Development Economics

Aptly or Wrongly Named?

Natalia Bracarense, Louis-Philippe Rochon, Natalia Bracarense, Louis-Philippe Rochon

• Publisher: Routledge
• Year: 2022
• Print ISBN: 9781032212111
• eBook ISBN: 9781000546385
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

Since the inception of development economics in the post-World War II period, most of its proponents have prescribed the adoption of western institutions as the path for prosperity – the unequivocal solution for poverty, illiteracy, hunger, inequality, and violence in the world. Seventy years of attempts, or at least the pretense thereof, to reproduce the western model in completely different historical and cultural contexts have proven to be no more than a mirage for most.

Faced with this scenario, why do economists insist on the ideas of development, convergence, and emulation of the lifestyle of western countries? Is it possible to disassociate development from multidimensional instability, dependency, subordination, and exploitation? Is the current social, political, ecological, and economic organized destabilization observed in the western countries a model to follow, a desirable end of history? These questions raised earlier by some fellow economists, have become ever more pressing in the present context of generalized instability. The book questions how ethical and professionally responsible it is for economists to continue to undiscerningly prescribe miraculous one-size-fits-all market-oriented models to solve socio-economic problems everywhere. The contributors of this edited volume invite the readers to consider these questions and further similar inquiries in the future.

The chapters in this book were originally published as a special issue of the journal Review of Political Economy.

Underdevelopment and Dependence: The Fundamental Connections^*

Celso Furtado

May I start with an observation from modern history: the social formations characterized by great disparities in the spread of modern technology, sharp inequalities in labour productivity between urban and rural areas, a rather stable proportion of the population living at a physiological subsistence level, and increasing masses of underemployed people in the urban zones – i.e., the underdeveloped economies – are a particular feature of the way industrial capitalism has been growing and spreading from its inception. The industrial revolution took place inside an expanding commercial economy, in which foreign trade certainly was the most profitable economic activity. It was the combined impact of the sharp reduction in the cost of long distance transportation and of the insertion into commerce of a flow of new consumer goods springing from industry that gave rise to a new and complex system of international division of labour, provoking a profound reallocation of resources in different areas of the world. The study of underdevelopment starts with the identification of particular types of structures created in the areas where the new system of international division of labour allowed increases in the net product through changes in the use of the labour power already available.

My basic hypothesis is the following: underdevelopment was originally characteristic of economies in which an increase in labour productivity was largely the result of reallocation of resources aimed at obtaining static comparative advantages in international trade. Technical progress – partly in the form of more efficient methods of production and partly in the form of the introduction of new consumption goods – and the correlated process of capital accumulation which took place in those countries leading the industrial revolution, opened the way to significant increases in labour productivity in other areas, through geographical specialization. The latter type of increase in productivity can be obtained either without significant changes in the techniques of production (as in the case of tropical agriculture), or with significant changes but in the guise of an ‘enclave’ (as in the case of mineral production). The shift from subsistence agriculture into commercial agriculture does not necessarily presuppose a shift from traditional into modern agriculture. But if caused by foreign trade, such a shift generally entails a significant rise in the productivity of labour. Certainly the additional surplus may be fully appropriated from outside, as in the typical case of the colonial economy, but it may also be partially or mainly appropriated domestically. When this was the case, the surplus remaining in the country was basically used to finance a rapid diversification in the consumption habits of the ruling classes through the import of new products. It was this particular use of the additional surplus that gave rise to the social formations that we now identify as underdeveloped economies.

^* Originally published as: Furtado, C. 1973. ‘Underdevelopment and Dependence: The Fundamental Connections.’ Centre of Latin American Studies Working Papers 17.

Thus, from its inception, industrial capitalism caused certain countries (those leading the process of industrialization) to specialise in activities where technical progress, under the form of more efficient productive methods, penetrated rapidly whilst causing others to specialise in activities where such a form of technical progress was negligible, or to engage in a process of depletion of non-renewable natural resources. The ‘law of comparative advantages’ provided a valid justification for this international specialization but concealed the fact of the extremely uneven diffusion of progress in the techniques of production, as well as the fact that the new surplus created in the periphery was not geared to the process of capital accumulation. The surplus was mainly used to finance the diffusion in the periphery of the new patterns of consumption originating in the centre of the emerging world economic system.

