and investment requirements to overcome the easy stage of substitution of

non-durable consumer goods and move toward that of durable consumer goods,

intermediate goods and above all, capital goods.35 In the early sixties, Prebish called

attention to the distortions and inefficiencies of the industrialization process and its

insufficient export orientation. For him, excessive protectionism and disproportionate

tariffs on certain agricultural products “have created a cost structure that makes it

extremely difficult to export manufactures to the rest of the world”.36 In contrast to what

ECLAC critics often maintain, from early times incentives for the expansion of

industrial exports through a reorientation of trade and industrial policies formed part of

the policies recommended by the institution.

Among the structural obstacles to Latin American development, ECLAC

included the lack of a solution to the agrarian problem. In opposition to the large estates

reluctant to increase investment in the agricultural sector were the small landowners

who found it impossible to do so, lacking credit and technical assistance. The large

estate-small landowner duality provoked strong inelasticity of demand in the

agricultural sector, which in many countries was still the predominant economic

activity. This inelasticity had repercussions on food prices and limited exports of

primary goods, aggravating balance-of-payments problems. The lack of dynamism of

the agricultural sector led to emigration toward urban centers to the point of giving rise

to growing social marginalization, which accentuated structural heterogeneity, as Aníbal

Pinto maintained.

Latin America’s growth process tends to reproduce in a renewed manner ––

according to Pinto–– the old structural heterogeneity characteristic of the agrarian-

exporting phase. The fruits of technical progress tend to become concentrated as regards

34 CEPAL, El desequilibrio externo en el desarrollo económico latinoamericano. El caso de Mexico,

Bolivia, 1957. This work was completed by Noyola and Furtado with the collaboration of Sunkel and under the direction of Victor Urquidi.

35 Maria da Conceiçao Tavares, “Auge y declinación del proceso de sustitución de importaciones en el Brasil”, Boletín Económico de América Latina, vol. IX, number 1, Santiago, Chile, March 1964; San-tiago Macario, “Proteccionismo e industrialización en América Latina”, Boletín Económico de América Latina, vol. IX, number 1, Santiago, Chile, March 1964.

36 Raúl Prebisch, “El falso dilema entre el desarrollo y la estabilidad monetaria”, Boletín Económico de América Latina, vol. 6, number 3, CEPAL, Santiago, Chile, October 1961, p. 198.

both income distribution among the classes and distribution among regions and sectors

(strata) within one same country. Indeed, the productive structure in Latin America is

divided into three major strata: “On the one hand, the so-called ‘primitive’ one, whose

levels of productivity and income per inhabitant are probably similar (and sometimes

lower) than those that predominated in the colonial economy and in certain cases, in the

pre-Columbian one. At the other extreme, a ‘modern pole’, made up of export,

industrial and services activities that function at productivity levels similar to the

averages in the developed economies and, finally, the ‘intermediate’, which in a certain

way corresponds more closely to the average productivity of the national system. The

multi-sectorial nature of each stratum should be noted, as well as the difference with the

most current dichotomy of the urban and rural world”.37 Thus, for Pinto

industrialization did not eliminate structural heterogeneity, it only modified its form,

and underdevelopment perpetuated itself despite economic growth.

In a parallel manner, with many analytical coincidences with respect to Pinto’s

interpretation, the dependence theses were gradually formulated with their two variants:

sociological (Cardoso and Faletto) and Marxist (Gunder Frank).

Cardoso and Faletto criticize the thesis that pointed to the engendering in Latin

America of a nationalist bourgeoisie, potentially committed to a model of development

that justified an alliance with the workers in order to conquer political hegemony. In

their work, inspired by the ECLAC sociology of development of José Medina

Echavarría, the growth processes of the different countries are linked to the behavior of

the social classes and the power structures.38 This association is established considering

the relations between the internal structures and the economic and political power in the

rest of the world. The authors analyze the manner in which the underdeveloped

economies became historically linked to the world market and how the internal social

groups that defined the international relations inherent to underdevelopment were

formed.

The Marxist version of the theory of dependence that had the greatest acceptance

in Latin America and many countries of the world was that of André Gunder Frank.39

Based on a critique of the reformist-structural approaches to development, in which he

37 Aníbal Pinto, Inflación, raíces estructurales, Fondo de Cultura Económica, Mexico, 1975, pp. 105-

106. 38 Fernando Henrique Cardoso and Enzo Faletto, Dependencia y desarrollo en América Latina, Siglo

XXI Editores, Mexico, 1969.

included Furtado, the central idea of that version was that Latin American

industrialization corresponded only to a new modality of exploitation imposed by

imperialism, in alliance with the local elite, on Latin American workers. The process of

accumulation was considered inseparable from international capital expansion and

imperialism, as well as part of a process that only enriched the developed countries and

the small local elite that represented them. International capital expansion thus

contributed to stagnation, external debt and inflation in Latin American countries,

consolidating their dependence and underdevelopment. In these conditions, Gunder

Frank rejects ECLAC’s industrial development project and proposes a revolutionary

project of rupture with the exterior and overthrow of the capitalist order. The dilemma

in Latin America was underdevelopment or socialist revolution.

