Latin American Theories of Development and Underdevelopment

Cristóbal Kay

• Publisher: Routledge
• Year: 2010
• ISBN:
  9781136856297
• Edition: 1
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

Upon its publication in 1989, this was the first systematic and comprehensive analysis of the Latin American School of Development and an invaluable guide to the major Third World contribution to development theory. The four major strands in the work of Latin American Theorists are: structuralism, internal colonialism, marginality and dependency. Exploring all four in detail, and the interconnections between them, Cristobal Kay highlights the developed world's over-reliance on, and partial knowledge of, dependency theory in its approach to development issues, and analyses the first major challenges to neo-classical and modernisation theories from the Third World.

1
The challenge from the periphery

Nobody is in possession of the revealed truth today, neither in the North nor in the South. We all catch glimpses of the truth, we have carried out analyses, some of which are promising, but we cannot accept what the North thinks as the revealed truth. I have every respect for the ideas of the North, but they must not necessarily be taken at their face value. It is essential that some day all of us, those of the North and those of the South together, set ourselves to explore the nature of our problems, discarding dogmas and preconceived ideas, until we reach a measure of common ground. (From a speech delivered by Raúl Prebisch (1986a:16) shortly before his death in 1986.)

DEVELOPMENT THEORY: CRISIS AND RENEWAL?

In recent years development economists have engaged in a process of critical introspectionr egarding the state of their discipline.¹ This can be interpreted as reflecting either a state of crisis or a sign of growing maturity. In this process key questions about the discipline have been raised such as what has been achieved, what are the failings, and what is the way forward?

Great prominence has been given to some of these reflections. Nobel prize-winner, Sir Arthur Lewis, delivered his presidential address to the ninety-sixth meeting of the American Economic Association in 1983 on the state of development theory. This was subsequently published as a leading article in the Association’s journal, which is not noted for giving special attention to development economics (Lewis, 1984). Another leading economics journal, The Economic Journal of the Royal Economic Society, likewise highlighted the plight of development studies by publishing Amartya Sen’s (1983) reflections on the issue which he presented in his presidential address to the Development Studies Association’s annual conference in 1982.

Some participants in the debate on the state of development economics propose that the best way forward is for the discipline to become interdisciplinary: development economics should evolve or merge into development studies (Seers, 1979a:712–13; Livingstone, 1981:11–14). Dudley Seers, one of the pioneers of development economics, further proposed that another source of revitalization for the discipline could be provided by the development theories which have emerged from the Third World (ibid.:714). Already in the early 1960s he argued that ‘the writings of the Latin American school of structuralism’ could provide the basis for the reconstruction of economics, which he considered to be in crisis, as it did not answer to the needs of the Third World countries (Seers, 1967:26–7). As yet these theories have not been fully considered and incorporated into the mainstream of development economics, and even less so by the economics profession. I share Seers’s assessment and aim through this book to make some of these Third World theories more accessible and widely recognized.

The dominant paradigms in the early post—war period

This book aims to contribute to the discussion on the state of development theory by presenting the key ideas of what I call the Latin American school of development. There are two main strands in this school: structuralism and dependency.² Structuralism developed as a critique of neoclassical analysis, while dependency analysis engaged in a critique of modernization theory. Neoclassical and modernization theories were proposed by economists and sociologists from the centre, and especially the Anglo-Saxon world. The Marxist strand within dependency analysis is critical of orthodox Marxism as well as of structuralism. Thus, there is a critique of theories emanating from the centre as well as an ongoing debate between Latin American social scientists themselves.