Therefore, the relations between ‘central’ and ‘peripheral’ countries in the framework of the global system created by the international division of labour have been much more complex than appears from conventional economic analysis. A fundamental aspect often overlooked is the fact that the peripheral countries were rapidly transformed into importers of new consumer goods which were the fruit of capital accumulation and technical progress in the central countries. This process of adopting new patterns of consumption was bound to be a very uneven one as the additional surplus remained basically in the hands of a restricted minority, whose relative size depended on the agrarian structure, the relative abundance of land and labour, control of trade by foreigners or natives, the role of the state, and similar factors. Generally speaking, the benefits of the increase in productivity were appropriated by a small minority, a fact which permitted a sharp increase in the income available for the consumption of the privileged groups. Furthermore, the process of reallocation of resources and complementary capital formation (opening of new lands, building of feeder roads, rural construction, etc.,) required few imported inputs. When a completely new infrastructure had to be built, as in the case of the railroads, foreign financing would be the rule. Finally, the importing trade was in the hands of foreign firms seeking to make a profit out of the novelties introduced into the local market. Therefore, the importation of consumer goods for the privileged groups was bound to increase rapidly. The ultimate result of all this was the creation in the periphery of a cultural dualism that would make the elites feel exiled even in their own countries.

The existence of a ruling class tied up with consumption patterns similar to those in countries where the level of capital accumulation was much higher and geared to a culture focusing on technical progress became the basic factor in the evolution of the peripheral countries. If we bear in mind this fact – and I assume that it is grounded on historical evidence – we realize that in the study of underdevelopment the precedence of analysis at the level of production vis-à-vis analysis at the level of circulation frequently alluded to in the Marxian literature, does not hold. To grasp the origins of underdevelopment and to comprehend the process of reproduction of its structure, it is necessary to focus simultaneously on the process of production (reallocation of resources producing an additiona1 surplus and the appropriation of such a surplus) and on the process of circulation (adoption of new patterns of consumption copied from countries at higher levels of capital accumulation, which in its turn generates cultural dependence). There is no doubt that the key to understanding the appropriation of the additional surplus obtained through foreign trade is the study of the institutional matrix determining the internal social relations of production. However, the utilization of such a surplus, which is the key to understanding the reproduction of the social formation, will be strongly influenced by the process of cultural domination operating at the level of the external relations of circulation.

Let us call modernization this process of adoption of more sophisticated patterns of consumption (private and public) which occurs without the corresponding process of capital accumulation and technical progress in productive methods. The larger the scope of modernization (and this includes military as well civilian forms of consumption) the stronger tends to be the pressure to increase the surplus, either expanding exports or increasing the rate of exploitation, that is the proportion of the surplus in the net product. In other words: due to the fact that pressure towards the adoption of new patterns of consumption is kept very high (it stems from technical progress, the accumulation of capital, and the consequent diversification of consumption, going on in the central countries) the internal social relations of production are shaped in such a way that the surplus is maximized. When the country reaches the point of diminishing returns in the traditional agricultural exporting sector and/or faces a decline in the terms of trade, tensions in the balance of payments are bound to show up on an increasing scale.

The significance of the modernization process in the shaping of an underdeveloped economy will be fully apparent in a more advanced phase, that is, when the country gets into the process of industrialization; namely, when it starts building up a new apparatus of production catering to the internal market. In effect, the techniques embodied in the equipment imported will not be related to the level of capital accumulated but to the demand profile (the degree of diversification of consumption) of the modernized sector of the society. It is this particular orientation of technical progress and its lack of connection with the degree of capital previously accumulated that gives a specific character to underdevelopment in the phase of industrialization. By requiring the adoption of capital-intensive methods of production, it strongly contributes to keeping real wages at subsistence levels. This allows the rate of exploitation to augment with increases in productivity. Because dependence shapes the behaviour of social groups appropriating the surplus in such a way that the social inequalities tend to increase as a consequence of capital accumulation, one can speak of it as the prime mover in the process of reproducing the social formations characteristic of underdevelopment. Approaching the problem from another angle: in the underdeveloped economies, the major factor governing income distribution, and therefore relative prices and the real wage rate in the industrial sector, seems to be the pressure generated by modernization to keep up with the rich countries’ moving patterns of consumption. From this pressure stems both the need for a rapid diversification of consumption and the orientation of the technology adopted. It is this, and not the elastic supply of labour, that determines the differential between the industrial wage rate and the wage rate in the subsistence sector and keeps such a differential stable. In fact, in spite of the abundance of labour, certain sectors of the industrial working class have succeeded in organizing, and in substantially increasing this differential. Thus, it is more exact to say that, given the level of organization of the working class, the pressure towards modernization determines the relative size of the surplus appropriated by the ruling classes.

