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T H E R I S E A N D D E C L I N E O F E C O N O M I CS T R U C T U R A L I S M IN L A T IN A M E R I C A :NewDimensions^

Joseph E . EoveUniversity o f Illino is Urbana-Ch amp aign

INTRO U TION

More than half a century has passed since structuralism appeared asan indigeno us program of economic developm ent in Latin Am erica.Given the poor performance of the region's economies largely underthe guidance of neoliberal doctrines since1980, the question of wh etherstructuralism associated with the UN Economic Commission for LatinAmerica, or CEPAL^still has any relevance is a legitimate one. In anyevent, struc turalism 's influence du ring the third quarter of the last cen-tury is admitted by friend and foe alike. My intent is not to determinewh ether structural analysis was correct, bu t to examine some of theforms it took and show wh y they were important. These were structur-alist approaches to import substitution, informality, and economic his-toriography. I further consider structuralism as a movement, and thereasons for its success and subsequent decline. The essay closes w ith abrief consideration of how structuralism survives today, given the vastchanges in economic development theory over the last half century.^

1. I wish to thank MRR's anonymous readers for their comments, and CEPAL forresearch facilities in June, 1998. Research funds were provided by the Social ScienceResearch Council, the National Endowment for the Humanities, the Hewlett Founda-tion, and the University of Illinois. I also thank the Economics Department of theUniversid ade Nova de Lisboa for office space w hile I was wr iting this article.2.Comision Economica para America Latina y el Caribe.3 . I exclude structuralism's thesis on inflation and its fundamental contribution to

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RISE AND DECLINE OF ECONOM IC STRUCTURALISM 1 0 1Latin American structuralism^ in its initial form was largely the cre-ation of the Argentine economist Raul Prebisch, the director of his

country's first central bank from1935to1943,subsequently the executivesecretary of CEPAL, 1949-63, and the first secretary general of the UNConference onTradeand D evelopment (UNCTAD),1964-69.In hisstruc-turalist manifesto of 1949,The conomic Development ofLatin America anditsPrincipal Problems ^ Prebisch introduced the notion of an industrial,hegemonic Center and an agrarian, depend ent Peripheryasa frameworkfor understanding the intemationai division of labor. He hypothesizedthat the two elements were related by a process of unequal exchange.Assuming a greater rate of technological innovation in industrial covin-tries,he argued that there were different responses to the behavior of thebusiness cycle by primary exporters and by manufacturers, resulting insecular effects. This process occurred primarily because of organizedlabor's pow er to maintain high w ages, and therefore high export prices,in the industrial countries, and secondarily because of the existence ofoligopoly in markets for manufactured goods (and its near absence inthose for primary com modities).Thus,there was a tendency for the termsof trade of agriculture-exporting countries to deteriorate. (A similar ex-planation was developed by another UN economist, HansW Singer, andthe thesis became know n as the Prebisch-Singer argument.) ^ In addition ,Prebisch emphasized1 structural unem ploym ent, ow ing to the inabilityof traditional export industries to grow and therefore to absorb excessrural population ; and 2) external disequilibrium, because of higher pro-pensities to imp ort industrial goods in Latin America than to export tra-ditional agricultural and mineral goods.

The school focused on structures, blockages, and imbalances, andhence the nam e structuralism. This term, however, was not yet usedto describe the approach that Prebisch and his team were developingand w ould not have broad currency un til the 1980sf earlier, it was usu-ally described ascepalismo bu t never as prebischism o, since Prebischalways em phasized the team natu re of his enterprise in Santiago.4.Latin American stru cturalism is one ofafamily of structuralism s. These app roach eswe re eclectic, but g enerally grew out of the Germ an Historical School of economics an dwere widely employed in continental Europe until fairly recently.5.The first e dition of the work listed CEPAL as the au thor, but it was rep rinted in 1962

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102 Latin Am erican ResearchReviewFeeling their way in the initial decades of the suhdiscipline of eco-nomic development, by the 1960s CEPAL economists were defining

economic backwardness or unde rdevelopment inamanner that lent cur-rency to the term structuralism : und erdev elopm ent was structuralheterogeneity, thatis,an economic assemblage characterized by hetero-geneous technologies and production functions.* Underdevelopmentwas an uneasy mix of traditional and m od em economies. For the earlystructuralists, industrialization was seen as the single most importantobjective in a development program, since historically the process wasassociated with rapid economic growth and high per capita incomes.Moreover, it seemed to offer at least a partial solution to the employ-ment requirements resulting from the rapidly expanding Latin Ameri-can population and the even faster-growing urban populations of the1950s and 1960s.

In this paper, will treat the structuralist school as a generator of ideasand policies. Although not an authentic parad igm (Thomas Kuhn) or a scientific research pro gram (ImreLakatos),structuralism d idgivebirthto a seriesof ideas and derivedpoUciesthat cametocharacterizetheschool.Its first and m ost famous thesis, concerning the deterioration of terms oftrade for raw-materials producers, lives into our own day. In 2003 thedirector of CEPAL, Jose Antonio Ocampo, coauthored a long article onthe subject with the appropriate title, Returning to an Eternal Debate. 'Using sophisticated m ethodologies and datasets,the authors argued thatthe long-term trend in commodity prices was downward, as Prebischhad alleged, bu t that it occurred not continuously, bu t with a sharp one-time adjustment around 1920, and a downwardtrendbeginning arou nd1980.Earlier studies have, however, reached different conclusions. Thelack ofafirm resolution to the fifty-year-old controversy has not deterred

Anibal Pinto was principally responsible for this innovation.SeePinto and Arma ndoDi Filippo, Desarrollo y pobreza en Am erica Latina: un enfoque histo rico-e struc tural,mericaLatina:Una vision estructuralista ed. P into, Coleccion America Latina (MexicD.F.: Facultad de Economia, Unive rsidad Nacionai Au tonom a de Mexico, 1991), 555-76;and Ricardo Bielschowsky, Cincuen ta afios del pensam iento d e la CEPAL: Una resefia,in Cincuenta Anos de Pensamiento en la CEPAL. Textos Seleccionados ed. CEPAL, vol. 1(Santiago: CEPAL, 1998), 35.9. Jose Anton io Ocam po and Maria Angela Parra, Return ing to an Eternal Deb ate:

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RISE AND DECLINE OF ECONOM IC STRUCTURALISM I O 3those who bel ieve Prebisch was r ight : In Europe, the leadingantiglobalization organization, ATTAC (which prefers the term alter-globalization ), wasstillusingthePrebisch-Singer argum ent onitswebsitein 2004.IMPORT-SUBSTITUTION INDUSTRIALIZATION (iSl)

Let us begin our examination of themes with structuralism's advo-cacy of Import-Substitution Industrialization (ISI), nowadays roundlycondemned but perhaps poorly understood. Valpy Fitzgerald has de-scribed the prog ram associated with structuralism andCEP Las state-led ind ustr ializa tion . The process w as princip ally based on thesubstitution of domestic prod ucts for previously imp orted ones, or im-port substitution. Am ong the reasons for pursu ing ISI were the alleg-edly more rapid transfer of technological innovation in industry than inagriculture, thus raising economy-wide productivity levels; the greaterabsorption of labor in an era of rapid p opu lation g rowth and even m orerapid urbanization; and the movement of factors of production into in-dus try and away from exports, a process that wou ld redu ce the latter asa share of national outpu t and improve the terms of trade.'^

Import substitution was well underway when CEPAL was createdin 1948, and in a sense CEPAL simply pushed hard in the directionthat history was already moving, by attempting to make the processmo re rational. CEPAL's unde rstan din g of impo rt substitution w as ini-tially one of resp ondin g to externally forced shocks in particular, thedisruption of international trade from the Great Depression throughWorld W arII.As such, it was essentially a subop timal solu tion . As

See Dimitris Diakossavas and Pasquale L. Scandizzo, Trends in the Terms of Trade ofPrimary Com mo dities, 1900-1982: The Controversy and its Origins, EconomicDevelop-ment andCultural Change39, no. 2 Qan. 1991): 231-64; Enzo R. Grilli and Maw ChengYang, Primary Com mo dity Prices, Manufactured Goods Prices, and the Terms of Tradeof Developing C ountries: What the Long Run Shows, World Bank Economic Review2 ,no.1 (Jan. 1988): 1-47; and Javier Leon and Raim undo Soto, Term inos de intercambio en laAmerica Latina: Una cuantificacion de la hipotesis Prebisch-Singer, El TrimestreEconomico 62, no. 2 (April-June, 1995): 171-99. These studies, like that of Ocampo andParra, focus on net barter terms of trad e, as opposed to income terms of trade a nd factoral

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104 Latin AmericanResearchReviewCEPAL developed its analysis through the 1960s, it defined threephases of ISI: T'he first involved the relatively easy substitution ofsimple domestically produced consumer goods for previously im-ported items. The second, more difficult, type involved the produc-tion of intermediate goods and consumer durables, a shift from horizo ntal to vertical ISIso deno m inated to describe an inte-grated line of produ ction of fewer final good s and their inp ut s. thirdph ase , the production of capital goo ds, would follow.'* But the CEPALnotion ofISI,at least by the late 1950s, was based on th e creation of aregion-wide (as opposed to a national) market that would captureeconomies of scale in production.'^ The postwar process of ISI wassuccessful in the sense of raising the share of manufacturing in thenational product from the Depression years to the early 1980s, when,according to Bulmer-Thomas, import substitution contributed about50 percent of the grow th in manufacturing.'*

In Henry Bru ton's classic study,ISIhas the positive feature of acceler-ating learning by managers and w orkers, and therefore expanding pro -ductivity. ' The negative features of the process included discouragingthe expansion of traditional and new exports to earn foreign exchange,and in fact the expansion of world trade in the 1960s and the contempo-raneous penalization of exports in Latin America's ISI policies did notallow the region's economies to ride the trade boom , as East Asian coun-tries were then doing. ISI further contributed to inflation because ofmonopolistic elements in the dom estic market for industrialgoods.Fromthe po int of view of economic nationalists, ISI also had the negative ef-fect of favoring multinational corporations, wh ich opened branch plan tsbehind Latin American tariff walls.'^

Of the problems associated withISI,however, it is important, as sev-eral autho rs have noted, not to confuse excesses in ISI with bad macro-economic policyovervalued exchange rates, balance of payments14.Each phase wa s characterized by different elasticities of dem and .15.FitzGerald, CEPAL y la teoria, 3.16.Victor Bulmer-Thomas, Economic Performance and th e State in Latin Am erica,

Liberalization and its Consequences:A Com parative Perspective on Latin America a nd Ea sternEurope ed. W erner Baer and JosephL.Love (Cheltenham, UK: Edw ard Elgar, 2000), 27.17.Henry Bruton, Impo rt substitution, inHandbookof evelopmentEconomics vol. 2

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RISE A ND DECLINE OF ECONOM IC STRUCTURALISM I O

crises,and inflation . Since it is unive rsally agreed thatISIhas not beena viable policy for some time, we may ask to what extent it was respon-sible for the macro m ess of the southem cone of South Am erica in the1960s and after^ soaring debt and deficits, ram pant inflation, po liticaland economic uncertainty, and, as a result, erratic grow th. Dani Rodrikholds that it is essential to distinguish between the excesses of ISI andfinancial mismanagement, rather than coriflating them . ForRodrik That[conflation] was certainly the approach taken by the World Bank in the1980s.^' Rodrik extends a critique that Carlos Diaz Alejandro made in1975 of the pioneer anti-ISI study by1.M. D . Little et al.,JnternationalTradeinSome DevelopingCountries.This multinational study (1970) hadlum ped ISI with everything else that went w ronginflation, overval-ued exchange rates, balance of payments crises, et cetera. For Rodrik, the consensus post-m ortem view [ofthedebt crisis in develop ing coun-tries] held the whole complex of import-substitution policies respon-sible for what was essentially a crisis of overspending exacerbated bythe fickleness of intemationai capital markets. ^^

Of course, this distinction does no t mean that ISI as it was executed inLatin Am erica w as not relatedtomany errors and excesses of governmentpolicyinLatin Am erica,asBulmer-Thomas and Fitzgerald have indicated.W hen the protectionist policy did n't have a sunsetclause on protection,domestic as wellasforeign fiims in sheltered industries oftenbecamehighlyefficient at rent seeking, hidin g behind tariff walls,or other forms of pro-tection. At the Latin Am erican leveL Cardenas, Ocampo, and Thorp seethe historical developm ent of protection as a geological process datingfrom the 1950s up to the liberalization measures of the1980s,a process inwhich layers of protection had been added ontoothers,without diminish-ing levels of protection for increasingly matu re manufacturing concem s.^