Despite the failure of the theory of dependence in being imposed as a dominant

paradigm, its influence made itself felt for a long time, not only in the works of the

authors quoted but in others such as those of Dos Santos and Marini.40 The idea of

trade, financial, technological and cultural dependence began to be found regularly in

the proposals of Furtado and Sunkel.

For Furtado, underdevelopment is closely linked to the industrial revolution,

which becomes evident in two main ways: as a transformer of production techniques

and as a modifier of consumption patterns. During the major stage of creation of the

system of international division of labor, the underdeveloped countries underwent a

transformation of consumption patterns, even though it affected only a minority of the

population, without a parallel modification of production techniques. As the

underdeveloped countries specialized in advantageous activities as regards their

resources, they became importers of the new consumer goods produced by the central

countries. It is known that the increase in average productivity in the peripheral

countries did not generally translate into an increase in the wage rate; “but this increase

in productivity”, Furtado points out, “necessarily originated a rise in living standards

and a modification of the quality of the way of life of the proprietary minority and of

professional and bureaucratic groups. Thus, development (or rather progress in the

ordinary meaning of this term) became identified with the importation of certain cultural

39 André Gunder Frank, Capitalismo y subdesarrollo en América Latina, Siglo XXI Editores, Mexico,

1976. 40 Theotônio dos Santos, Imperialismo y dependencia, ERA, Mexico, 1978; Ruy Mauro Marini,

Dialéctica de la dependencia, ERA, Mexico, 1973.

patterns”.41 That is, in the underdeveloped structures, an unequal assimilation of the two

fundamental forms of technological progress is proven and the accent continues to be

placed on a process of modernization defined as the assimilation of technological

progress in consumption patterns. As soon as it is a question of internally producing

imported goods by the high-income groups, the capital coefficient will be very similar

to that of the central countries, since the quality and type of product determine, within

very narrow limits, the technique to be used.42 “Thus, the ‘dualism’ that appears first on

the cultural plane (consumption ‘patterns’ in constant mutation and imported as against

traditional consumption ‘patterns’) will tend to project itself on the structure of the

productive system.”43 Wages do not accompany productivity increases, since there is a

very elastic labor supply for a particular wage rate and the capital coefficient depends

on the income level of a minority that reproduces the consumption patterns of other

economies with a much higher level of productivity.

Sunkel was another of the ECLAC authors who delved most deeply into analysis

of dependence.44 During the stage of industrialization by import substitution ––

according to Sunkel–– the world economic system becomes modified. Although the

latter is structured, as in the agrarian-export phase, on the basis of dominant and

dependent economies that are strongly linked to one another, it is necessary to bear in

mind that the substitute model operates around the great transnational conglomerate that

has emerged in recent decades. As a result of the worldwide expansion of transnational

corporations, the world is completely integrated in relation to technological and

41 Celso Furtado, “Dépendence externe et théorie économique”, L’homme et la société, October-

December 1971, p. 57; Celso Furtado, “Sous-développement. Dépendance: une hypothèse globale”, Revue Tiers-Monde, October-December 1973.

42 In this regard, Furtado points out that “during the phase of installation of current consumer good industries, the underdeveloped countries had a certain margin of choice between technical procedures with different capital coefficients per worker. However, this margin of choice became very small or even non-existent, when the phase of durable consumer good substitution began”. Celso Furtado, Théorie du développement économique, PUF, Paris, 1970, p. 217. That same year, Furtado explains his thinking in the following terms: “The idea that the entrepreneurs of underdeveloped countries have a wide selection of alternative technologies does not tally with reality. Either the equipment mass produced and available in the markets incorporate the technology used in the advanced countries, or current technical progress does not make it possible to separate the mechanisms that save labor from those that save raw materials or simplify the work, or the industrial enterprises in the underdeveloped countries are financially and technically linked to foreign groups and receive equipment that the head offices acquire on a large scale […] The final result is that the entrepreneurs of underdeveloped countries closely follow the technical procedures of the most advanced countries that create technological innovations and export equipment or licenses to produce it”. Celso Furtado, Les Etats-Unis et le sous-développement de l’Amérique latine, Calmann-Levy, Paris, 1970, pp. 21-22.

43 Celso Furtado, “Dépendance…”, op. cit., p. 58.

consumption patterns. The problem of underdeveloped economies lay in the fact that

whereas in the center the majority of workers became integrated into the modern world,

on the periphery only a small part of the population did so and even economic agents

with much productive potential became marginalized.45

During the seventies, ECLAC maintained its central interest in medium- and

long-term views, as shown by Aníbal Pinto’s work on development styles, published in

1978.46 However, the historical circumstances experienced by Latin America in that

decade seriously affected ECLAC’s intellectual production and greatly diminished the

capacity for assembly of Latin America’s state technocracy.