The Latin American school of development was born in the late 1940s at a time when the neoclassical and Keynesian theories were dominant in economics and modernization theory in sociology. These ideas had shaped the minds of many social scientists in the Third World. ‘In a sense, their theoretical equipment was twice removed from reality—it reflected the doctrines developed for other countries in response to earlier events.’ (Seers, 1980:6.) In a seminal essay Seers, who just before writing this essay had worked for some years in the United Nations Economic Commission for Latin America (ECLA), the hotbed of structuralism, argued that orthodox economics was built in and for developed industrial economies and therefore really deals with what is ‘a highly special case’ (Seers, 1967:5). What is particularly important to consider is that:

The chief theoretical schools of Europe and North America promoted their own recipes for accelerating growth as universally valid. At one extreme, the Chicago school…argued for opening the doors to foreign trade and investment, and avoiding planning and controls. IMF economists, from the same stable, saw inflation and payments problems—already widespread, especially in Latin America—as due to lack of monetary discipline. If this were put right, the basis would be established for a fast growth of output and employment.

(Seers, 1980:6)

Furthermore, development economics only began to emerge as a discipline in the 1950s, so it could not offer much guidance to the Latin American school, and the structuralists in particular, in their quest to formulate alternative development policies for the region.

Given their overwhelming influence, it required independent minds to point out that these Northern paradigms corresponded to the needs and characteristics of mature capitalism and were therefore of limited value in addressing the development problems of the Third World. Indeed, few underdeveloped countries satisfied the assumptions underlying neoclassical and Keynesian economics (Sunkel, 1977:7). The assumptions of these theories were particularly restrictive and even irrelevant given the major differences which existed between the developed and the less developed world. In many Third World countries, for example, money was not a universal means of exchange and financial institutions hardly existed, a large proportion of the rural population were subsistence peasant farmers, infrastructure (such as roads, communications, and energy) was limited, education and literacy poor, and so on. This meant that capital and labour markets as well as the price mechanism worked very differently in these countries compared with their equivalents in the industrial nations.

Development specialists in Latin America and elsewhere questioned the utility of these dominant paradigms for explaining the causes and the persistence of underdevelopment and for proposing policies to overcome that state of affairs. It was felt that the policies recommended by neoclassical and perhaps even by Keynesian economics would, at best, delay development and, at worst, continually reproduce the underdevelopment of the Third World.

It became clear that there was no real reason why theories and approaches based on the idealisation and simplification of the history of Western industrial capitalist countries should apply to societies with completely different structural characteristics and historical experience—not to mention their particular type of insertion in the international system in a radically changed contemporary world. Dissatisfaction with this type of development thinking was, then, a powerful factor in favour of evolving an alternative.

(Oteiza, 1978:15)

A key contribution of the Latin American school was the emphasis on the specificity of the peripheral countries and the insistance that new theories were required to explain their different structures, dynamics, and realities. Although some neoclassical and Keynesian economists might have noticed the differences between what today is called the North and the South, a commonly held attitude was that: ‘If theory did not correspond to reality, so much the worse for reality: it would have to be changed so that it would correspond to the assumptions of neoclassical and macrodynamic [Keynesian] theory.’ (Sunkel, 1977:8.) Neoclassical economics was particularly influential in Latin America because it provided a powerful rationale for the continuance of the existing international division of labour which favoured the interests of the primary exporting sector and of foreign capital. However, emergent industrial and popular interests began to challenge this old coalition of forces and these changing class forces found expression at the level of ideas. Thus:

Two main lines of thinking and policy emerged. On one hand were the conservatives—intellectual representatives of the old order— who maintained that the traditional specialisation in primary exports constituted the best engine of growth, provided that the industrial countries also achieved full employment and growth. The benefits of specialisation and comparative advantage would then be spread from the export sector to the rest of society and development would eventually be achieved.

(ibid.)

Structuralists questioned in particular neoclassical trade theory and Samuelson’s (1948; 1949) factor price equalization theory. Paul Samuelson (well-known US economist and Nobel prize-winner):

proved that, on certain assumptions conventionally accepted in the theory of international trade, free trade would equalize wages throughout the world, so that a United States worker and an Indian worker would be paid the same, and trade could therefore perform precisely the same function as free international movement of factors.

