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Latin-American Development: The Politics of the Economics Author(s): M. H. J. Finch Source: Journal of Latin American Studies, Vol. 5, No. 2 (Nov., 1973), pp. 279-287 Published by: Cambridge University Press Stable URL: Accessed: 01/03/2010 13:37 Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact

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J. Lat. Amer. Stud. 5, 2, 279-287

Printed in Great Britain



A reviewer confronted with fourteen new books on the Latin-American economy inevitably seeks a common theme on which to hang his remarks, in the hope that this will make sense of his labours. Let it be confessed immediately that diligent search has failed to reveal any such unity in these volumes. Indeed, on the safe assumption that they representa random selection from the rapidly growing literature on the subject, they might almost be taken as evidence of a diversity of approach. An alternative strategy, therefore, is to argue the existence of central doctrines in the literature on LatinAmerican development in the last twenty-five years, and to relate to them the literatureunder review. Unquestionably, Latin America has shown itself independent of the economic theory of the developed world to a far greater degree than other Third World regions. While it hardly makes sense to speak of a distinctive or regional approachto the economic problems of Africa or Asia, Latin America has produced two doctrines to account for its underdevelopment, both of which have reversed the customary flow of ideas from the Centre to the Periphery. The first of these, the structuralistapproach developed by ECLA, was rooted in an analysis of the limitations of crecimiento hacia afuera, and in a belief in the capacityof land reform, import-substitutingindustrialization, and regional economic integration to overcome the structural barriers to inward-directed development. The capacity for domination exercised by the advanced countries received explicit recognition in ECLA's analysis of the distribution of the gains from trade between Centre and Periphery. The rejection of comparative cost theory as the basis for international specialization, which resulted from that analysis, attracted greatest concern from the critics of ECLA outside Latin America; but there are few who would now argue that massive protection for domestic producers might end external domination. Still more damaging to the desarrollistaapproach was the comparative neglect of the capacity of internal political structuresto frustrate the development process. Disillusion with ECLA's reformist approach in the early I96os coincided


Journal of Latin American Studies

with the end of the interval of relative autonomy in the Latin-American economies, and led directly to the concept of dependence. Industrialization had not succeeded in transforming the traditional structures of the region, nor did it reduce vulnerability to external influences. On the contrary, economic growth was still more closely tied to the performance of the traditional export sectors, which in the 1950s grew less rapidly than the regional product. External financing of Latin America's mounting foreign debt permitted the United States to exercise greater influence over economic policy, while a shift in direct foreign investment away from public utilities and primary producing sectors towards manufacturing industry has enabled foreign companies to achieve a dominant position in the rapid growth sectors of the Latin-American economy. The analysis of dependence, closely related to the work of Paul A. Baran but elaborated almost entirely within Latin America, has focussed precisely on the impact, under capitalism, of external economic ties on internal class structuresin peripheral regions, a relationship which was either ignored in the early formulations of ECLA or else assumed to be benign. It is this analysis which has demonstrated most convincingly the necessary interaction of political and economic factors in the study of underdevelopment. Moreover, the approach has been highly influential, such that if the contemporary study of the Latin-American economies could be said to have any overriding preoccupation, it seems to be with the sources, uses, and especiallymechanisms, of power. It is a familiar point that, whatever the merits of specialization between the social sciences in the study of advanced countries, divisions between the major disciplines are a barrier to the understanding of developing regions. Economists have traditionally resolved this problem by making their assumptions less restrictive, and thus their economics more 'realistic', but have generally declined to accept models of interaction between politics and economics. Hirschman is one who has refused to acknowledge such restraints. The collection of sixteen articles and papers,1 which were originally published between 1954 and 1970, makes some of his best-known and most influential

work more readily available, and will be universally welcomed. The reviewer, attempting the task of assessing the development of Hirschman's thought, gets special consideration: a previously unpublished essay introducing the collection distinguishes two central themes. 'In the first place, I frequently encounter and stress the political dimensions of economic phenomena just as I like to think in terms of development sequences in which economic and political forces interact. . . Another pervasive characteristic of the writings 1 Albert 0. Hirschman, A Bias for Hope: Essays on Development and Latin America (New Haven and London, Yale University Press, I97I). Pp. ix+374. $I2-50, paper $3.45.

