PAL VIEW m UNITED NATIONS D ECEM BER 1982 CEPAL Review Director RAUL PREBISCH Technical Editor ADOLFO GURRIERI Deputy Secretary GREGORIO UNITED WEINBERG NATIONS ECONOMIC COMMISSION FOR LATIN AMERICA SANTIAGO D E C H ILE/D EC EM BER1982 ECONOMIC COMMISSION FOR LATIN AMERICA Executive Secretary Enrique V. Iglesias Deputy Executive Secretary fo r Co-operation and Support Services Robert T. Brown Deputy Executive Secretary fo r Economic and Social Development Norberto González P U B L I C A T I O N S ADVISORY BOARD Oscar Altimir Eligió Alves Nessim Arditi Oscar J. Bardeci Daniel Blanchard Alfredo Eric Calcagno Ricardo Cibotti Silboume St. A. Clarke Axel Dourojeanni Jorge Graciarena Luis López Cordovez Roberto Matthews George Mouchabek René Ortuño Marco Pollner Alejandro Power Gert Rosenthal Alejandro Vera PUBLICATIONS COMMITTEE Héctor Assael Andrés Bianchi Robert Brown Norberto González Jorge Graciarena Adolfo Gurrieri E x-officio m em bers: Francisco Acebes Oscar J. Bardeci (CELADE) Marta Boeninger Claudionor Evangelista (CLADES) Jorge Israel (ILPES) George Mouchabek Aurelio Ruiz S ecretary o f the Publications A dvisory B oard and the Publications C om m ittee Renée Chassagne UNITED NATIONS PUBUCATION Sales No. E .8 2 .IL G .4 Price: USI 3.00 NOTE Symbols of United Nations documents are composed of capital letters combined with figures. Mention of such a symbol indicates a reference to a United Nations document. The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. CEPAL Review Number 18 Santiago, Chile Decem ber 1982 CONTENTS A historic turning point for the Latin American periphery R aúl Prebisch. Adjustment, redeployment or transformation? Background and options in the current situation. P edro Sdinz. 25 Growing labour absorption with persistent underemployment. N orberto E. G arcia. 45 The limits of the possible in regional planning. C arlos A. de Mattos. 65 Poverty description and analysis of policies for overcoming it. Sergio M olina S. 87 T he participation of youth in the development process of Latin America. H enry Kirsch. 111 Energy demand in Chilean manufacturing. Larry W ilmore. 131 On the history and political economy of small farmer policies. D avid Dunham. 139 Some CEPAL publications. 171 The secretariat of the Economic Commission for Latin America prepares the CEPAL R eview , but the views expressed in the signed articles, including the contributions of secretariat staff members, are the personal opinions of the authors and do not necessarily reflect the views of the Organization. E/CEPAL/G./221 D ecem ber 1982 Notes and explanation of symbols The following symbols are used in tables in the Review: Three dots (...) indicate that data are not available or are not separately reported. A dash (—) indicates that the amount is nil or negligible. A blank space in a table means that the item in question is not applicable. A minus sign (-) indicates a deficit or decrease, unless otherwise specified. A point (.) is used to indicate decimals. A slash (/) indicates a crop year or fiscal year, e.g., 1970/1971. Use of a hyphen (-) between years, e.g., 1971*1973, indicates reference to the complete number of calendar years involved, including the beginning and end years. References to “tons" mean metric tons, and to “dollars", United States dollars, unless otherwise stated. Unless otherwise stated, references to annual rates of growth or variation signify compound annual rates. Individual figures and percentages in tables may not necessarily add up to the corresponding totals, because o f rounding. C EPA L REVIEW D ecem ber 1982 A historical turning point for the Latin American P e rip h e ry Raúl Prebisch* In the face o f the critical economic situation through which most o f the countries of Latin America are passing, the author presents his interpretation of this and outlines the measures which should be taken to deal with it. Right from the start he recognizes the existence of serious conjunctural problems —such as the re­ duction in the economic growth rate, the high rate of unemployment, the deterioration of the terms of trade, the high level of external indebtedness, etc.— which call for the application of a rapid and effective short-term policy, whose principal measures he out­ lines. He emphasizes, however, that behind these conjunctural problems are profound and serious structural imbalances, so that the conjunctural policy must not be viewed as something isolated, but as the starting point of a structural development policy. The present crisis has brought to the fore onceagain both the external imbalance and its tendency to choke development, and the internal imbalance, the exclusive and conflictive consequences of which are reflected above all in the inability to absorb the entire labour force in a productive manner, and in social inflation. T o deal with the external imbalance, he sug­ gests basically that industrialization should be pro­ moted within a regional framework in order to sur­ mount the limits of national markets and the serious restrictions resulting from the present relationship with the centres. In order to overcome the internal imbalance, he emphasizes that the problems of ac­ cumulation, redistribution and inflation inevitably call for the macroeconomic regulation of the surplus: the cost o f the crisis and of the reactivation must be spread out in an equitable manner, and the labour force must share in the surplus and in the responsi­ bility for accumulation. ^ D ire c to r , CEPAL Review. I The swinging pendulum of development policy The crisis of capitalism in the centres is spread­ ing to cover the whole world, and its adverse effects are clearly visible on the periphery, where it is aggravating the disturbances which had already been occurring in that area's own development. We are now at a crucial and historic turning point, as at the time of the Great Depression. At that time, by the force of circumstances, we had to follow our own road to development, but we departed from that great undertaking during the long boom years of the centres, which came to an end in the first half of the 1970s. We Latin Americans should wake up to the fa cts. The centres are simply not interested in our achieving a socially satisfactory form o f developm ent. Our development