(Streeten, 1979:23–4)

Similarly, but in a less ironic manner, Love (1980:63) writes:

the economics profession had just been treated to a formal demonstration by Paul Samuelson in 1948–49 that, under certain conventional (but unrealistic) assumptions, trade could serve as a complete substitute for the movement of factors of production from one country to another, indicating that international trade could potentially equalize incomes among nations. Thus the less rigorous (but much more realistic) arguments of Prebisch and Singer burst upon the scene just after Samuelson had raised neoclassical trade theory to new heights of elegance, and against this theory the new ideas would have to struggle.

Jacob Viner (1953), an influential neoclassical economist, shared Samuelson’s belief that free international trade would gradually reduce, if not close, the income gap between the rich and poor countries. Viner also firmly held the view that free market conditions would spontaneously bring into action forces which would industrialize and develop the ‘backward’ countries (Ady, 1967:112). He was against state-promoted industrialization as it distorts the free operation of the market and also because he questioned Prebisch’s belief in the inherent superiority of industry over agriculture.

The policy implications of these theories were that free international trade and free internal market forces were the best way to promote the development of the Third World. ‘Prebisch and Singer, however, developed a thesis with very different policy implications, based on an apparent tendency for the terms of trade of primary producers to deteriorate, which led to an emphasis on industrialisation and justified tariff protection.’ (Seers, 1980:6.) This will be analysed in Chapter 2 where I will examine the structuralist theories which were critical of the doctrines of free trade and international specialization, attributed underdevelopment to the lack of industrial development, and ‘provided the rationalisation for protection, for investment in infrastructure and manufacturing and for planning’ (Sunkel, 1977:8).³

Another common characteristic of economists of those times (whether Marxists or members of the Chicago school) was a basic optimism. Inequalities within and between countries could and would in one way or another be reduced eventually, bringing an homogenised, modernised world within the reach of the next generation.

(Seers, 1980:7)

A common central question concerned the way in which traditional societies could best achieve the economic prosperity, social welfare systems, and parliamentary democracy of the modern societies. The prevailing thinking held that ‘backward’ countries should follow the example of the advanced countries which was idealized and presented as resulting from free-market policies and the Protestant work ethic. These factors would lead to growth which would automatically take care, sooner or later, of poverty, unemployment, and income inequality, inasmuch as these were of concern to the neoclassicals.

‘Development’ was essentially an economic problem. Economic growth was considered a suitable yardstick for it (indeed almost a synonym). In the end, growth would mean reduced inequality, unemployment and poverty (viz the Kuznets ‘U-curve’). Such progress would be all the easier because the necessary technologies were already available.

(ibid.:5)

With respect to sociological modernization theories, the key point to stress here is that they were impregnated with a profound dualism and ethnocentricity. According to J.Taylor (1979:33),

the functionalist theory of change, together with the Parsonian concepts of structure and functional prerequisites constituted the foundation of what came to be known as the ‘modernisation theory’ of the ‘Sociology of Development’ as it emerged during the post-war period.

Bert Hoselitz (1960) introduced the modern-traditional dichotomy to the analysis of social change and economic development using Talcott Parsons’s (1948:1951) set of pattern-variables.

Whilst one side of the pattern variable choices was held to characterise traditional societies, the other side characterised modern societies. Hoselitz constructed two ideal-types of society, the one combining universalism, functional specificity, achievement-orientation, and collectivity-orientation (the modern type); and the other, combining particularism, diffuseness, ascription and self-orientation (the traditional type). Modernisation (to be achieved through a process of increasing differentiation) then became the problem of ensuring a transition from dominance by the traditional to the modern type of orientation of action.

(J.Taylor, 1979:34)

In other words the general features of developed societies ‘are abstracted as an ideal type and then contrasted with the equally ideal typical features of a poor economy and society. In this mode, development is viewed as the transformation of one type into the other.’ (Nash, 1963:5.)

The modernization paradigm of the sociology of development argued that Third World countries should follow a path similar to that of the advanced capitalist countries. It also viewed the economic, social, and cultural p...