19.Fitzgerald, to the contrary, ho lds th at a m ajor nega tive effect of ISI was the loss ofcontrol of the fiscal deficit, owing to populist pressures for employment, contracts, andwelfare. This problem resulted in periods of rapid inflation, followed by abrup t stabiliza-tion policies that depressed private investment. Fitzgerald, CEPAL y la teoria, 10,17.20. Macro m ess is the term that Enrique Carden as,JoseAntonio Ocam po, and Rose-mary Thorp apply to Latin Am erica in general for the 1980s. See their Introd uction , toCardenas, Ocampo, and Thorp, eds..An EconomicHistory ofTwentieth Century LatinAmerica vol. 3,Industrialization and the State inLatin America:The Postwar Years (New

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i o 6 Latin American ResearchReviewThese authors lay further indictments at the door ofISI:1) As actu-ally implemented as o ppo sed to CEPAL theoryit interfered with re-

gional integration, which wou ld have resulted in larger Latin Americanmarkets and therefore opp ortu nities for firms to raise efficiency throu gheconomies of scale; and 2) ISI distorted price signals and punished ex-porters when the policy was pursued through a single overvaluedexchange rate or a multiple rate favoring importers of industrial equip-ment andinputs.^*YetlikeRodrik Cardenas, Ocam po, and Thorp areunequivocal in viewing ISI as a problem related to the macro mess,bu t distinguishable from it They argue that the W ashington C onsensus,as presented in John Williamson's book.The ProgressofPolicy Reform iLatin America is grossly ahistorical in viewing Latin Am erica's ISIexperienceasan avoidable wrong tu m .^ Among otherreasons,one mightcite the fact tha t successful exporting na tions in East Asia went thro ughimport-substitution industrialization first, as pa rt of a sequence leadingto export substitution.

SinceISIflies in the face of trade liberalization point6of the prop erpolicies listed in the Washington Consensusit is interesting to notethattheWorld Bank took an implicitlypro ISIstance favoringlocalcapitalgoods in1962.After the collapse of Bretton Woods in1971and the firstoil shock in 1973, the Bank became more tolerant of the process, as ameans of addressing the dearth of foreign exchange credits. The Inter-American Development Bank had an even more favorable stance to-ward ISI in its earlyyears.^*

In acknow ledging ISI's excesses, finally, w e should note that Prebischhimself condemned the out-of-control process as early as1963.He fur-ther denounced the actual pattern of industrialization in Latin Am erica,pointing out that the exaggerated pattern of protection had allowedgrossly inefficient industries to arise. Latin America had, on average,the highest tariffs in the world, depriv ing it of econom ies of scale andopportunities to specialize for export, Prebisch continued.^'' Moreover,

24.Cardenas, Ocampo, and Thorp,Economic HistoryofLatin America 24-26.25 .John W illiamson,The Progresso fPolicy Reform inLatinAm erica Policy Analyses International Economics 28 (Washington, D.C.: Institute for International Economics,1990);Cardenas, Ocam po, and Thorp,Economic HistoryofLatin America 31.

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RISE AND DECLINE OF ECONOM IC STRUCTURALISM I O 7from the early 1960s CEPAL had attacked the discrimination againstexports, the source of foreign exchange for further industrialization.^'

A final consideration onISI:It may be the case that whatCEPALhadto say about it did n ot matter that much. No t only was the process hap-pening anyw ay d uring the 1930s and 1940s whenCEPALpicked up thetheme, but the highly protectionist tariff levels of the Latin Americannations were of much earlier provenience. Coatsworth and Williamsonhave recently argued that Latin America was the most protectionist re-gion of the world from 1865 until World War I, after which other areasalso becam e highly protectionist.^'Yet, there was more to state-led industrialization than tariff levels,and since we are now a quarter-century beyond ISI as a developmentstrategy, the perspective from 2005 seems to show that the era of state-led industrialization was more successful th an its critics would concede,beginning withLittleetal.in1970.A recent study by three Oxford econo-mists on the standard of living in Latin America during the twentiethcentury measured in terms of GDP pe r capita, life expectancy, and lit-eracyshows th at Latin Am erica performed best on all three indicatorsin the years 1940-1980, the era of impor t substitution . Astorga, Berges,and FitzCerald venture that this progress is probably related to state-led industrialization, improvementsinpublic health, and urbanization. ^No t only was economic growth higher in this m idd le period of thecentury, but the growth rate of per capita income was also less volatiledu ring the ISI years. For the six largest economies of the region, consid-ered as a group and providing m ore than6 percent of Latin America'soutput after 1945, annual GDP growth in the ISI years was more thantwice as great as that of the export age (1900-1940), and four-and-a-half

times more than in the neoliberal era (1980-2000).^' Of course, many28.Anibal Pinto, No tas sobre industrializacion y progre so tecnico en la perspectivaPrebisch-CEPAL in merica Latina:Una vision estructuralista 635-60. For a theoreticalreconsideration of structuralism and its theorization of import substitution, showingthat CEPAL antic ipate d most of its critics, see FitzGera ld, La CEPAL y la teoria.29.W ith the exception of the United States in the imm ediate post-Civ il Warera.John H.Coatsworth and JeffreyG Williamson, Alw ays Protection ist? Latin Am erican Tariffs from

Independence to Great Depression, Journalof latin merican Studies(May 2004); 205-32.30.Pablo Astorga, Ame R. Berges, and Valpy FitzGerald, The Standard of living in

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RISE AND DECLINE OF ECONO MIC STRUCTURALISM I O 9and Slawinski believed it was especially great in the service sector, pu ll-ing down average productivity, which consequently grew very little inLatin America betw een 945and1955.^ Tenyearslater,in1965,Slawinskidescribed w hat is now known as the informal sector as the paralleleconomy. He emphasized the low productivity of wo rkers in this sec-tor, term ing it as an inflation of em ploym ent an expansion of practi-cally unprodu ctive occupations. ^'