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here assembledis a preoccupationwith processesof social change.' 2 The latter is concerned with the author's own reform-mongering and 'possibilism'. The case is argued that novel and unique features of social processes occur more frequently than the general propositions of social scientists might suggest, and that they deserve special attention since they suggest avenues of change which might otherwise be ignored. Hirschman's observationson his first theme are of more general significance. The discussion is perceptive and well illustratedby examples of economic and political interaction detected in the author's previous work. But the general conclusion is somewhat negative. Though interaction should be regarded as normal rather than exceptional, 'it seems quite unlikely that there exists somewhere a master key which would bring into view the usually hidden political dimensions of economic relationshipsor characteristicsin some more or less automatic or systematicmanner. Each time, it seems to be a matter of a specific ad hoc discovery '.3 So sweeping a denial of the possibilityof systematic interrelationships is difficult to interpret. To establish any such connexion, however ad hoc or instinctive the process, there must surely be at least implicit reference to general propositions about social behaviour. The confusion is compounded later in the discussion when the author observes the close similaritybetween his own thought and the Marxian view of the historical process-the latter a master key if ever there was one. Hirschman neither professes nor rejects Marxism, but affirms a belief in the value of the Marxian scheme applied 'to smaller-scale processes of economic-political development '.4 In this eclectic form he sets out an ' optimistic ' model of economic and political change: ... economicforces left to themselvescan achieve some forwardmovement,but beyonda certainpoint furtherdevelopmentbecomesmore difficultand eventually is held backby the unchangingpoliticalframeworkwhich, from a spurto progress turns into a " fetter"; at that point, political-institutionalchange is not only necessaryto permit further advances,but is also highly likely to occur, because economic developmentwill have generatedsome powerful social group with a vital stakein the neededchanges.5 Writers on dependence share neither the reticence of Hirschman in the use of Marxian analysis nor his view of the capacityof economic growth to achieve the political and social change required for sustained development. Where Hirschman suggests the usefulness of an analysis of social groups for an understanding of the way developing societies change, dependence theory is based on the capacity of class interests in societies subject to external domination to block development. It is an explanation not of the way in which Ibid., p. i. 4 Ibid., p. I8.


3 Ibid., p. I2.

5 Ibid., pp. I6-I7.

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economic development might generate forces which assist its further advance, but of the way in which international economic relations under capitalism have combined with and shaped internal structures to produce the phenomenon of underdevelopment. The theory thus transcends, though it is frequently confused with, conventional notions of economic vulnerability which relate particularly to the size and composition of foreign trade, and which are, therefore, largely concerned with the capacity of economies to defend themselves against adverseexternal influences. The volumes reviewed here which bear on the theme of dependence are a mixed bunch. The most successful of them is also the oldest-a re-publication of the work of Cardoso and Faletto which dates from I966.6 This is an ambitious attempt to relate the social development of the Latin-American nations to the production characteristicsof the export sectors established in the nineteenth century and to the system of political alliances necessaryto sustain the continued control of the dominant social groups. A basic distinction is drawn between countries in which national groups retained control of the export sector, by virtue of extensions of colonial production patterns and limited technological and capital requirements, and those experiencing enclave forms of export development in which these conditions broadly did not obtain. A period of transition is identified, preceding the Depression, in which the dominance of the ' oligarchies' is modified by new alliances which permit the participation of the urban middle sectors. The analysis is then extended to take account of conditions in individual nations. By contrast, the volume by Eulalia Maria Lahmeyer Lobo,7 which also attempts an historical interpretation of the region since Independence, is largely a compilation of facts and figures assembled according to the criteria of periodization and typologies already available in the literature on Latin America. The lack of a central theme of its own makes this a work of limited significance. Of Hensman's book 8 little need be said; discursive and descriptive, it attacks imperialism with great vigour and enthusiasm. The volume by Frank, Cockroft and Johnson 9 consists of fifteen essays loosely grouped in three sections: theoretical concepts for the analysis of the development of underdevelopment; some empirical studies of class structures and politics; 6 Fernando Henrique Cardoso e Enzo Faletto, Dependencia e Desenvolvimento Na America Latina (Rio de Janeiro, Zahar Editores, I970). Pp. I43, n.p.s.

