Peasant families represent approximately 25% of the population in Latin America. They get their family income mostly from their small plots of land. Despite the undoubted importance of peasant economies, there are as yet no satisfactory accounts or explanations of their economic functioning and dynamics. The peasant economy constitutes a ‘reality without a theory’.

The importance of the peasantry comes not only from the number of people but also from the fact that they represent the poorest social group in Latin America. Several studies have shown that poverty in Latin America is concentrated in rural areas and particularly in the peasant families. Inequality and poverty will continue to be an unfortunate characteristic of this region unless the real incomes of peasant families are increased substantially. Economic policy to reduce poverty must have the peasantry as one of the most important target groups. Policies without theory however will not be successful, except by accident. Again, our understanding of this particular reality becomes a necessity.

This study is concerned with the peasant economy of Peru. This country presents one of the extreme cases of inequality and rural poverty in Latin America. Also the peasant population in Peru is a large fraction of the total population (around 30%) and of the rural population (around 66%). The historical process has, on the other hand, generated in Peru one of the most extreme cases of cultural duality, if one compares the sierra peasants and the upper and middle classes living in Lima. Nowhere else does the notion of economic duality seem more applicable than in Peru.

The previous chapters have shown production and exchange structures in today's peasant communities in Peru. The peasant economy was observed at a given point in time (1978–9). This chapter will attempt to depict the dynamic of the peasant economy in Peru in the recent decades. If this is an economy very much integrated to the market system, has economic growth experienced in the Peruvian economy reached the peasantry? Have rapid population growth and urbanization induced growth in peasants' income through higher levels of demand for food?

Growth and distribution in Peru: 1948–75

The income distribution problem presents peculiar characteristics in the underdeveloped countries. It not only refers to the problem of inequality, but also includes the problem of absolute poverty. For this reason, in order to evaluate the performance of an underdeveloped economy in terms of the distributive problem, it is necessary to determine the changes which have occurred both in the degree of inequality as well as in the proportion of the population still living in conditions of absolute poverty.

In the last three decades, Peru has experienced various patterns of economic growth, initially based in export of primary products, followed by import substitution industrialization. Also, it has undergone periods of both rapid growth and recession. On the other hand, Peru passed through diverse socio-political contexts. From the initiation of the government of General Odria in 1948 until 1968, economic policy was basically liberal. Certainly one can draw distinctions concerning the degree of liberalism manifested: it was much more marked in the Odria and Prado regimes; there was a greater degree of State intervention in the first Belaunde government.

The second half of the 1970s has been a period of economic crisis in Peru. The real GNP per capita of 1980 is almost 10% less than that of 1974. The annual rate of inflation has varied between 24% and 70%. Neither the decrease in real average income, nor the rates of inflation, nor the duration of the crisis has any parallel in the recent economic history of Peru. Since 1950 two short periods of crisis are recorded (1957–9 and 1967–9) but they were very mild compared to the present period. This chapter attempts to investigate the effect of the crisis on the peasant economy. To what extent has this economy been affected?

The extent of the crisis

In the post-World War II period until the mid-1970s Peru experienced sustained economic growth together with price stability. The real income per capita in 1974 was twice as high as in the 1950s. Annual rates of inflation never exceeded 18%. Starting around 1974–5 the economic situation changed dramatically: the economy stagnated until 1976, and there was an absolute decline in average real income. Real GNP per capita dropped by 8% in four years and the level of real income in 1980 was barely above that already reached back in 1971. The average annual rates of inflation went from 24% in 1975 to 68% in 1979. (See Table 8.1.) Politically, a new military government came to power in mid-1975, headed by General Francisco Morales Bermudez.

The origin of the crisis is commonly associated with excess demand in the economy, especially as a result of the government's overspending.

The information presented in the previous chapter concerning intersectoral relations in peasant communities now permits us to arrive at estimates of the level and structure of income in those communities. In this way we estimate total peasant income based on previous understanding of the peasant economy.

The level of total peasant income

One way of calculating peasant income is to consider the value (at market prices) of consumption and investment. As net peasant production is dedicated in part to home consumption and in part to trade, income may be defined as the sum of total consumption and investment, from which the net balance of external exchange must be subtracted. As the value of exports (including transfers) is equal to the value of imports, a second alternative for measuring income is to add to home consumption the value of exports (which would give the net product of A + P + Z) and then the value of income from temporary migrations. From this sum we would have to deduct the value of imports of intermediate products which were used to obtain the net product A + P + Z. Of course, here we are using the terms imports and exports to refer to goods purchased or sold outside the community.

The third method of calculating income is by way of value added. The estimations of total product A + P + Z and of inputs (domestic and imported) permit us to make this calculation, since the value added is the difference between these two figures.