In the political sphere, the irruption of dictatorships in several Latin American

countries ––especially in Chile, the headquarters of ECLAC–– restricted ECLAC’s

power of assembly in the Latin American intellectual world. Ricardo Bielschowsky

expresses this in the following terms: “Between 1973 and 1989, ECLAC headquarters

in Chile lost what until then had been one of its main assets, the power of assembly for

the Latin American intellectual world. Economists, sociologists, technocrats and

politicians with a democratic and progressive tradition simply ceased being able or

wanting to circulate in Chile. In addition to the Chilean problem, ECLAC faced the

ostensible antipathy of other dictatorships, particularly that of Argentina, ideologically

opposed to ECLAC, even regarding the foundations of the model of economic opening

à outrance it was applying, like Chile and Uruguay”.47 Chile became the laboratory

where for the first time the ideas of the economists of the Chicago School were

systematically applied.

In the economic sphere, as a result of the eighties crisis, the international

ideological climate changed completely and the neo-liberal orthodoxy promoted by the

Bretton Woods institutions became foremost. The adjustment defended by the

International Monetary Fund (IMF) and the creditors of the Latin American debt began

to apply to the majority of the indebted countries. The ECLAC economists relegated

their interest in development topics and global schemes in real terms to the background.

Their intellectual reflection became oriented to opposing the adjustment modality

44 Osvaldo Sunkel, Capitalismo transnacional y desintegración nacional en América Latina, Nueva

Visión, Buenos Aires, 1972. 45 Osvaldo Sunkel, “Desarrollo, subdesarrollo, dependencia, marginación y desigualdades espaciales:

hacia un enfoque totalizante”, in Ricardo Bielschowsky, op. cit., vol. II. 46 Aníbal Pinto, “Estilos de desarrollo: conceptos, opciones, viabilidad”, América Latina: una visión

estructuralista, Facultad de Economía, UNAM, Mexico, 1991. 47 Ricardo Bielschowsky, op. cit., p. 39.

demanded by the IMF and the creditor banks. Evidently, in a setting of anxious debt

crisis, the interest in discussion of long-term development projects declined. Immediate

short-term issues linked to debt, adjustment and stabilization were favored.

The most representative text regarding ECLAC’s concerns during this phase is a

study published in 1984.48 With regard to adjustment policies, ECLAC proposed to

replace the recessive adjustment of the balance of payments with an expansive

adjustment. If what is wanted is a satisfactory solution in the social field, the external

imbalance must be solved in a setting of economic growth that boosts investments in the

sectors of negotiable goods and the diversification of exports. This solution requires an

agreement for external debt renegotiation between debtors and bankers that alleviates

the external imbalance and provides the countries with the necessary time to be able to

react positively to the changes in relative prices provoked by the exchange devaluation.

It is evident that, as a complement, the adjustment would be facilitated with a less

protectionist attitude on the part of the central countries. Finally, the adjustment should

include more flexible and pragmatic use of economic policy instruments, in such a way

that the relatively rigid productive structures allow the necessary reallocation of

resources toward exports. In regard to stabilization policies, ECLAC’s study echoes the

Brazilian and Argentinean authors who at that time conceptualized the thesis of inertial

inflation by preparing the anti-inflation shock policies contained in the Cruzado and

Austral plans.49 It should be stressed that the inertialist interpretation of inflation,

adopted even by economists such as Rudiger Dornbusch,50 belongs to the structuralism

tradition, since it recognizes in the distributive struggle ––one of the propagation

mechanisms to which Noyola and Sunkel made reference–– at least part of the

responsibility for inflation. Let us recall that although Noyola and Sunkel did not

48 CEPAL, “Políticas de ajuste y renegociación de la deuda externa en América Latina”, Cuadernos de

la CEPAL, number 48, Santiago, Chile, December 1984. 49 The theory of inertial inflation considers that price rises have a mainly social origin. Its explanation

of the inflationist process is based on the effects of the conflicts on distribution of real income. The underlying premise is that in the distributive conflict that characterizes the capitalist economy any economic agent seeks to permanently maintain and if possible increase its real part in national income by means of price fixing. The agents try to protect themselves from price rises by periodically readjusting their earnings to past inflation by means of indexation mechanisms. Each agent’s objective is to reach at least the level of real income of the previous period, in order to preserve its share of income. Claude Berthomieu y Christophe Ehrhart, “Le néostructuralisme comme fondement d’une stratégie de dévelop-pement alternative aux recommendations néolibérales”, Economie Appliquée, vol. LIII, number 4, 2000, p. 69.

50 Rudiger Dornbusch, “Mexico, estabilización, deuda y crecimiento”, El Trimestre Económico, number 220, October-December 1988.

explicitly mention the concept of inertia, they analyze the capacity of the different

economic and social groups to readjust their relative real income.

Although the lost decade is largely characterized by short-term concerns, the

works of Chilean economist Fernando Fajnzylber keep long-term concerns current, in

some way announcing the type of research predominant in the nineties. Two ideas lie at

the center of Fajnzylber’s analysis: that of truncated industrialization and empty locker.