The greatest advances in understan ding Latin American informalitycame w hen the ILO established PREALC (Regional Em ploymen t Pro-gram for Latin America and the Caribbean) in Santiago in 1968.^' Thefirst director was chosen by an ILO official, in consultation with CarlosQuintana, Executive Secretary ofCEPAL,and Raiil Prebisch, at that timeDirector ofILPES(Latin American Ins titute for Economic and Social Plan-ning ), a depend ency of CEPAL.ILPESand PREALC worked together, and in 973Argentinean VictorTokman becam e Director of the latter agency, on Preb isch's recom men-dation, and led it for twenty years. In Tokman's view, the neoliberalglobalization of the mid-1970s had a treme ndous negative impact onthe [formal] industrial structure and employment, ''^ because, as firmsin newly industrialized countries competed for markets, they soughtways to reduce costs. Eor Tokman and his collaborators the notion ofstructural heterogeneity remained important. But for Tokman, unlikeSlawinski, the informal sector was not just a left-over or marginal phe -nom enon , but a low-level stratum directly connected w ith other sectorsand with some potential for development, t Unlike the famous inter-preta tion of the informal sector by Hern ando de Soto, PREALC didnot emphasize the faulty legislation, red tape, and rent-seeking bureau-

cracies as fundam ental elemen ts in the developm ent of the informal sec-tor. Instead, it stressed that the labor surplus of developing countriespushe s down incomes (as Slawinski had argued) and generates subsis-tence activities not dynamically linked to expanding modem sectors.

37.CEPAL, Septimo periodo de sesiones, Documento de Sala de Conferencias no.1Estudio sobre la mano de obra en America Latina(La P az, Bolivia: CEPAL 1957), M imeo.221,365.38.Zyg mu nt Slawinski,La economia paralela(Caracas: Fondo Editorial Comun ,1972),x.

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the w hole region in a more sum m ary fashion.** Implicitly, struc turalisthistoriography was instrumentalist: The writers sought to influence fu-ture policy by ana lyzing the errors of the pas t, as can be inferred fromthe fact that Ferre r's subtitle ends w ith present-day prob lems.Latin American structuralists sought to move economic history be-yond a description of economic configurations, flows, and flux to a moreanalytic treatment of critical structuresboth dynamic and relativelystatic elemen ts in the economic ensemble that underlay long-term per-formance swell as cyclical pa tterns . Thatis,they sough ttospecify thosest ructures that had contr ibuted to economic development andthose which had impeded it. As a group, they sought to produce newperiodizations of economic history, with sharp demarcations between outw ard-loo king export phases or cycles and post-1930 inw ard-look ing phases, led by the industria l economy. They further tried toexplain persisten t inflation and stagna tion in new w ays, as well as seek-ing to trace and explain the distribution of income arising from thegrowth process. The impediments and blockages to development, aswell as the dynamic inequality of income distribution, frequently hadtheir roots in the colonial past.

I will explore Fu rtado 's w ork in m ore detail. More than anyone elseat CEPAL, Furtado was responsible for historicizing structuralist analy-sis and d epartin g from cyclical concerns, and the first iteration of whateventually becameThe Economic Growtho f razil(published first in Por-tuguese in 1959) appeared in 1954.^' His early sketches of the book in

48.Celso F urtado,Formagao economica do rasil(Rio: Fundo de C ultura,1959);AnibalPinto Santa Cruz,Chile, uncaso dedesarrollofrustrado(Santiago: Editorial Universitaria,1959); Aldo Ferrer,La economiaargentina:las etapas de sudesarrollo yproblemas actuale(Mexico, D.F.: Fondo de C ultura Economica, 1963); Osv aldo Sunkel an d Pedro Paz, Elsubdesarrollo latinoamericanoyla teoria del desarrollo(M adrid: Siglo Veintiuno de Espafia,1970). The last-named wo rk, which is only part ly de voted to the history of the region, isstrongly influenced b y depe nde ncy analysis, wiiich at the time of publication w as at itsapogee. (Note that Furtado'sEconomic Development ofLatinAmerica:Historical ackgroundandContemporary Problems [1970] is less satisfying as a historical study than The Eco-nomic GrowthofBrazil because of the former's much greater focus on current issues.)Later, a more specialized structuralist work appeared on Mexico: Rene Villareal,Eldesequilibrio externo enlaindustrializacion de Mexico 1929-75): Unenfoque estructuralista

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112 Latin American ResearchReview 954and 956offer evidence that Fu rtado's contribution precedes Pinto's,even though their classic studies both appeared in 1959.

Economic Growthcovered the whole sweep of Brazilian history, andthe colonial and nineteenth-century sections compare and contrast thestructures of the Brazilian and U.S. economies, showing how Brazil'smonoculture and latifundia impeded the high savings and investmentrates characteristic of the American economy. Focusing on the distribu-tion of income and the size of the domestic market, Furtado prov idedone of the first uses of modem income analysis in a historical frame-work, and demonstrated the weak relationship between income andinvestment in an economy based on slavery^ The wo rk througho ut iswritten from the point of view of a developm ent econom ist, emphasiz-ing the heterogene ity of technologies and production functions (includ-ing the vast subsistence sector) in the Brazilian economy.

Turning to the problem of economic cycles, already a major theme inthe Brazilian literature, Furtado saw in the weak monetization of theslave economy a kind of resilience, in that export stagn ation or declinecould be sustained as the free bu t plantation-oriented population movedtoward the backlands: The subsistence economy absorbed the excesslabor supply after the exhaustion of successive exportbooms.Inaslave-based economy the response to depression is different from that of afully capitalist economy; in the former, en trep ren eurs have fixed costs(maintaining their slave populations) and are not in a position to con-tract their agricultural output. For example, when the sugar economydeclined in the seventeenth century, the livestock economy expandedbut became increasingly subsistence oriented, and average labor pro-ductivity, by inference, fell. ^ This econom ic involu tion , as Fu rtad ocalled it, was the opposite of deve lopm ent, since each historical exportboom until coffee (brazilwood, sugar, gold, andcontemporaneous withcoffeerubber) led to retrogress ion, no t to susta ined growth.^^

Differences in the grow th and diversification of the production struc-ture of tbe Brazilian and U.S. economies in the first half of the nine-teenth century were not accounted for by the greater degree of tariffprotection in the United S tates, Fu rtado be lieved, but by tbe differencesin social structure and income d istribution , and therefore the size of thedom estic market. In fact, Furtado estim ated that Brazil's continually fall-ing exchange rate prov ided more protection for domestic indus tries than