The industrialization of a peripheral country tends to take the form of local manufacturing of those consumer goods which were previously imported, as is well known by all students of the so-called process of import substitution. Now, the mix of the basket of consumer goods determines, within relatively narrow margins, the productive methods to be adopted, and ultimately the relative intensity of capital and labour used in the system of production. Thus, if the production of wage goods increases, abundant resources (land and unskilled labour) are bound to be used more, and scarce resources (capital, skilled labour, foreign exchange) used less than if the production of the sophisticated goods imported to the modernized minority expands. To enhance the consumption of rich people – and this holds also for the developed countries – means in general to introduce new products in the basket of consumer goods, which implies paying for more research and development; whereas the increase in the consumption of the poor is mainly a problem of spreading the use of already known products whose production most probably is in a phase of increasing returns. There is a close correlation between the degree of diversification of the basket of consumer goods on the one hand, and the level of capital accumulated per employed person and the complexity of the techniques of production on the other. The higher the average per capita income of a country, the more diversified the basket of consumer goods of its average inhabitant, and the higher the amount of capital accumulated per employed person in that country. I submit, even if I am not in a position to demonstrate it now, that the same applies to the sectors of a society with different levels of income.

The process of transplanting consumption patterns, generated by the system of international division of labour imposed by the countries leading the process of industrialization, gave rise to economic systems where technical progress was first assimilated at the level of the demand for consumption goods, that is through the absorption of a flow of new products which are imported before being locally produced. Therefore, dependence may exist in the absence of direct foreign investment and is conceivable even in the relations of a socialist country with capitalist countries commanding the flow of new products and the techniques required to produce them, providing that the socialist country has been transformed into a cultural satellite.

I would go further and submit that a similar type of cultural colonization has played an important role in changing the nature of class relations in the more advanced capitalist countries. The idea, stated by Marx, that an increasingly acute process of class struggle, within the framework of the capitalist economy, would be a decisive factor in the making of a new society, can only make sense if we admit that the relevant social classes are able to generate independent visions of the world and are culturally autonomous in a significant way. In fact, in the 18th Brumaire of Louis Bonaparte, Marx identified the small holders of French agriculture as an independent social class playing a decisive role precisely because they had their own culture. In the more advanced capitalist countries class cultural autonomy has been progressively destroyed and replaced by the hegemony of a culture geared to the forms of consumption of the upper income group. Once trapped in this situation, the working class tends to lose its cultural creativity and ideological autonomy. In other words, as soon as the ultimate objective of the worker is the attainment on the standard of living of the bourgeoisie, he behaves as a satellite of the dominant culture of the capitalist society.

In the case of the peripheral countries the process of cultural colonization stems from an alliance of the local ruling classes, interested in maintaining a high rate of exploitation, with the external groups controlling the international economy, mainly interested in enlarging the markets for the new products of the central countries. Once this connection had been established, the doors were open to the introduction of all the forms of ‘unequal exchange’ which historically typify the relationship between underdeveloped and developed countries. But to isolate them from the global process of cultural colonization is to miss the essentials of the problem.

In the empty spaces of the temperate zone, agricultural production for the world market developed in competition with similar production in the central countries engaged in rapid industrialization, using similar techniques. Abundance and quality of natural resources allowed for the creation of a sizable surplus per person employed, even if the wage rate had to be high to attract immigrants from areas of similar climate, mainly Europe. The way such a surplus was domestically appropriated, and the relative number of the privileged minority depended on the historical conditions prevailing in each particular area. Nevertheless, insofar as it came to be used to finance the adoption of the new patterns of consumption produced by industrialization abroad, a process of modernization took place. Dependence in this case does exist in the absence of the social formation that we have called underdevelopment. It is rooted in a persistent disparity between the level of consumption (including eventually part of the working-class consumption) and the level of capital incorporated into the productive apparatus. In this particular type of dependent economy, when industrialization gets into full swing, penetration of the multinational corporations is bound to be very rapid because of the sophistication of the technology generally required. The cast of Argentina has demonstrated that if, because of particular historical conditions, a belated process of industrialization is oriented towards import substitution, the economy will know periods of acute tension in the balance of payments alternating with others of protracted growth. The causes of such a situation are many and complex: domestic demand tends to compete for the traditional exporting agricultural surplus; the relative amount of imported input in global production tends to augment; the surplus appropriated from outside (by the multinational corporations) tends also to increase in relative terms; finally, the possibility of exporting cheap labour does not exist. As population increases, from such a situation may in the long run emerge a social formation akin to those prevailing in the typical underdeveloped countries. It seems quite evident that dependence is a phenomenon of a higher order than underdevelopment: if the transition from underdevelopment to development is hard to be conceived – out of historical accident – the inverse process seems a rather probable path in the particular above-mentioned case of aggravation of dependence.