With regard to the first, the Chilean economist maintains that Latin American

industrialization shows gaps, faults and distortions. He proposes a new industrialization

based on the concept of efficiency as growth and creativity. In fact, for Fajnzylber “it

could be stated that an efficient industry is being built to the extent that the conditions to

attain a high, sustained growth rate are being generated and that during the course of

that process creativity at individual and collective level is being developed”.51 Only

with growth and creativity will a productive transformation with equity be achieved.

Fajnzylber puts forward the idea of empty locker in a study that compares growth

patterns in the Latin American economies with those of the developed economies and

other developing economies.52 He bases himself on the consideration that the two main

objectives of economic and social development are income growth and distribution.

According to the behavior of the Latin American countries between 1970 and 1984,

Fajnzylber classifies them into three groups: those that grew rapidly with a concentrated

income, those that grew little with a relatively well distributed income and those that

were in the worst of worlds by growing little with a concentrated income. In contrast to

countries such as South Korea and Spain, no Latin American country formed part of a

fourth ideal group of countries: those that grow promoting a minimum of distributive

justice. In a matrix where the countries are distributed in four groups it is shown that in

Latin America the group of growth with good distribution is empty, in other words the

empty locker.

The works of Fajnzylber laid the groundwork for the emergence of what has

been called the post-adjustment development economy, led in Latin America by one of

the survivors of the ECLAC pioneers, Osvaldo Sunkel, among others.

THE “REBIRTH” OF THE LATIN AMERICAN DEVELOPMENT ECONOMY

51 Fernando Fajnzylber, La industrialización trunca de América Latina, Nueva Imagen, Mexico, 1983,

p. 345.

At the end of the eighties and beginning of the nineties, a new current of thinking

known as neo-structuralist began to be developed at ECLAC headquarters. The failure

of structural adjustment policies and experiences of development in southeast Asia

created a favorable setting for the emergence of alternative paradigms.53 In fact, during

the eighties, at the same time as the Latin American countries undergoing structural

adjustment were suffering from considerable stagnation, which led to talk of a lost

decade, the Asian economies were attaining unprecedented growth rates and were

succeeding in improving their international integration thanks to their exports of

products intensive in new technologies. This Asian experience was very important,

since it questioned the recommendations stemming from the Washington Consensus

and its corollary, structural adjustment plans. First, whereas the defenders of structural

adjustment advocated the withdrawal of the State, the Asian countries declared

themselves in favor of greater state regulation. Secondly, whereas structural adjustment

plans pondered international integration by following the principle of comparative

advantages, that is, exportation of labor-intensive products, the Asian countries built

their competitiveness on the basis of dynamic integration in new technologies. Thirdly,

at the time when the defenders of the Washington Consensus advised the Latin

American economies to reorient their activities toward external markets, the Asian

economies maintained close, dynamic relations among activities linked to the domestic

market and export activities. Under these conditions, the Asian experience constituted a

genuine denial of the predominant practices in economic policy in Latin America.

The neo-structuralist current arose not only as the alternative paradigm to neo-

liberalism, but as the superseding of the original structuralist paradigm which inspired

it. It was a question of adapting it to the new times of aperture and globalization. For the

neo-structuralists ––Osvaldo Sunkel, Joseph Ramos, Ricardo French-Davis, Nora

Lustig, José Antonio Ocampo, among others––,54 Latin America’s main economic

problems are not fundamentally due to distortions induced by economic policy; rather

52 Fernando Fajnzylber, “Industrialización en América Latina: de la ‘caja negra al casillero vacío’”,

Cuadernos de la CEPAL, number 60, Santiago, Chile, 1990. 53 Hakim Ben Hammouda, “Renouveau structuraliste: contexte, intérêt et limites”, Mondes en

développement, vol. 29, numbers 113 and 114, 2001; Hakim Ben Hammouda, “Quoi de neuf chez les structuralistes?”, L’économie politique, number 5, first quarter, 2000.

54 Osvaldo Sunkel (comp.), El desarrollo desde dentro. Un enfoque neoestructuralista para la América Latina, Fondo de Cultura Económica, Mexico, 1991; Osvaldo Sunkel and Gustavo Zuleta, “Neoestructuralismo versus neoliberalismo en los años noventa”, Revista de CEPAL, number 42, December 1990.

they are of an endogenous, structural nature and of historical origin. In this regard, the

neo-structuralists highlight three characteristic features of Latin American economies at

the end of the eighties:

• The presence of a model of external integration that led to an impoverishing

specialization.

• The predominance of a disjointed, vulnerable, very heterogeneous, concentrating

production model of technical progress, incapable of productively absorbing the

increase in labor.

• The persistence of very concentrated and excluding income distribution, which

shows the system’s incapacity to reduce poverty.