7 Eulalia Maria Lahmeyer Lobo, America Latina Contempordnea: Modernizacao-Desenvolvimento-Dependencia 8

(Rio de Janeiro, Zahar Editores, 1970). Pp. 205, n.p.s.

C. R. Hensman, Rich Against Poor: The Reality of Aid (London, Allen Lane, The Penguin Press,


Pp. 293.


9 Andre Gunder Frank, James D. Cockroft, Dale L. Johnson, Economia Politica del Subdesarrollo en America Latina (Buenos Aires, Ediciones Signos, I970). Pp. 456, n.p.s.

The Politics of the Economics


and three disparate papers with no obvious common theme. The essays by Frank include some of his best-known and highly influential work, but all of them, like most of the remainder of the papers, have been published at least once before; the value of this collection does not exceed the sum of its parts. The analysis of dependence in general, and in particularthe formulation by Cardoso and Faletto, has been criticized for failing to avoid an ambiguity between dependence as an expression of national domination and dependence as a theory of class relations under peripheral capitalism; 'uma teoria de classe nao necessita da premissa nacional para explicar o desenvolvimento capitalista'.0 Ultimately this becomes a point of concern only for Marxists. Cardoso, whose object, with Faletto, was perhaps primarily to identify and classify the forces and constraints operating on social structures in concrete historical (and national) situations, subsequently agreed that there is no theory of dependence as such, but rather a theory of capitalism and social classes. However, he also insisted that 'a contradi5aoentre as classes nas situasoes de dependencia inclui contradiioes especificas entre a Nasao (o Estado), e o Imperialismo e entre os interesses locais das classes dominantes e seu carater internacionalizante'.1 Indeed, it would seem to be as difficult to exclude reference to national conditions of dependence as it would to be restricted to the conventional class categories to identify groups whose interests are frustrated or served by the preservationof dependence. The identification of those with preferentialaccess to income flows generated by the dependent economy, or of groups which can defend themselves against (and take advantage of) the adverse economic consequences of dependent status, is unlikely to correspond to traditionalclass divisions.l2 Canadian economic development is sometimes cited by non-Marxist critics of dependence as an instance of successful development via export-ledgrowth and capital imports resulting in a pattern of extreme vulnerability. The staple theory of growth was fashioned by Canadians as an interpretation of their economic history, and its application by Roemer 13to Peru during the rapidgrowth period of the fish-meal industry since 1950 is intriguing. The book is an extremely able work of analysis, but can the staple theory be the appropriate 10 Francisco C. Weffort, ' Notas S6bre a " Teoria da Dependencia ": Teoria de Classe Ou Ideologia Nacional? ', in Fernando Henrique Cardoso, Francisco Correa Weffort, et al., Sobre Teorie e Metodo em Sociologia (Sao Paulo, Edi6oes Cebrap, 1971), pp. 23-4.

11 Fernando Henrique Cardoso, '" Teoria da Dependencia" Ou Analises Concretas de Situa~oesde Dependencia?', in Cardoso,Weffort, et al., op. cit., p. 33. 12 A similar point in relation to pre-revolutionaryCuba is argued by Edward Boorstein, The Economic Transformation of Cuba (New York and London, Modern Reader Paperbacks, I969),



13 Michael Roemer, Fishing for Growth: Export-Led Development in Peru, 1950-I967 (Cambridge,Mass., HarvardUniversity Press, I970). Pp. xiv+ 208. /3-75.