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RISE AND DECLINE OF ECONOMIC STRUCTURALISM I I 3higher tariffs wou ld have.^^ But more importantly, Brazil suffered froma small domestic m arket; lack of modern technology, entrepren eursh ip,and capital; and its small capacity to im po rt (defined as the unit pricesof exports times quan tities sold).^ For Fu rtado, Brazil's national marketdated from the last years of the nineteenth century, when a modernworking class came into existence. Beginning in tbe late 1880s, whenwage labor replaced slave labor in Sao Paulo's coffee fields, Brazil be-gan to develop a significant bome market. In Fu rtado's view, wages paidin the coffee sector pr ov id ed the nu cleu s of a do m estic m ark eteconom y, with the implication of an attendan t multiplier effect. ^

For Furtado,thebig change in relative marketsize,however, occurredafter the crisis of1929,in which the coffee econom^y, which had risen to70 percent of the value of national exports, abruptly collapsed. InFurtado's estiniation, the decisive sbift toward an economy based ontbe stimu lus of domestic dem and took sbape in tbe early1930s.WernerBaer bas noted tbat Fu rtado's analysis of events in tbe Great Depressionaccounts for less than a tenth of the space in conomicGrowth bu t it istbe tbeme of tbe book that has generated by far tbe greatest amount ofscbolarly controversy.^*Furtad o pointed to Brazil's rapid indu strial grow tb during tbe GreatDepression, caused in pa rt by tbe socialization oflosses of coffee pro-ducers tbrougb exchange devaluation: Devaluation passed planters'losses on to society as a whole . Tbis process belped maintain dom esticdem and by keeping up tbe employm ent level and purcbasing pow er inthe coffee sector, which in tu rn perm itted tbe rise ofasignificant dom es-tic demand for industrial goods wben foreign products were unavail-able, owing to the absence of foreign excbange. Tbe stockpiling anddestruction of coffee in tbe face of grossly excess supply were financedtbrough credit expansion, which in turn exacerbated tbe external dis-equilibrium and caused new excbange depreciation, leading to a fur-tber socialization of losses and a new ro und of tbe losses effect. ^''

Furtado viewed the expansionary fiscal and monetary policies relatedto coffee as a form of unwitting Keynesianism, because the wealth de-stroyed in coffee beans was considerably less tban tbat created by main-tainingemployment. He tben noted tbat output of capital goodsinBrazilby1932was6 percent greater tban in1929.Furtbermore, net investmentin1935,at constant prices, was greater than that in1929,and the level of

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114 Latin AmericanResearchReviewaggregate income of tbe latter year bad been regained, despite tbe facttbat tbe import of capital goods was only balf of tbe 1929 figure. ' There-fore,the economy w as undergoing profound structural change.For him, as for other structuralist contem poraries, the Great Depres-sion was a watershed in which the larger Latin American economiesmoved definitively to an economy in which the domestic rather than theintemational market was the motor of growth, and for which industrial-ization led the growth process. Furtado's views on Brazilian indus-trialization in the Depression touched off a long debate.* Altbougb tbecentrality of industrialization as tbe dynam ic element in grow tb durin gtbe Great Depression bas largely been confirmed for Brazil, Argentina,Cbile, and Mexico, it now appears tbat tbe disruption in intemationaltrade during tbe world wars and tbe Depression was less important inproducing inward-directed grow tb, in Prebisch's phrase , than was be-lieved by some contemporaries to these events, and by CEPAL econo-mists later. In any event, econom etric researcb in tbe 1990s suggests animportant correlation between postwar economic growtb and participa-tion in intemational trade,'^ contrary to tbe structuralist thesis. A nowwidely held view is that investment in ind ustry (capacity) grew in Unewith export eamings for the period 1900-1945, wbile ou tpu t (but not ca-pacity) tended to rise during tbe sbocks of war and depression, wbenimports bad to be curtailed. Capacity during the Depression could notgrow appreciably in Brazilnor in the several otber industrializing LatinAm erican nationsfor lack of exchange creditstobuy capital goods and

59.Ibid., 218-19.60. For a review of the debate, see Wilson Suzigan, Industria brasileira: O rigem edesenvolvimento(Sao Paulo ; Brasiliense, 1986),21-73.61.For case studies of Latin American coun tries, including Brazil, see essays in Rose-mary T horp , ed . ,Latin America in the 1930s: The Role ofthe Periphery in W orld Crisis (Lon-don: Macmillan, 1984). For the best overview of the Depression across Latin America,see Victor Bulm er-Tho mas, T he Econom ic History of Latin America since Independence( Ca m -bridge: Cam bridge University Press,1994),chapter7.Bulmer-Thomas concurs with pre-vious revisionists and finds that import-substitution industrialization was significantlydep end ent on export recovery, except in Argentina (222-24).62.On th e positive association of trad e and grow th in the postw ar era, see Ross Levine

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i i 6 Latin American Research ReviewA later structuralist history treated another large country, Mexico. ButRene Villareal, in Eldesequili rioexterno en la industrializacion de Mexico

(1929-75):Unenfoqueestructuralista(Mexico, D.E 1976), pr ov ide d a m uc hmore monographic work. It covered a shorter time period than the clas-sic essays; it focused on a single problem, industrialization ; and it em-ployed relatively good statistical data. Even so, the author found thatstructuralism accounted m ore adequately for Mexico's external disequi-librium in the period 1939-58 than in 1959-75. In a retitled second edi-t ion that exten ds the coverage to 1988, the auth or a rgu ed thatexporf-substitution, particularly of manufactures, was the only viablepath to further industrial expansion, in an approach he called neostructuralist.