Neo-structuralism arose as an alternative theoretical approach to the neo-liberal

scheme of adjustment. This initial neo-structuralism tried to find less regressive

solutions to the problems of inflation and trade imbalance by means of unorthodox

stabilization and adjustment plans of the eighties.55 It was therefore a question of a

short-term approach. Preference for the short-term approach is explainable: in the midst

of the eighties crisis and “in an intellectual environment hostile to any consideration of

a structural nature, the short term was the only means of entering the debate”.56

However, as the orthodox adjustment plans of the neo-liberals and the unorthodox ones

of initial neo-structuralism failed, neo-structuralism began to refer increasingly to

ECLAC’s original thinking. However, this did not prevent the neo-structuralists from

proceeding to a critical review of this thinking, with a view to overcoming some of what

they considered its main insufficiencies. In this regard, several points held their

attention:

• Excessive confidence in the benefits of state intervention, leaving aside

problems of corruption, bureaucracy, lack of public-sector effectiveness, etc.

• Exaggerated and very prolonged pessimism toward external markets.

55 As has already been mentioned, the most important were the Austral Plan in Argentina and the

Cruzado Plan in Brazil. Supporting themselves on the theory of inertial inflation, both plans eliminated the indexation that institutionalized adjustments with regard to past inflation and wages were fixed at nominal levels corresponding to their real average during the preceding period. These plans promised stricter monetary and fiscal policies. Both linked prices to a recently devalued and therefore more realistic exchange rate, introduced new monetary units and froze prices and wages in order to bring about instant deflation. After initial success, both plans failed. Claude Berthomieu and Christophe Ehrhart, op. cit., pp. 66-73.

56 Jean-Marc Fontaine and Mario Lanzarotti, “Le néo-structuralisme. De la critique du Consensus de Washington à l’émergence d’un nouveau paradigme”, Mondes en développement, vol. 29, numbers 113 and 114, 2001, p. 47.

• An underestimation of monetary and financial aspects, which leads to a not very

rigorous short-term economic policy.

With regard to this last point, Ricardo Ffrench-Davis maintains that two

insufficiencies characterize structuralism in the sphere of economic policy: “One was

the limited concern for the management of short-term macroeconomic variables:

analysis on the definition of spaces for maneuver with regard to fiscal deficits, monetary

liquidity and regulation of the balance of payments took second place in structuralist

thinking. No systematic steps were taken from diagnosing the origin of the imbalances

to the area of adequate market regulation policies. The other limitation lay in the

weakness of reflection on medium-term policies, which relates the short term with

national objectives of development and planning”.57 Thus, for the neo-structuralists,

their ECLAC ancestors had an insufficient analytic view of short-term problems and

their linkage to long-term dynamics.

Along with this critique of structuralism, the neo-structuralists call attention to

what they consider some of the virtues of neo-liberalism. Thus, for example, Ramos and

Sunkel have no objection to pointing out that “it must be recognized that this neo-liberal

predominance has served both to question deeply-rooted convictions and to recall the

importance of the market, the price system, private initiative, fiscal discipline and the

outward orientation of the productive apparatus”.58 Evidently the neo-structuralists had

not been vaccinated, like Furtado, against the most insidious forms of monetarism that

sterilized contemporary economic thought.59

Under these conditions, the neo-structuralists consider that “neither the neo-

liberal approach that currently prevails, nor a simple re-edition of post-war structuralism

or of the most recent neo-structuralist essays constitute an appropriate basis for

confronting the severe problems currently afflicting Latin America”. For these authors,

an attempt will be made to combine these approaches “in a renewed neo-structuralist

synthesis that seeks to respond to the characteristics and demands of current times,

57 Ricardo Ffrench-Davis, “Formación de capital y marco macroeconómico: bases para un enfoque

neoestructuralista”, in Osvaldo Sunkel (comp.), op. cit., p. 196. 58 Joseph Ramos and Osvaldo Sunkel, “Hacia una síntesis neoestructuralista”, in Osvaldo Sunkel

(comp.), op. cit., p. 16. 59 Referring to his experience at Cambridge University, England, Furtado points out: “There I knew the

first generation of Keynes’ disciples ––R. Khan, J. Robinson, N. Kaldor, P. Straffa–– and contact with them served to vaccinate me against the insidious forms of monetarism that sterilized contemporary economic thought, emptying it of all concern for social matters”. Celso Furtado, Los vientos del cambio, op. cit., p. 219.

overcoming the negative experiences of recent decades”.60 The new times of opening

and globalization ––the neo-structuralists think–– “are times of ‘commitment’ between

admission of the advisability that market functions be expanded and defense of the

practice of more selective government intervention”.61

At the center of the new strategy proposed by the neo-structuralists is the action

of the State.62 State intervention should not lead to supplanting market forces with

excessive action but rather a selective one that maintains market activity. The issue is no

longer to have more State or more market, but to opt for a better State (muscular instead

of adipose) and a more effective and equitable market. The essential problem is not the

size of the State, but its capacity for management and consensus-seeking with the

private sector.63 For the neo-structuralists, the State should complement the market by

means of active, dynamic actions. Indeed, it should strengthen its classic, basic and

auxiliary functions.