284 Journal of Latin American Studies

framework? Its theoretical content argues that the production function of the staple (primary) export commodity, as the leading sector of the economy, determines a set of Hirschman's linkage effects which determine (in principle for better or worse, in practice for better) the pattern of development.14So much is unremarkable. But the staple theory was originally applied only to newly-settled regions, with implications of favourable per capita resource levels and socio-political structures which make it quite unsuitable for Peru. Moreover, the unstated assumptions of the staple theory would be adequately demonstrated by an application of it to Argentina: the theory has no 'explanation' of Canada's land settlement policy, continental railway, and protective industrial tariff, all of which had been establishedbefore the beginning of the wheat boom in the mid-I89os. Roemer's thesis is that, contrary to the pessimism of most writers on the viability of export-led growth, the lessons to be drawn from the experience of Peruvian fish-meal are encouraging. The uncomplicated technology involved in fish reduction, and the relative unimportance of economies of scale which permitted small-scale production, removed potential barriers to entry and encouraged entrepreneurship.These factors counteracted some of the potentially adverse results of the industry's capital intensity, by tending to reduce foreign participationboth directly and in meeting backward demand linkage. Roemer's analysis of the linkages of fishmeal is excellent, and the book is a valuable reminder of the potential benefits of a rapid-growth export sector. But the staple theorymust be left where it belongs. The theme of economic integration continues to attract a large share of the literature. Maritano's book 1 is a considerable disappointment, covering a great deal of very familiar territory, factually but not always accurately, and with the questionable benefits of such insights as: 'It seems to be the nature of the Latin-American people and countries to be able to change moods quickly'.1 The general tone is determinedly, if unaccountably, optimistic. The central theme seems to be that a Latin-American common market is inevitable because it is necessary, because it 'has already captured the imagination of the best Latin economists' 1' and because it would constitute 'as in Europe, the strongest enemy of, and the most stubborn obstacle to, Communism and imperialism of any kind .18 14 Melville

H. Watkins, 'A Staple Theory of Economic Economics and Political Science, vol. 29, no. 2 (May I963).

Growth ',

Canadian Journal of

a1 Nino Maritano, A Latin American Economic Community: History, Policies, and Problems (Notre Dame, University of Notre Dame Press, I970). Pp. xvi+265. 16

Ibid., p.


17 Ibid., p. x. 18

Ibid., pp. xi-xii.


The Politics of the Economics 285

The volume by Bell 19is based on an empirical investigation of nominal and effective tariff levels in Latin America. The concept of effective protectionthe protection which manufacturing receives from the entire structureof trade restrictions, rather than those placed specifically on imports of the competing product-is difficult to quantify, though it is of great significance for industrialization policy. The author argues that the extreme levels of protection typical in Latin America have resulted in a series of resource misallocations, including discrimination against agriculture and export sectors and the subsidised import of inappropriate capital goods. However, these distortions are reasonably well known, and the growing criticism by ECLA in the I96os of the defects of such protectionistsystems, which is rightly noted by the author, owed little to the static criteriaof comparativecost theory which Bell takes as his reference point. Even in his discussion of integration movements in the region, the welfare implications of trade creation and trade diversion form the basis of the analysis while developmental aspectsare almost entirely ignored. Unlike the previous two books, the volume by Andic, Andic and Dosser 20 contributesto the analysis of integration by adding to the argument of Cooper and Massell and others, that integration in less developed countries is desired for its industry-promotingand developmental potential, a more formal framework for the evaluation of integration proposals. This framework is then tentatively applied to five Caribbean countries. Its basis is the possibility of ascribing to different activities a developmental value, which can be assessed by a benefit-costratio. The cost components are income forgone by protection for the activity, and its capital requirement; and the benefits are a foreign exchange saving and industrialization. One country can then justify protection by reference to a decision-rule based on this ratio, and within an integration scheme a trade diversion effect may be similarly justified. On the other hand, free trade between two developing countries may result in harmful trade creation if a country with a more favourable benefit-costratio loses the industry to the other country which has a conventional cost advantage. Thus both trade creation and trade diversion may have positive or negative results. If one country has higher benefit-costratios in all industries compared with its partner, then the analysis is apparentlyforced into an indeterminate area in which ' an arbitrarydecision may be needed by the two governments to forgo some possible potential joint national income through trade creation 19 Harry H. Bell, Tariff Profiles in Latin America: Implications for Pricing Structures and Economic Integration (New York, Washington and London, Praeger Publishers, I971). Pp. xvii+ 68. $I3.50. 20 Fuat Andic, Suphan Andic and Douglas Dosser, A Theory of Economic Integration for P Developing Countries (London, George Allen and Unwin Ltd., I97). Pp. 76. ?2-50.