Villareal's study exemplifies that structuralist history was not lim-ited toensayismo, but could aspire to scientific status in monographicresearch. However, we can easily conclude that the classic phase of struc-turalist history, a generation earlier, was richer in debate-generatinghypotheses than in positive findings. Structuralists had asked impor-tant questions of their national histories, using formal macroeconomictheory. They were aw are of the impo rtance of good data, but m ade lim-ited use ofit and sometimes the data d idn 't exist at the time they wrote.For example, historical estimates of GDP were lacking for most coun-tries until the 1970s. It therefore seems appropriate to classify the bulkof structuralist historiography as proto-econom ic (or proto-econo-metric ) history, if I may make an analogy to the distinction between pre-statistical, proto-statistical, and statistical eras in economicand demographic history.STRUCTUR LISM S MOVEMENT

What made structuralism so important in the 1950s and 1960s, be-yond the vitality of its ideas and personalities? First of all, its embed-ding in an intem ationai research institution enjoying direct contacts w itheconomic decision makers, advisors and other researchers in nationalban ks an d finance ministries. It was tbe only Third-World school of eco-nomic thought so privileged. Raiil Prebisch was widely known as anaccomplished central banker and authority on Keynes before becominghead of CEPAL in 1949, and, as his experience in several UN orgaruza-

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RISE AND DECLINE OF ECONOMIC STRUCTURALISM I I 7and its com ponent co untries. Thus it wa s possible to compare thegrow th and developm ent of all the republics in a consistent framework,in many cases with measures of income distribution and poverty be-coming available for the first time. **Structuralists sought the support of both governments and industri-alists. The reception of structuralism by manufacturers' associationsvaried, but the doctrine w as welcomed in Brazil. Prebisch and Furtadowo rked in tandem to marshal Brazil's governm ent behind CEPAL, Theyreceived critical sup port from Getulio Vargas in1951,his first year as apop ularly elected p resident, to make CEPAL a permanen t UN agency,''The two economists also courted Brazilian industrialists, participatingin the deba tes oftheNationa l Confederation of Industries (CNI) in 1950,The organization and many individual manufacturers received Prebisch'sthesis warmly. In the same yearEstudosEconomicos,the CNI journal,ran an article explaining and implicitly endorsing CEPAL's position, andin1953the Industr ialists' Confederation financially su pp orted a regularCEPAL session in Brazil,^' A later CNI review, Desenvolvimento eConjuntura(Development and the Business Cycle), foxmded in 1957,endorsed CEPAL's interpretations and proposals in its first editorial,^^But in general, industrial leaders in Furtado's Brazil accepted state in-tervention and the developm entalist ideology associated with struc-turalism in the 1950s much m ore readily than did their counterparts inPrebisch's Argentina,

Thoughamoderate interventionist, Roberto de Oliveira Cam pos prob-ably had m ore influence than Furtado in formulating President JuscelinoKubitschek's Target Program,thepresident (1956-1961) largely embracedthe CEPAL analysis of underdeve lopm ent. In his first message to Con-gress,Kubitschek no ted the vital role of government in economic devel-opment through infrastructural investment. He mentioned CEPAL

68,B ulmer-Thomas,Economic Historyo fLatinAmerica,308.69,Furtado,AFantasia organizada Rio:Paze Terra, 1985), 120-22; Mateo Magarinos,Dialogos con Raul Prebisch(Mexico, D.F.; Fondo de Cultura Econ6mica, 1991), 140.70.Furtado,Fantasiaorganizada,106. See following notes for other documentation.71 , [Confedera^ao Nacional das Ind ustr ia s] , In terpretagao do processo dedesenvolvimento economico da America Latina, Estudos Economicos 1, nos , 3-4 (Sept.-

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i i 8 Latin American ResearchReviewspecifically as participating in the planning process, and endorsedCEPAL's indicative plarming , wh ich CEPAL called pro gra m m ing .Kubitschek voiced approval of CEPAL's thesis on deteriorating terms oftrade for prim ary producers, and the consequent and persistent balance-of-payments problem s. For the president, this problem could be rectifiedby government promotion of exports and import substitution. Industri-alization would permit the diversification of exports and industry wouldabsorb excess labor from agriculture. Industrialization was an essentialcondition forthe rapid economic development of Brazil. ^'' Furtado laterwrote that the government's Target Program was directly inspired byCEPAL, andastuden t of economic thought inBrazilcredits Furtado him -self with introducing programming in the coiantry.''^

Perhaps the most effective means of diffusing the structuralist doc-trine was by teaching it in short but formal courses. CEPAL had orga-nized courses in basic economic concepts and techniques, along withstructuralist doctrine, as early as1952(whenJorgeAh um ada directed theteaching program ). It also influenced the international m aste r's p rogramESCOLATINA (at the University ofChile later in that decade. These twoinstitutions, often in collaboration w ith others outside Chile, trained andindoctrinated m iddle-ranking Latin American personnel in centralbanks,development and finance ministries, and university faculties. Scores ofsuch men and women studied at CEPAL itself in courses varying fromseveral m on ths ' duration to a year 's length before the creation of ILPESin1962.Instructors in the1960sincluded such leading structuralistecono-mists as Anibal Pinto, Jorge Ahumada , Antonio Barros de C astro, Mariada Concei^ao Tavares, Carlos Lessa, LeopoldoSolis,and Osvaldo Sunkel,himself a graduate of the ILPES program . In sociology and political sci-ence , Fernando Henrique Cardoso, Torcuato di Tel ia , RodolfoStavenhagen, Aldo Solari, and Francisco Weffort offered courses.^'^

While its instructors were training aspiring civil servants and othersin Santiago, ILPES also went on the road, offering short courses in amajority of the Latin American countries. M ultiple sites were availablein several countries, including eight in Brazil alone between 1963 and1969.^^ If one takes into account the briefer seminars, between 1962and 1992 ILPES offered over three hundred courses, registering over

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RISE AND DECLINE OF ECONOMIC STRUCTURALISM I I 9twelve thousand participants.''* ILPES had influence at a variety of lev-els of the State, and , as one exam ple, we may note that it greatly influ-enced the Economic and Social Development Plan of Minas Gerais,Brazil's second-most popu lou s state. This was the first true com pre-hensive docum ent in the state's long history of planning. ^'In 1990 theILPESprogram in Santiago still included a strong dose ofstructuralism along with more technical matters.* But it shou ld not beassumed ILPES was only interested in doctrine. As part of CEPAL, itplayed an important role in diffusing modern economic analysis andstatistics, as well as in developing plann ing agencies and public ad min-istrationschools.*'In2004,according to the organization 's website, ILPESclaimed a total of 15,000 gradua tes. Moreover, by that time it had p ub-lished sixty textbooks, many of them in multiple editions.*^