Among the classic functions we find the provision of public goods (legal

framework, police, citizen safety), maintenance of macroeconomic balances and equity,

as well as the elimination or compensation of undesirable distortions with regard to

prices or structures linked to property distribution, capital stock and access to

opportunities in the economy.

Among the basic functions is the provision of a minimum infrastructure in

transportation and communications, health care, education and housing, among others.

The auxiliary functions include support for the structural competitiveness of the

economy by means of the promotion or simulation of absent markets (long-term capital

markets, crop insurance markets and other risk-management mechanisms);

strengthening of incomplete markets, for example, by improving dissemination of and

access to information and eliminating fragmentation; development of scientific and

technological infrastructure, as well as the elimination or compensation of market

failures provoked by scale returns, externalities and industrial or foreign sector learning.

Hereafter, the State’s entrepreneurial function in the productive sphere, very

important in the past, must become marginal.

60 Joseph Ramos and Osvaldo Sunkel, op. cit., p. 31. 61 Ricardo Bielschowsky, op. cit., p. 56. 62 José Manuel Salazar Xirinachs, “El papel del Estado y del mercado en el desarrollo económico”, in

Osvaldo Sunkel (comp.), op. cit. 63 Claude Berthomieu and Christophe Ehrhart, op. cit., p. 77.

One fundamental point in the neo-structuralist strategy is discipline in public

finances. In this regard, they advise increasing the State’s income sources through a

reform of the tax system. In fact, inefficient and regressive systems make the Latin

American governments very dependent on fiscal revenues on exports. For the neo-

structuralists it is necessary not only to modernize the tax system and control tax

evasion, but reorient tax perception in the direction of profit-making activities and

large-scale ownership. In regard to expenditures, they propose establishing priorities in

public investment programs and reduce subsidies, except for those with a redistributive

effect.

For the neo-structuralists it is also important to successfully apply actions aimed

at raising the effectiveness of public enterprises. It is necessary to make them more

competitive as a result of greater autonomy in financing and management; they should

establish a price policy similar to that of a private enterprise and limit social prices to

the utmost. In all cases, the neo-structuralists recommend the privatization of non-

strategic productive enterprises; however, they oppose recurring to the systematic

privatization of public enterprises as a means to increase their efficiency and the

generation of benefits. After all, they point out, so far no economic analysis has

demonstrated that the privatization of Latin American public enterprises has had a

systematic positive effect in terms of effectiveness and generation of benefits.

Foreign competitiveness is one of the important points in the development

strategy of the neo-structuralists. The reduction in customs barriers should be

considered an indispensable but insufficient first step; in the medium term, the

improvement in the international integration of the countries of Latin America includes

the incorporation of technological innovations and increases in productivity. Thus,

technological, industrial and educational policies are fundamental in improving external

performance.

Therefore, recognizing certain excesses committed in the past, the neo-

structuralists advise the application of unorthodox economic policies that reestablish the

fundamental macroeconomic balances, but with a lower recessive cost. For the neo-

structuralists, both the reduction of the internal and external deficits and price

stabilization constitute a necessary condition for achieving a process of sustained

growth. But the solutions they propose are different from the IMF: whereas the latter

considers a gradual approach with regard to price stabilization and shock therapy with

regard to adjustment, the neo-structuralists favor a drastic reduction in the inflation rate

and a gradual adjustment resulting from a policy of selective restriction of demand and

selective expansion of supply.64

The policies that support the neo-structuralists, accompanied by a significant

lifting of the debt burden, would allow Latin America’s economic crisis to be overcome.

Of course, throughout this neo-structuralist strategy, the role of a consensual State is

determinant.

From the above, Joseph Ramos deduces that the neo-structuralist proposal pays

tribute to ECLAC’s original structuralist thinking for several reasons: for a special

interest in real and not only financial variables; for pointing out a deep although not the

only cause of the crisis ––the problem of both internal and external transfer of

resources–– and not only impute it to the ineptitude of economic policy; for

encouraging policies of supply and investment and not only of demand; for recurring to

a more disaggregate approach with more selective instruments, and for skepticism

regarding the merits of the market for adjusting effectively and automatically to

unbalancing shocks, especially in the short term, and then for its vindication of an active

macroeconomic role for the State.65

But for Ramos, this connection with structuralist thinking does not prevent the

neo-structuralists from adapting to the new setting of opening and globalization. Thus,

for example, neo-structuralism underscores the importance of an outward orientation,

but combining it with a structural interest in favor of industrialization (now outward)

and with the use of active instruments for promoting exports selectively, such as a high

and stable real exchange rate. In contrast to the neo-liberals, they are hostile to policies

of systematic and massive devaluation; they prefer to maintain competitiveness by

means of a flexible guide to the exchange rate thanks to an administered float.

