Roots of the agrarian movements

The economic planning experiments carried out in the Latin American countries, despite their modest aims, served to pinpoint the major obstacles hampering the region's development. By establishing targets and identifying the agents on whose decisions their attainment depended, the development planners initiated discussion of the motives guiding these agents and the means that would have to be mobilised in order to intervene in the behaviour of the policy-makers. It soon became apparent that projecting the expansion of an economic system simply by means of extrapolating rates of growth was limited in scope, and that planning based on the traditional behaviour patterns of the agents involved could not guarantee the attainment of even modest targets. What we needed was a study in depth of the structural elements delimiting the range of options open to the decision-making agents so that the factors hindering the development process could be properly identified. Thus the framework of analysis was imperceptibly broadened as the relevant agents were gradually more clearly identified and observed in their own context. Greater knowledge of the real structures was gradually built up and in many cases this involved going beyond the conventional framework of economic analysis.

The structuralist approach to the development process tended to stress the importance of agrarian problems which, until quite recently, had earned scant attention from economists whose interest had been focused on the study of industrialisation.

Large estates and social organisation

In Latin America, agrarian structures are not only an element of the production system but also the basic feature of the entire social organisation. We have seen, in chapter 2, that both in the economies whose point of departure was export agriculture and in those initially organised around mining production, the large estate tended to become the basic element of social organisation. From the outset, the principle governing grants of land was that grantees should have the necessary means to exploit their lands in order to produce a surplus which could be converted into cash and partially transferred to the Crown. After independence, several countries sought to modify this principle by promoting colonization schemes under which lands were granted as family holdings to settler families who undertook to work the land themselves. This policy was nearly always bound up with the encouragement of European immigration and achieved some success in Southern Brazil, Argentina and Chile.

The family farm system made headway in regions which remained relatively isolated and were characterised by the prevalence of recent settlement of European origin. Thus, in the southern regions of Brazil, where there was no profitable export crop, the pioneer European ‘colonies’ were forced to turn to a subsistence economy, producing marginal surpluses for sale in the home market, particularly in the rapidly expanding coffee areas. Given the abundance of land and the farming techniques which settlers brought from Europe.

Diversity in behaviour patterns

A comparative analysis of overall development trends in the post-war period reveals wide differences in the stages at which the Latin American countries find themselves, and at the same time makes it possible to establish the broad outline of a representative model for the regional economy. For the purpose of this analysis we have used data covering the period starting in 1950 for the countries of greatest relative economic importance in the region: Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela. All these countries have experienced significant structural economic change during the period under review, as can be seen from the figures given in Tables 13.1 and 13.2. In all of them, the agricultural sector's share in the gross domestic product has decreased: between 1950 and 1970 it declined from 18.7 to 13.8 per cent in Argentina; from 22.5 to 12.2 per cent in Mexico; from 39.8 to 29.7 per cent in Colombia and from 27.4 to 19.1 per cent in Peru. By contrast, manufacturing increased considerably in every one of these countries. In Brazil, the share of the manufacturing sector in GDP was slightly over half that of the agricultural sector in 1950; two decades later it was 36 per cent more than that of agriculture. In Argentina the share of manufacturing in GDP is two and a half times that of agriculture and in Mexico it is nearly double the figure for agriculture.

Pattern of demand in underdeveloped structures

The way in which the social product is distributed among the members of the community is doubtedly one of the most significant features of the economic structure. This aspect is particularly important in the case of underdeveloped economies. The preponderance of exogenous factors, such as the external demand for a few primary products subject to shortrun fluctuations in price, as well as the considerable disparity between the remuneration of factors of production and their opportunity costs in productive use, both in the export sector and in the sectors most affected by modern technology, tend to compartmentalise economic decisions, giving rise to demand schedules with characteristic discontinuities, each segment displaying different behaviour patterns or trends. Thus, in a given phase of expansion of the domestic product, one group of consumers may show a rapid advance in purchasing power while another remains stationary; or one group, benefiting from a rise in the real income of its members, may diversify its demand schedule through the inclusion of higher quality goods, while another grows horizontally, that is, through the addition of new members to the group without any change in the demand schedule of existing members. Traditional economic analysis blurred the perception of these problems, based as it was on assumptions of homogeneous factors and of an identical technological horizon for all decision-making agents related to production. For an understanding of the problems of underdevelopment we must start with different hypotheses.