Structuralism also had an influence beyond LatinAm erica.Althoughthis is a subject tha t has not been researched adequa tely, I have writtenabou t its influence in Portugal, Spain, and Rom ania in the 1950s throughthe1970s.* By the seventies Europeans were m ore interested in depe n-dency, but the transition between the two sets of ideas was almost seam-less,since formerCEPALsocial scientists were also leading dependencyanalystsnotably Eurtado, Ca rdoso, Prebisch, and Sunkel.THE DECLINE OF STRUCTURALIST INFLUENCE

Structu ralism's influence w aned for a variety ofreasons.The declineperhaps began with CEPAL's own dou bts, in the latter 1950s, wh en theinstitution noted that ISI was not working as it had anticipated.*^ The78.Veronica Montecinos, Economists in Political and Policy Elites in Latin America,

in The Post-1945 Internationalization of Econom ics ed. A. W. Coats (Durham: Duke Uni-versity Press, 1996), 296.79.In Portuguese, the plan's nam e was Piano Mineiro de D esenvolvimento Economicoe Social. M arsh all C. Eakin,TropicalCapitalism: The Industrialization ofBelo Horizonte Bra-zi l(New York: Palg rave , 2001), 155.80.Ins tituto Latinoam ericano y del Caribe de Planificacion Economica y Social. XXXICurso Internacional: D esarrollo, Planificacion y Politicas Pu blicas. Santiago, 5dejunioal 7 de diciembre de 1990, typescript at ILPES, Santiago.

81.Cardenas, Ocampo, and Thorp,Economic Historyo fLatinAmerica 12 (referring toCEPAL as a wh ole).

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120 Latin Am ericanResearchReviewimport requirements of industrialization in the more advanced econo-mies expanded more rapidly than national output, thus making themmore,rather thanless,dependent on international markets. Furthermore,in the 1960s, growth was fitful and national markets seemed to hit de-m and ceilings for durable goods, owing to the inequality in incomedistribution , as structuralists saw it. Beyond that, although CEPAL haddecried the excesses of import substitution, neoclassical economists inLatin America and elsewhere blamed the agency for offering an ideo-logical cover for protection at any cost.

Outside the region, the world econom y was changing fast. Ou r treat-ment of international developments can bebrief and bu t these changesdemand consideration because they were decisive. In the 1970s camethe initiative of Third World countries to create a New Internationa lEco-nomic Order (NIEO)a m ovem ent of wh ich Raul Prebisch had been theinitiator as the first secretary of UNCTAD.' The Group of77 nationsthat dem anded the NIEO were influenced by the OPEC countries' suc-cess in quadrupling raw petroleum prices, and sought new trade rela-t ions between developed and underdeveloped countries. But theconflicting interests among the Group, which nonetheless quickly ex-pand ed its numbers, combined w ith the indifference or hostility of firstworld countries, led to the quiet death of the NIEO in the wake of therecession following the second oil crisis of1979.^*M eanwhile, the EastAsian miracle was unde rway , and an increasing num ber of studiesemphasized the liberalization measures of the new Asian tigersevenifthis was a highly stylized version of events that tended to neglect vari-ous export subsidies. The first of such studies emphasizing liberaliza-tion and export-led growth was the previously men tioned book of1.M.D . Little et al..InternationalTrade in Some Developing Countries The suc-cess of the East Asian nations and city states in the seventies was fol-lowed by similar prom ising performance in Southeast Asia, while LatinAm erican countries, laboring un der their enorm ous debts accimiulatedin the 1970s, experienced negative growth in per capita income duringthe lost dec ade ofthe1980s.F urthermore, during the Reagan-Thatcherera, privatization made strides both at ideological and practical levels.

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RISE AN D DECLINE OF ECONOM IC STRUCTURALISM 2

Concurrently, governm ent intervention in the economy lost favor in theacadem y and in gove rnm ent policy circles, as the Phillips Curv eseemed to show that governm ents wou ld have to accept uncomfortablyhigh levels either of unemployment or inflation.W ithin the economics profession, the whole field of developm enteco-nomics was in crisis from the 1970s onward. Development theorists ingeneral had stressed increasing retu rns to scale arising from expand ingmarkets in the development process. But by the 1970s the economicsprofession was dem andin g greater stan dards of formalization and rigor,and since increasing return s to scale implied imperfect competition, theproblem w as that no one had succeeded in modeling imperfect compe-tition. In Paul Kru gm an's words , The result was that developm enteco-nomics as a distinctive field was crowded out of the mainstream ofeconomics. Indeed, the ideas of 'high developm ent theory' came to seemnot so m uch w rong as incomprehensible. *^

At the W orld Bank, where she was chief econom ist from 1982 to 1986,Anne Krueger was exposing the failings ofISIand calling for the curtail-ment of rent-seeking behav ior inThird World governments; in the LatinAm erican context Hernan do de Soto's The therPath discussed above,examined the most obvious case ofthefailed state, Peru. There rent-seek-ing had reached new heights, and de Soto argued that the informaleconomy was thriving despite the fetters of governm ent regulation.At the institutiona l level an impo rtant realignm ent also occurred d ur-ing the 1980s, by which the World Bank and the International M onetaryFimd (IMF) closed ranks to operate in tandem. By the late 1970s theBank had decided tha t ind ividual projects con tributed little to devel-opm ent without good m acro policies, and in the 1980s the IMF beganto make loans contingent on certain reforms, while the Bank moved intomacroeconomic management. During the Ceorge Bush (Sr.) adminis-tration. Treasury Secretary Nicholas Brady urged the two institutions toad op t similar conditionality gu idelines for the IMF's stabilization loansand the Bank's structural adjustmen t loans, and they complied.^ At thelevel of theory, the BarJc had already aban doned the Big Push thesis,with its emphasis on physical capital, and had adopted a position moreattentive to the importance of hum an capital.

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122 Latin American ResearchReviewOf course the most stunning and consequential event of the eightieswas the disintegration of the Soviet Empire in 1989, followed by the

collapse of the Soviet Union itself in1991.This event, marking the endof the short twentieth century (to use Eric Hobsbaw m 's phrase),*'seemed to dem onstrate the utter nonviability of really existing social-ism. In economic term s, the Soviet Union fell apar t because it failed toprov ide adequate incentives for good economic performance and simul-taneously provided multiple opportunities for rent-seeking behavior;because it had no adequate mechanism of determining relative pricesfor its goods and services, and therefore induced inefficiencies; and be-cause the regime's policy of secrecy impeded the diffusion of technicalknow ledge, most notably in the rapidly expanding fields of com muni-cations and electronics.