But the rebirth of Latin American structuralism was not only operated in Latin

America. In a hitherto unheard of manner in the history of economic thought, ideas

generated in the south were taken up by first-rate theoreticians in the north. Such is the

case of economists of an unorthodox school, headed by Lance Taylor, who bases

himself on the works of Robinson, Kaldor and Kalecki and who claims to be a

structuralist.66 This school ––perhaps the only one in the north that quotes the works of

64 Ibid., p. 66. 65 Joseph Ramos, “Equilibrios macroeconómicos y desarrollo”, in Osvaldo Sunkel (comp.), op. cit., pp.

155-156. 66 Lance Taylor, Estabilización y crecimiento en los países en desarrollo: un enfoque estructuralista,

Fondo de Cultura Económica, Mexico, 1992.

Noyola, Furtado and Tavares–– builds complex models of the economies of the south

that are more realist than those of the IMF. These models, based on accounting

identities and on respect for institutional facts, seek to demonstrate in what conditions

orthodox economic policy can be successful or fail.

More specifically, Taylor considers that many wages and some prices are fixed

thanks to independent predetermined market rules. Thus, in the Latin American

countries that suffer from inflation, labor contracts sometimes provide for indexation

clauses or wage adjustments aimed at compensating for price rises. Furthermore, many

companies define their prices by calculating a fixed percentage or markup on production

costs, for which purpose they take recourse to a practice known as price fixing by

increasing the average cost. With the application of these practices, a lesser increase in

the monetary stock does not reduce inflation for a certain time, to the extent that unions

and companies continue with their custom of increasing wages and prices in order to

compensate for losses provoked by inflation and protect themselves from future price

rises. In fact, the rate of increase in prices, faster than the increase in the monetary

stock, results in layoffs and company insolvencies. It may happen that in the final

analysis the unions and companies adjust their anticipations and inflation calms down,

but the process could take years and impose more austerity measures than those

stipulated in stabilization plans. Sometimes strategic accords can be established,

associating employers, workers and public authorities for the purpose of modifying the

traditional practices of price indexation and fixing by increasing the average cost. Such

accords have sometimes been imposed by compulsory means, even by military

governments.

For Taylor, “many of the problems that economists educated in the north create

when they travel to the south are due to ignorance”67 of precepts as simple as the fact

that “institutions and the available technology strongly limit change in an economy at

any given moment”.68 With regard to problems of short-term stabilization, Taylor

underscores that the developing economies could respond in unexpected ways to

conventional policies: “Devaluation could provoke a contraction of production,

monetary restriction could raise prices due to higher costs of interests, it is probable that

inflation will tend to have its own ‘inertial’ dynamics, and public investment could

67 Ibid., p. 10. 68 Ibid., p. 11.

cause private capital to accumulate without leaving. Stabilization programs have few

probabilities of success unless such answers are taken into account on designing their

policies”.69 Taylor, like the Latin American neo-structuralists, stresses the importance of

rapid and equitable development, and like them is skeptical of the benefits of market

liberalization and unrestricted capital and trade flows from abroad.

Although the neo-structuralist approach represents a major advance in relation to

the neo-liberal one, thanks to consideration of the social dimension in terms of

correlation of forces and to the importance accorded to domestic demand as an engine

of investment decision,70 the two approaches show a certain ideological convergence

that should not surprise, since the attitude of the neo-structuralists was one of

commitment from the start.71 Indeed, neo-structuralism is built more on a critique of the

social consequences of adjustment that on a radical critique of its essentially neo-classic

and neo-liberal theoretical foundations. It should be pointed out that the ECLAC

Review, for a long time the organ of dissemination of the institution’s ideas, gradually

opened up to authors of other multilateral agencies such as the World Bank, IMF, IDB,

OECD, etcetera, which, with a few exceptions, are well-known for their orthodox

positions. In these conditions it is natural that although seeking to be an alternative to

neo-liberalism, Latin American neo-structuralism should end up sharing many of the

postulates and analyses of the neo-liberal approach. As Eric Mulot points out, “this

appears very clearly in the study of the relations between the state and social mercantile

spheres, where it seems that the ECLAC school lost a large part of its identity by

adopting theories (human capital, endogenous growth) whose foundations are opposed

to those of neo-structuralism”.72 In this regard, the neo-structuralists’ advocate “policies

that seek to correct, complete or promote factor markets ––basically that of human

capital (education policies) and technology (science, technology and innovation

policies)–– as well as those that deal with other institutional aspects that determine the

69 Ibid., p. 12. 70 For Berthomieu and Ehrhart, the main difference between the two approaches is “consideration of the

social dimension, in terms of relation of forces (in the sense of the neo-Cambridgeans) that is at the foundations of the neo-structuralist analysis of inflation and its propagation, and the importance allotted to domestic demand (close to the effective demand of the post-Keynesians) as the engine of decision on investment, domestic demand nourished in itself by less unequal income distribution”. Claude Berthomieu and Christophe Ehrhart, op. cit., p. 89.

71 Eric Mulot, “Le ‘néostucturalisme’ et la question sociale en Amérique latine et Caraïbes: construction d’une pensée alternative ou convergence idéologique?”, Mondes en développement, vol. 29, numbers 113 and 114, 2001.