Singularity of the traditional Cuban economy

Cuba displays a number of peculiarities worth analysing separately in an overall study of the Latin American framework. Along with Puerto Rico, the island remained under Spanish rule until the beginning of this century, the colonial period having lasted almost a century longer in this area than in the rest of Latin America. When the Cuban people's struggle to win their independence created impediments to US trade, the United States government used the conflict as a pretext for taking over the remnants of Spain's former Empire in the Americas and Asia. Consequently, the Cuban National State started its independent life under the occupation of United States forces. This occupation has not yet entirely come to an end - the United States government still has a base on Cuban territory - and up to 1934 it could have been extended to the whole island at any time, ‘in the interests of the Cuban people’ as adjudged by the President of the United States, in accordance with the provisions of the famous ‘Platt Amendment’. The delay of almost a century in starting the process of building a nation-state, and the particular circumstances attending its emergence under the tutelage of a powerful neighbour, make the Cuban process unique in the Latin American context. However, Cuba's singularity lies even deeper and its roots are to be found in the economic evolution of the island within the framework of the Antillean region.

Corrective policies: aims and instruments

The system of international division of labour, which enabled Latin American countries to initiate their development in the nineteenth century, created asymmetrical relations that were reflected in the close dependence of countries exporting raw materials on the industrialised centres. The development of international economic relations involved not only increased trade between the various nations but also the creation of ‘poles of command’ controlling financial flows, orientating international transfers of capital, financing strategic stocks of exportable products, intervening in the formation of prices, etc. Expansion of the exportable surplus in a Latin American country depended, almost always, on infrastructural investments financed by foreign capital made available when the increment in production entering the world market matched expectations in the world economy's decision centres. What was involved was thus a form of dependence consequent upon the very structure of the world economy. By making economic decisions little more than an automatic operation involving the transfer of price mechanisms from the microeconomy to the level of international relations, liberal ideology diverted attention from this problem and hindered perception of its consequences for the national economies on the domestic plane.

Reference has been made in earlier chapters to some of these consequences. So long as primary exports continued to play a role in these countries similar to that of investments in the industrialised countries, the instability of raw material prices was bound to have far-reaching internal effects.

Financial flows

After the Second World War there was a marked change in the evolution of mechanisms for international financial co-operation. During the two decades following the 1929 crisis the amount of foreign investment in Latin America had declined. The capital markets of Europe and the United States had been closed to bonds issued by public or private entities in the region and the bitter experience of the 1930s had made it only too clear that, given the instability of the foreign exchange earnings of countries exporting primary products, the accumulation of a large external debt ruled out any possibility of carrying out rational economic policies in these countries. On the other hand, in the two decades referred to, the development of the region's economies had been financed, in the case of the region's most industrially advanced countries, mostly out of domestic savings. Moreover, a large part of the foreign debt accumulated in the preceding period had been repaid, thanks to the favourable balance of trade of the war years. Besides, the traumatic experiences resulting from the conflicts between foreign-owned enterprises and some of the region's national governments - the expropriation of Mexican oil was only the most spectacular instance - had created a climate that made it difficult to take an objective view of the problems of international financial co-operation.

Two trends emerged in the immediate post-war years. The first was the delimitation of areas closed to the operations of foreign-owned enterprises.

International division of labour

During the first half of the nineteenth century, the Industrial Revolution was essentially an English phenomenon. For this reason the structural evolution of the English economy provides the key to the radical changes which took place during this period in the world economy as a whole. The economists who witnessed the beginnings of these changes, and interpreted them from the English viewpoint, immediately realised that it was in England's interests to become a vast factory, opening its doors to primary products from all over the world. In fact, industrial activity, violating the law of diminishing returns, signified unprecedented qualitative change.

In economies in which technology had made little or no progress – based essentially on agricultural activity – it was evident that there were limits to the degree to which the relative proportions of the productive factors employed could be altered. Beyond a certain point, the output obtained per unit of agricultural land necessarily tended to decrease, regardless of the amount of labour added, which meant that availability of land governed the use of the other factors. Industrial activity made it possible to break this barrier, since growth itself, by creating the possibility of further specialisation in labour and equipment (greater division of labour, additional and more complex machinery), became the source of increased productivity, which meant increasing returns. In such circumstances, even if prices of imported agricultural products remained stable and were the same as those of home-produced goods.