1. Agricultural production measures the quantity harvested (in dry and in grain). Moreover it refers to the ‘overall’ harvest and not the minor harvest, included in green. There is certainly an underestimation of production.

2. The monetary income from wages derived from migration involves expenditures. It is thus necessary to distinguish between gross and net wages. Here the data are net. This produces an underestimation of the degree of monetization of the peasant economy. In particular some expenditure categories were underestimated, such as travel, lodging, food and beverages. The ‘number of workdays’ refers to days of absence from the community. During migration, the peasant faces days without work as well as days of intense work, be it in two jobs (night-watchman and dayditchdigger) or doing overtime. Therefore, it is not permissible to obtain wage rates dividing total net income by number of days in migration.

3. The monetary and non-monetary incomes derived via the local labor market include only wages. Goods such as food, coca, cigarettes and aguardiente which the wage-earner receives from his/her employer are not included.

4. A, P and Z monetary incomes refer to ‘value of sales’. Neither monetary costs incurred via input expenditures (fertilizers, pesticides and others) nor marketing costs (such as transport) were deducted. In the case of transport, it was considered as a consumption expenditure (to make purchases or to go on vacation) because there always exists the possibility of selling the goods in the local market.

5. […]

This study has been concerned with the functioning of the peasant economy in today's Peru. This particular reality has been neglected in the economic studies on Peru, in spite of its great significance in the social system. The peasant economy has remained a reality without a theory. In this study the basic traits of the peasant economy have been investigated and then utilized to lay down the principal analytical coordinates of its prevailing economic rationality. The peasant economy has also been placed in the context of capitalist development in order to analyze its changing role in the economic system. In this final chapter a summary of our empirical findings and theoretical interpretations are presented. This will be done in terms of the hypotheses advanced in Chapter 2. Because a theoretical basis has been reached, economic policies are also discussed.

Poor but efficient

The economy of the peasant communities in the Peruvian sierra is organized in family units, which are the units of production and consumption. In the case of the southern sierra, the most economically depressed area, the average size of the peasant family varies between four and five members; the average total labor force is four people and the adult labor force is two. The peasant family depends upon resources of cultivable land, and usually has no more than five hectares in area in addition to access to natural pastures, communally held. The cultivable land is composed of parcels, the average number of which varies between ten and 80, depending upon the community. Regarding livestock, a peasant family typically has seven sheep, two heads of cattle and one horse.

The empirical study of peasant communities was undertaken in the southern sierra region of Peru. Eight communities were studied. These communities were picked from a sample universe which constituted the most important community areas in the southern sierra. Preliminary studies were conducted in seven of these communities before September 1978, at which time was begun the fieldwork for the present study. The communities studied are located in four of five departments comprising the southern sierra; Ayacucho is the department not represented. This does not, however, present any particular complication to the problems of sample representativity in as much as the differences between departments are of minor importance.

The empirical data were obtained via a peasant family survey, administered as a uniform questionnaire in all of the peasant communities. Interviews were also conducted with persons involved in the life of the community (mainly authorities and ex-authorities) from which were obtained a physical and social perspective which was of great importance in sharpening the contents of the interview to be administered to the families. This procedure also permitted the control of the quality of the interviews by the range of possibilities for response which was given by notable persons. In each community the survey itself (apart from previous visits) lasted approximately two weeks and was conducted, on average, by four persons, three of whom (including the principal researcher) constituted a permanent team, the fourth interviewer usually being a person from the community. The interviews took place in Quechua or Aymara when the family surveyed did not have sufficient command of Spanish.

After concluding the fieldwork in each community, reports were written describing all that was observed during the stay in the community.

Even though peasant families are organized in communities, the economic decisions that they make concerning the use of their resources and labor are fundamentally family decisions. The results presented up to now show that the peasant family is at the same time a production and a consumption unit. It is of interest to know the essential elements that determine the economic behavior of the peasant family. What are the principles guiding its economic actions? What is its economic rationality? From the answers to these questions, we can derive propositions about the mechanisms that govern the allocation of peasant family labor to alternative uses and the reactions to market prices. These are the themes that we shall attempt to develop in this chapter.

Portfolio of activities and risk-aversion

Any economic theory which attempts to explain the behavior of the peasant family of the sierra must include as an essential element the problem of risk. There are two reasons for this. First, practically all the economic activities of the sierra peasants are subject to risk and uncertainty. Agriculture in the sierra is certainly a tremendously risky activity. Since there is normally no irrigation, dependence on rainfall is complete. The absence of rain, its appearance at the wrong time, or its over-abundance (creating floods and avalanches) affect production significantly. At certain altitudes, frost and hail are climatic factors which also affect production negatively and in an unpredictable manner. To these problems of nature we must add others, such as diseases. Livestock production also confronts significant risks, such as falls (due to the rugged nature of the terrain) and strayings.