At its inception, dependence took the form of a split in the demand for consumer goods. It was the process of industrialization, aimed at the substitution of imports that reproduced the split in the structure of the productive apparatus, characterized by the coexistence of capital-intensive industries, catering to the modernized minority, with traditional activities (rural and urban) catering to the mass of the population and to foreign markets. For the economist looking at an underdeveloped economy as a closed system, this phenomenon appears as a ‘disequilibrium at the factors’ level’ provoked by fixed coefficients in the production function, that is by the ‘inadequacy’ of the technology being absorbed. He does not realize that the real phenomenon results from a global process that permeates all the relevant economic and social decisions in the peripheral country. If the patterns of consumption of the modernized minority have to keep up with those prevailing and rapidly evolving in the central countries, no policy aimed at ‘adapting’ the technology can alter the situation.

Putting things in a nutshell: to miniaturize in a peripheral country the industrial system of a contemporary developed economy (and this is what the process of import substitution in conditions of dependence tends to do), in other words, the industrial system of a country where the accumulation of capital has reached a much higher level is to create an apparatus of production with two sectors, each one geared to a very different level of technology. This problem was not present in the pre-industrialization phase because the diversification in the consumption of the modernized minority was covered by the additional surplus created by static comparative advantage in foreign trade. Therefore, in the phase of industrialization the so-called ‘disequilibrium at the factors’ level’ is inherent to the condition of dependence and cannot be overcome if dependence is going to remain. Furthermore, taking into account that dependence is permanently reinforced through the introduction of new products whose production requires the use of more sophisticated techniques and higher levels of capital accumulation, it becomes evident that industrialization will only proceed if the rate of exploitation increases, that is, if income distribution keeps concentrating. In such conditions, growth tends to rely heavily on the ability of the ruling classes to force the majority of the population to accept increasing social inequality.

Rapid industrial growth, in the conditions of dependence, implies an intense absorption of technical progress in the form of new products and the new processes required to produce them. In the advanced phase of industrialization, technical progress is no more a matter of importing a certain type of equipment, but more a question of having access to the flow of innovations pouring from the central countries. Such conditions make it easy for the branches of multinational corporations to supersede the local firms, particularly in the industries geared to the social sectors whose demand is diversifying more rapidly.

More precisely: such a diversified demand would never be satisfied out of local production if the flow of technical innovations had to be paid at market prices. Access to a certain flow of technical innovations constitutes a necessary condition for growth based on the imitation of the patterns of consumption created in the central countries, and the new techniques are controlled by firms that find it more advantageous to expand throughout the world than to sell their present and future ‘know how’. Working on the basis o...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Citation Information
• Notes on Contributors
• The Aptly or Wrongly Named Development Economics: An Introduction to New Perspectives and Models
• 1 Underdevelopment and Dependence: The Fundamental Connections
• 2 The Myth of Economic Development and the Future of the Third World
• 3 Celso Furtado and the Myth of Economic Development: Rethinking Development from Exile
• 4 Growth, Distribution, and External Constraints: A Post-Kaleckian Model Applied to Brazil
• 5 The Limitations of International Relations Regarding MNCs and the Digital Economy: Evidence from Brazil
• 6 Keynes on State and Economic Development
• 7 Capital Flows to Latin America (2003–17): A Critical Survey from Prebisch’s Business Cycle Theory
• 8 Institutions and Development From a Historical Perspective: the Case of the Brazilian Development Bank
• 9 Institutional Change in Nepal: Liberalization, Maoist Movement, Rise of Political Consciousness and Constitutional Change
• Index