Methodological basis

External vulnerability, a reflexion of fluctuations in the prices of primary commodities on the world market, led several Latin American governments to assume growing responsibilities on the economic plane even before the 1929 crisis. We have seen how the need to regulate coffee supplies obliged the Brazilian government to undertake heavy financial commitments, with far-reaching repercussions on the monetary and fiscal planes, and how these commitments took the form of a compensatory policy in the 1930s, with profound consequences for the subsequent evolution of the national economy. We have also drawn attention to the complex exchange controls practised by Argentina during the decade of the Great Depression in order to cushion the domestic impact of external instability and pointed out the positive form taken by the Chilean reaction during the same period: a greater appropriation of resources generated by the export sector (controlled by foreign groups) and their allocation to strategic sectors, through a state agency specifically established for this purpose, with a view to diversifying productive structures.

By and large, the period extending from the end of the 1929 crisis to the end of the Second World War is characterised by development geared to the national domestic markets which Prebisch would call ‘development inwards’ as opposed to the ‘development outwards’ of the preceding period, based on growing participation in the system of international division of labour. After a time, this new development pattern raised the immediate problem of remodelling and broadening infrastructures.

Failure to adjust to the rules of the gold standard

In an earlier chapter it was pointed out that the world economic crisis of 1929 dramatically revealed structural changes that had been taking place in the world economy for some time. Among such changes we must mention the tapering off in world demand for most primary products. The crisis emphasised the magnitude of the ‘external vulnerability’ of economies specialising in the production of raw materials, among which the Latin American economies were prominent.

The financial movements involved in the system of international division of labour, based on so-called comparative advantage, were regulated by the Gold Exchange Standard, which assumed the definition of all currencies in terms of their gold value, free convertibility on the basis of a fixed rate of exchange (at least in so far as foreign transactions were concerned) and the free transfer of funds on the basis of ‘foreign exchange reserves’ held by the monetary authorities of each country. In countries with a diversified economy, characterised by some degree of substitutability between imports and home-produced goods, any sharp fall in exports due to external factors could be offset, to some extent, by an increase in domestic supply. Proper management of monetary reserves and foreign credit, in conjunction with a judicious policy of domestic expansion, could be sufficient to divert productive activity towards new types of export and towards the satisfaction of domestic demand formerly supplied by imports.

Agricultural production

The structural features of Latin American agriculture, described in detail in chapter 7, largely account for the behaviour of this sector in recent years. By and large we find a pattern of extensive farming, that is, agriculture geared to a utilisation of land and labour involving limited capital outlays. Moreover, the emphasis is on production of a few commodities, mainly those destined for export, enjoying a privileged position and monopolising available credit facilities and infrastructure. It is with this background in mind that we must analyse the evolution of the agricultural sector over the past few decades, a period characterised by the weakening of external demand and the expansion of the domestic market. The population explosion, rapid urbanisation and the rise in purchasing power of part of the population failed to elicit the required response from the Latin American agricultural sector, since prevailing systems of extensive agriculture were no longer adequate methods for coping with the situation.

The figures given in Table 14.1 show that agriculture and livestock production did not always keep pace with population growth. It should be added that these figures underestimate the insufficiency of supply since as a result of rapid urbanisation, demand for agricultural surpluses has grown much more rapidly than the population. Even if we assume that the food consumption patterns of the population that has emigrated from the countryside to the towns have remained the same, we would still have to consider the much higher wastage coefficient involved in transporting food.

Export expansion phase

The three decades preceding the First World War were a period of rapid economic development and some social change in Latin America as a whole: in Mexico, where the Porfirio Diaz administration created the conditions for a large inflow of foreign capital directed mainly into mineral production; in Chile, whose victory in the War of the Pacific against Bolivia and Peru enabled her to monopolise the sources of nitrate; in Cuba, where, even before independence was attained in 1898, the country's increasing integration into the United States market had brought about a dramatic expansion in sugar production; in Brazil, where the spread of coffee over the Sao Paulo highlands and the influx of European immigrants hastened the collapse of the slave economy; finally, in Argentina, where economy and society underwent drastic changes under the impact of the great wave of immigration and the penetration of substantial foreign capital.

