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ECLA AND THE FORMATION OF LATIN AMERICAN ECONOMIC DOCTRINE

ECLA AND THE FORMATION OF LATIN AMERICAN ECONOMIC DOCTRINE

E. V. K. FitzGerald

A Summary

 

 

In a Nutshell

There were important external events that led to the formation of economic policy in LA centred on ISI: 

·         the manufacturing drive that occurred during WWII due to lack of movement of capital goods; 

·         the lack of support from Washington regarding tariffs on imports from the US and exports to the US

·         Change in world view on integration

However, FitzGerald argues that cepalino theory is best understood as part of a wider postwar debate on world order, and not as a delayed reaction to the Great Depression

 

Postwar Reinsertion of Latin America in the World Economy

·         There was a worldwide discussion about the organization of the world economy. An influential book published by Staley in 1944 called for the industrialization of the South to ensure its integration with the world economy. The US was initially behind this position; indeed part of the remit of the Bretton Woods institutions was to stabilize world commodity process, promote manufactures trade and to plan investment.

·         In LA during the war little new investment had been made due to the impossibility of capital imports. However, industrial employment had risen nonetheless and this incorporated new urban workers into the political dialogue thus creating new calls for industrialization and the provision of social infrastructure.

·         Yet in 1945 at the inter-American conference in Mexico the US refused to grant aid to LA, or to give preferential tariff treatment. They now seemed to regard the economic problems of the region not as a consequence of trade matters, but of internal issues.

 

Contemporary Theories of Trade and Development

·         Growth in the 40s driven by primaries exports, and this was dependent on imported capital goods. It was thus thought that the terms of trade were determined exogenously, and there was a perceived imbalance between what terms commodities attracted as against manufactures. This is the concept of unequal exchange.

·         This concept was used to justify planned industrialization in Central Europe in the 20s. They regarded a difference between the nations at the “centre” and those on the “periphery” of the world economy (W. Sombart). Thus they wanted state led industrialization and economic autarky to overcome technological disadvantage. It is clear that these writing were read by economists in LA and particularly by Prebisch.

·         ELCA was created in 1948 as part of the UN.

 

 

ECLA Thinking

·         The 1948 survey described a structuralist interpretation of the main LA economies since 1937. There was a focus on the negative effect on growth seen from changing world trade conditions.

·         The 1949 survey was somewhat more radical and it was the first one over which Raul Prebisch had full control. The view taken was not just descriptive of the economic woes of the periphery, but also a criticism of the behavior of the core in setting higher prices, wages, and profits for itself on the one hand, and retarding the spread of technology and industry on the other. Domestic markets were not thought to be the optimal solution for LA but it was the best one given the limited import openness of the centre.

 

There were 4 key points:

1.       Terms of trade reflected a combination of collusive behavior between labour and business at the core which can “make” prices because of market control.

2.       Technology diffusion is retarded by institutional constraints. Increased productivity at the periphery is only reflected in more profit for the centre as prices fall.

3.       Import Substitution is second best alternative to fair prices and access

4.       National planning is legitimized by the need to use domestic profits for industrial investment rather than luxury consumption.

·         The crucial step in the critique is that the Centre was operating under monopolistic markets while competitive markets were seen in the periphery. Thus the argument was not counter Ricardo, but saying that Ricardian advantage did not exist due to protectionism at the Centre.

·         The surveys in the 50s followed similar lines, but with less emphasis on the “exploitation” of the periphery by the Centre.

 

The Doctrine in Retrospect

·         Some argue that the theories put forward by ECLA were based on the interwar experiences of depression and de-linking from the world economy.

·         Furtado argues it was a nationalist expression.

·         Cardoso and Pinto claim it was a technical critique of neo-classical theory.

·         It should rather be seen as the product of a larger discussion about how to order the world economy.

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