72 Eric Mulot, op. cit., p. 63 (our italics).

setting in which companies develop”.73 Like the theoreticians of endogenous growth,

the neo-structuralists consider that the technology market shows failings resulting from

the non-pure public good of technical knowledge and information. These failings lead to

a shortage of investment in technology and justify direct intervention by the State

thanks to meso-economic or horizontal policies.

Moreover, the neo-structuralists do not criticize the foundations or the basic

principles of adjustment policies. They limit themselves to criticizing the rate or extent

of the adjustment and to denounce, as UNICEF had already done, the negative social

consequences of the adjustment for the Latin American countries. It involves a critique

of the form and not the basis of neo-liberal thinking.74 The corollary to this critique is

the proposal to make an expansive adjustment accompanied by efficient welfare

policies, which is, with a limited horizon and directed only at the most vulnerable

groups, as proposed by the World Bank.

It should be recognized that the neo-structuralists seek to conserve what

constituted the central nucleus of ECLAC’s original thinking. Thus, for example, they

integrate the characteristics of underdevelopment identified by the pioneers:

heterogeneity of productive structures and concentration of income. However, they

leave aside elements which are also fundamental in the structuralist analysis. Such is the

case with references to classes or social groups in the study of inequalities in income

distribution or to dependence and its implications in international trade. If the above

were not enough, their analysis of demand is less present than in their predecessors’

discourse, since they consider that the problems of Latin America are especially those of

supply. In this respect, Sunkel and Zuleta are not reluctant to point out that the critical

effort must be made on the supply side (accumulation, quality, flexibility, efficient

combination of productive resources)75 and preach ––like the neo-liberals–– social

discipline, frugality in public and private consumption and encouragement of national

savings.76

73 Adela Houni, Lucía Pittaluga, Gabriel Porcile y Fabio Scatolin, “La CEPAL y las nuevas teorías del

crecimiento”, Revista de la CEPAL, number 68, August 1999, p. 24 (our italics). 74 Thus, with respect to the Chilean case, Ffrench-Davis points out that “at the point of departure, in

1973, the national economy showed serious, generalized distortions. It evidently required reforms and re-balances. Nevertheless, many of those necessary reforms were applied in inconvenient circumstances or in too abrupt a manner or with extremist aims, or else were excessively ingenuous, with the respective unrecoverable costs with which they were accompanied”, Ricardo Ffrench-Davis, Macroeconomía, comercio y finanzas para reformar las reformas en América Latina, McGraw Hill, CEPAL, Santiago, Chile, 1999, p. 11.

75 Sunkel and Zuleta, op. cit. 76 Eric Mulot, op. cit., pp. 64-65.

As may be observed, the neo-structuralists’ commitment to the neo-liberal

current went very far, taking them away from the structuralists alien to any idea of

commitment with the dominant theory of their age, as evinced by the roughness of the

legendary debate with the monetarists and the IMF. In these conditions of submission to

mainstream thinking, it would be more logical, as has already been done, to talk of the

new ECLAC and not of neo-structuralism. It should not be forgotten that the new

ECLAC did not hesitate in February 1999 to recommend the dollarization of the Latin

American economies, to which Furtado replied unambiguously: “If we succumb to

dollarization, we will go back to a semi-colonial condition”.77 Far from the neo-

structuralist theses at the end of the twentieth century, Furtado proposed for Brazil

“returning to the idea of national project, recovering for the domestic market the

dynamic center of the economy”, in the clear awareness that “the greatest difficulty lies

in reverting the process of concentration of income, which can only be done through a

major social mobilization”.78

CONCLUSION

Since the end of the forties, thanks to the ECLAC economists, the economists of the

center ceased having a monopoly on an explanation of the world. For the first time, a

group of third-world economists, freeing themselves of the mental colonialism Furtado

talked about, began to build a new theory of development and underdevelopment. This

theory not only facilitated understanding of international economic relations, but

inspired development and industrialization strategies by import substitution followed for

more than three decades in Latin America and some other third-world nations. In the

eighties decade, with the debt crisis, we can observe an IMF dominion that finds Latin

American structuralism responsible for the difficulties of the developing countries. State

intervention is questioned and market balance is erected as the supreme objective.

ECLAC’s thinking is marginalized, limiting itself almost exclusively to participating in

the debate on adjustment policies with short-term concerns. In the nineties the neo-

structuralist current emerged, which presented itself at first sight not only as an

adaptation of classic structuralism to a globalized world, but as an alternative to the

dominant neo-liberalism. However, a careful study of neo-structuralism shows how in

77 Celso Furtado, quoted by Luis Carlos Bresser-Pereira, op. cit., p. 32. 78 Celso Furtado, “Brasil: opciones futuras”, Revista de la CEPAL, number 70, April 2000, p. 11.

its zeal for commitment it has incorporated essential proposals of the neo-classic

approach and ignored oth