A closer look at the three largest countries reveals the importance of the changes that occurred during this period. In Mexico, the population increased from 9.4 million in 1877 to 15.2 million in 1910. In the last of the nearly three decades of the Porfirio Diaz administration (1900-10), the annual average growth rate of the real per capita product was 3.1 per cent.

Industrialisation induced by expansion of exports

In countries specialising in primary production for export, that is, countries in which productivity was raised in response to the expanding world demand for raw materials, the change in the structure of production particularly the process of industrialisation, is characterised by a number of distinctive features which constitute one of the most interesting aspects of the economic theory of underdevelopment. The rise in productivity and the consequent increase in the purchasing power of the population led to diversification in the pattern of overall demand involving also a more than proportionate rise in the demand for manufactured products. It has been observed that in countries with a per capita income level below 500 US dollars there is a high income-elasticity of demand for manufactured goods, the coefficient value being between 1.3 and 1.5. Hence any rise in the population's purchasing power will mean not only diversification of demand but diversification in a particular direction, requiring a more than proportionate increase in the supply of manufactures. Since specialisation in primary exports (almost invariably only one or two products) concentrates resources in a few lines of production, the evolution of the productive structure will be the inverse of that of the demand schedule.

Traditional exports

In studying the long-term trends of the Latin American economies, the single most striking feature is the immutability of the region's export pattera Apart from a few special cases, we find that despite the considerable changes that have taken place in the production structures of a number of countries, the region's capacity to import is still dependent on exports of a few primary products, which were already being exported before 1929. However, we have seen that the importance of primary products in the pattern of the world economy, and more particularly in the pattern of international trade, has been declining and will tend to decline still further. It is hardly surprising, therefore, that the region's share in world trade should be diminishing, as can be seen from Table 19.1.

The figures in Table 19.1 show that in the period 1948 to 1970, the value of Latin America's exports grew at a rate which was less than half that of the increase in the total value of world trade. The region's participation in world trade, which was 11 per cent in 1948, fell to 7 per cent in 1960 and 5 per cent in 1970, and in the latter year its share of the total was smaller than before the Second World War. In the group of underdeveloped countries, Latin America has also lost ground: the growth rate of the exports of underdeveloped countries taken as a whole was 5.3 per cent in the post-war period.

Latin America: from geographical expression to historical real

For a long time the term ‘Latin America’, popularised in the United States, was used only in a geographical sense to designate the countries situated south of the Rio Grande. Far from showing any interest in what they had in common, the nations that emerged from the Iberian colonisation of the Americas sought to emphasise their distinctive characteristics in an effort to define their own national personalities. With the exception of Brazil, colonised by Portugal, and Haiti, colonised by France, the remaining Latin American republics share much of their colonial history and, in Spanish, a common language. Nevertheless, the fact that the pre-Columbian cultural heritage contributed in such widely diverse ways to the formation of the present national personalities makes the differences between countries such as Argentina and Mexico as great as the similarities. The same can be said of the African ethnico-cultural contribution, which is no less unevenly distributed. Even leaving aside the case of Haiti, whose African-French origins place it in a category of its own, the differences between the countries of the Caribbean region, where there is a marked African ethnico-cultural influence, and the Andean countries, where indigenous ethnico-cultural elements predominate, are as marked as is possible for countries sharing part of their history. None the less, the emphasis on diversity was less a reflexion of the real extent of the differences between the Latin American countries than of their awareness of a common origin.

The success of the first edition of this book confirmed my impression that there was a growing interest, both in University circles and among the general public, in Latin American economic issues and in interpretations of these issues originating from within the region itself. This new edition has been kept more or less to the same length as the first, but many chapters have been extensively rewritten to give greater depth to the study of the institutional framework which is the basis of the structural matrix prevailing in the region, as well as to include up to date information on recent economic developments. In the six years since the first edition was written, Latin America has emerged from a phase of slackening economic growth to enter an expansionary cycle comparable to that of the first half of the 1950s. Moreover, there has been an intensification of the effort to bring about structural change, particularly in the agrarian sector; at the same time, new economic policy models have been introduced, and the ideological bases of these policies have been widened. The richness of Latin America's historical experience, stemming from a wide variety of situations, which cover the full range of contemporary underdevelopment and the entire spectrum of ideological approaches, accounts for the interest which the region arouses in the socalled developed countries as well as in the countries of the Third World.