It was under these theoretical and political circumstances that theWashington Consensus was reached in Novem ber 1989,during a m eet-ing organized by John Williamson at the Institute for In ternational Eco-nomics. The consensus at issue was am ong representatives of the U.S.Departments of State and the Treasury, the IMF, the World Bank, andselected conservative think tanks, all in the U.S. capital. Williamson'snow classic paper, W hat Washington Means by Policy Reform, elabo-rated on ten points: fiscal discipline, public expenditure priorities (in-frastructure, hea lth, and education), tax reform, financial liberalization,achieving competitive exchange rates, trade liberalization, establishingthe proper climate for foreign direct investment, privatization, deregu-lation, and strengthening p ropertyrights.' The very term W ashingtonConsensus, indicating an official Am erican authorsh ip, and the march-ing orde rs tone of the docum ent would probably have been unthink -able even ten years earlier.ON LUS ON

In the 1990s and beyond , the impressive performance of the Chileaneconomy seems to show the viability of neoclassical prescriptions forgrowth, although the highly unequal income distribution in Chile didnot improve in that period, according to a new CEPAL study.'' In anyevent, in Latin America as a whole, as indicated above, the neoliberal

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RISE AN D DECLINE OF ECONO MIC STRUCTURALISM I 3

program after 1980 produced poo rer results than those of the "structur-alist" period, in growth and in noneconomic measures of the "standardof living." At the least, these facts seem to bring into question the va lid-ity of neoliberalism in the region as it was actually carried out in theyears after 1980.

Indeed , this seems to be true for the developing countries as a wh ole.William Easterly has sh own that the med ian per capita income g rowthfor 1980-98 in Third World nations was 0.0 ( ) percent, compared to 2.5percent in 1960-79. An d he shows that variables commonly used in re-gressions to "explain" growth, for example, real currency overvalua-tion, health, education , fertility, and infrastructure, all improved in theless-developed coun tries, on the whole , from 1960-79 to 1980-98. East-erly sees this as a "disappointing outcom e" for Washington Consensusadvocates, who argued that their reforms would produce growth. Hespeculates that events and processes largely beyond the control of de-veloping countriessuch as the growth slowdown in the industrialworld, and the rise in international interest rateswere responsible.Easterly further argues that grow th regressions, the prevailing approachto economic development analysis, are often mis-specified because astationary variable, growth, is regressed on non-stationary variables likegovernment policy.'^

One positive change noted by Easterly bears directly on the structur-alists'oldest thesisthe (alleged) secular decline in com modities' termsof trade. Dependence on comm odity exports has declined sharply overthe period 1963-1998. More recent data shows this trend was strong inLatin Am erica, with m anufactures as a share of total exports (by value)rising from 34 percen t to 48 percen t be tween 1990 and 2002. In Argen-tina, Brazil, Mexico, and Chile they averaged almost8 percent by2002.'Such a phenomenon makes the ancient terms-of-trade thesis increas-ingly irrelevant for the dev elopm ent process.Another recent paper by Lindauer and Pritchett suggests that per-hap s the Big Ideas in economic deve lopm ent, from the Big Push of the1940s and 1950s to the neoliberalism of the 1980s and 1990s, will notsolve the problems of underd evelop ment. They hold that there are someuniversal principles rega rding good economic policy, bu t the principleshave no pret-a-porter institutional forms, as Easterly also argues. Andsome policies may be good in some phases of developm ent, but bad in

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124 Latin mericanResearchReviewothers, such as openn ess to the wo rld economy.'* Even if stable empiri-cal associations between growth and explanatory variables are discov-ered, they may be not unde r anyone's direct control and thu s carmothave direct policy implications. '^ So they argue for a diagnostic, con-textual approach. ^

In such circumstances there wou ld seem to be a place for CEPAL andits em phasis on greater equity, since income equity is one of the major explanatory variables against wh ich growth is regressed.' CEPAL'sconcern with the distribu tion of income, combined w itharenewed com-mitmenttoraising productivity through technological change, dates fromthe 1980s. The emphasis on equity goes back to the 1960s, when struc-turalists became committed social reformers in the wake of the CubanRevolution. Moreover, only in the 1960s did scientific studies of LatinAm erican income d istribution become available.'* The World Bank, un-der the leadership of Robert McNamara, broug ht the equ ity issue to thefore on a global scale in the 1970s.

The importance of the equity issue is revealed more broadly inCEPAL's research agenda on poverty and income distribution morebroadly.'' rising star of the CEPAL team until his early d eath in1991,Fernando Fajnzylber argued that a significant degree of equity in in-come distribution was necessary for economic growth, as well as forcompetition equity implying anti-monopoly action in capital mar-kets,which would raise the rate of technological progress.^ Fajnzylbercalled for a more systemic absorption of technological progress (withaccompanying advances in productivity) rather than the maintenanceof low real wages in Latin American countries, as they sought foreign

94.They cite Clemens and Williamson, wh o examine the relationship betw een eco-nomic growth and measures of outward orientation. See Michael Clemens and JefferyW illiamson, Why the Tariff-Growth C orrelation Chan ged after 1950, (Working Paper8459, Nation al Bureau of Economic Research, Cam bridg e, M ass., 2001).95.DavidL.Lindauer and L ant Pritchett, W hat's the Big Idea? The Third Gen erationof Policies for Economic Growth, Economia (2002): 21.96.Using a medical analogy, they argue for a diagno stic tree that will allow practi-tioners to examine symptoms that reflect treatable conditions. The tree would have atleast five elements: current level of income, curre nt status of growth, linkages with th ewo rld economy, gove rnm ent strength, and govern ment capacity (Ibid., 26).

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RISE AND DECLINE OF ECONOMIC STRUCTURALISM I 2 5trading partners. This was an explicit renimciation of the structuralistnotion in the 1950s that an y kind of indu strial activity was desirable if itraised the average level of national productivitythereby permittingeconomic rents for industrialists wh ose sheltered firms w ere p rodu cingbelow international productivity standard s. After the de industrializationofthe1980s, fewer jobs wou ld eexpected from industrial em ployment,and more from new and higher-productivity jobs in the service sector.Fajnzylber s ideas were incorpo rated into CEPAL s manifesto on LatinAm erica s economic priorities for the 1990s, and equity continued to bea major research subject for CEPAL into the twenty-first

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