286 Journalof Latin AmericanStudies for an equitable distribution of industries'. Presumably, however, comparative benefit-cost advantage could determine a solution. A far greater problem arises in the measurement of the benefits of industrialization. Development theory is not at all certain what precisely they are; the authors acknowledge that they are likely to be diffuse, and indicate the need to include linkage effects, external economies, urbanization, skill acquisition and employment creation--but of these only the last is adopted in the application of the approachto the Caribbeancountries. Between 950--54 and I965-69, the proportion of Latin America's export earnings absorbed in servicing all forms of foreign capital increased from I8-5 per cent to 37*0 per cent.22This alarming growth in the region's indebtedness, and the new pattern of direct foreign investment in the I960s, are reviewed in External Financing for Latin American Development.23 The positive role in principle of external financing, in the form of accelerating growth and the avoidance of payments crises, is assumed rather than demonstrated. The main argument of the report is that capital transfers have been inadequate and made on terms not nearly so advantageous to Latin America as they might seem. Of external public financing received in I961-67, 'only 46.8 per cent of the $II.3 billion authorized, that is $5.3 billion, can properly be considered to be aid, since the remainder was financing on conditions similar to those prevailing on the market'.2 Loans on hard terms have thus increased the debt burden faster than the growth of capacity to meet debt obligations. In addition, private foreign capital has increasingly located itself in the dynamic sectors of industry, with local enterprise tending to be confined to more traditional manufacturing, employing less sophisticated technology. The ability of United States companies to generate most of their new capital locally, and the reduced contribution which they make to the region's exports, are factors having an increasingly adverse effect on the region's payments position, and suggest the need for Latin America to redefine the role which foreign enterprise might play in its development. The findings of the OAS study throw a harsh light, if more were needed, on the operations of the Alliance for Progress. Equally revealing is the attempt 5 21

Ibid., p. 24. 22 UN, CEPAL, Notas Sobre la Economia y el Desarrollo de America Latina, 88 (I6 Nov. I97I)23

External Financing for Latin American Development. Published for the General Secretariat of the Organization of American States (Baltimore and London, The Johns Hopkins Press,

1971). Pp. xv+248. 24 Ibid., p. 46.


25 The Role of Popular Participation in Development. Report of a Conference on the Implementation of Title IX of the Foreign Assistance Act, June 24 to August 2, I968 (Cambridge, Mass., and London, The M.I.T. Press, 1969). Pp. xiii+ 222, n.p.s.

The Politics of the Economics 287

to find meaning in Title IX of the U.S. Foreign Assistance Act which insists that 'emphasis shall be placed on assuring maximum participation in the task of economic development on the part of the people of the developing countries....', though the report understandably fails to bring out the full ambiguity of this phrase. A difficulty encountered, however, is that' we must be careful not to assume that all people are prepared to accept economic theories as neutral and objective knowledge. Leaders in the Third World are just as sensitive to economic matters as to any others, for they rarely make the sharp distinction between " economics " and " politics " that seems so natural to Americans and particularly those trained in economics.' 26 How wise, in this at least, those leaders are. M. H. J. FINCH

26 Ibid., p. 60.

Latin-American Development: The Politics of the Economics