only concerns them inasmuch as it affects their own develop­ ment. It goes without saying, however, that the centres have great significance for us because of our technological and capital exchanges with them. The great problem lies in taking advan­ tage of all this in a rational and independent manner. This limited interest on the part of file centres is a consequences of their centripetal dynamics rather than of any ill intent. At all events, it is essential for us to continue the by no means easy quest for our own road to devel­ opment. When we set out along this road before, we had both success and failures. We did not fully recognize the structural obstacles, and much less the need for great changes, and in order to correct these errors we frequently committed others in the opposite direction. In reality, we were moving like a pendulum. In this transition from one swing of the pendulum to another there has been a great deal of ideological influence. The slow and precarious process o f freein g ourselves from theories alien to our own reality which we began in the Great Depression gave way in m ore recent times to opposite concepts whose results are already beginning to be all too C E P A L R E V IE W No. 18 /D ecem ber 1982 clear. L et us look at the most important of these: —Although development has been vigor­ ous, it has not been equitable. There have been great disparities in the structural distribution of income, and the economic efficiency of the market has not been accompanied by social efficiency. In the course of our development, attempts have been made to correct these dis­ parities in the labour force's share in the fruits o f development through labour's exertion of its trade union and political power and through State spending. Because of the nature of the system, private and social consumption have indeed been increased in this way, but not at the expense of the privileged consumption which the upper strata enjoy because of their power. Instead, this has taken place to the det­ riment of the rate of accumulation of the repro­ ductive capital which serves to multiply em­ ployment and productivity. This im balance be­ tw een the rate o f consumption and the rate o f accum ulation inevitably leads to social in­ flation . Neither the market forces —which are of great significance in the efficiency of the sys­ tem— nor the distributive struggle arising from the power play have imparted social efficiency to the system, nor indeed could they ever do so. They have not shown themselves to be suitable m echanism s o f distributive equity. In order to achieve the latter it is essential that the State shou ld exercise its regulatory action in a man­ n er com patible with individual enterprise, com petition and the procès^ o f democratiz­ ation. A clear and vigorous policy of redistribu­ tion and dynamic promotion is called for, but we have lost our way as regards the means, although not as regards the ends pursued. We cannot and did not close our eyes to such errors. In our desire to correct them, how­ ever, we have fallen into opposite errors: ham­ stringing the trade union and political power of the labour force and dismantling the machinery of the State. And by seeking to attack social inflation through monetary approaches we have simply caused economic contraction and unemployment. — The State bears a fundam ental respon­ sibility in developm ent which it has not been able to fulfil properly, possibly because of its own tendency towards excessive growth, due above all to its attempt to correct the social inadequacy of development. Inflation and ex­ ternal vulnerability have also caused it to inter­ vene where it should not have done so, with negative results. — For a considerable time past there has been growing recognition of the need for en­ lightened regulation of the banking system, as the essential instrument of monetary policy. Inflation has adversely affected and compli­ cated this regulatory action, and the pendulum has swung to the other extreme, so that the importance of this action has been rejected in favour o f total banking liberty, that is to say, freedom to create money without observing the m ost elementary rules o f discipline, and to the serious prejudice o f financial solvency. — This exaggerated liberty also extended to external operations, and here too there was a swing of the pendulum. We rightly complained in the past about the IM F, which we acused of applying a set of technocratic rules in whose formulation the periphery had not been given any opportunity to participate, and the same complaints were levelled against the criteria of the World Bank: two organizations of States whose duty is to make loans mainly to States. On the pretext of the fi*ee play of the laws of the market in the international field, however, big private institutions rapidly developed their Eurocurrency operations, thus largely dis­ placing these two organizations. Private enter­ prise, it was repeatedly argued, knew best how to make wise use of international financial re­ sources, and the incentive o f massive gains prevailed over prudence and good sense, in a process o f mutual harmonization o f immediate interest in both the centre and the periphery. The consequences of this swing of the pendu­ lum are clearly to be seen. — The Great Depression and its pro­ longed afterm ath brought hom e to us the un­ av oidable need to industrialize. In a world economy shrunken and fragmented by the de­ pression it was essential to embark on import substitution, and this somewhat unbalanced solution came to be a veritable dogma of devel­ opment, so that we neglected our exports and sometimes even hindered them. We continued A H IS T O R IC T U R N IN G P O IN T F O R T H E LATIN AM ERICAN P E R IP H E R Y ¡Raúl Prebisch in this way until, with the recovery and re­ opening of the world economy, opportunities arose for the export of manufactures, particular­ ly in the long years of prosperity of the centres. We finally learned to do so with such success that the pendulum rapidly swung to the other extreme and we looked down on substitution policies: now, development must be promoted on the basis of the powerful motive force of free trade. However^ toe w ere not able to achieve a balan ced com bination o f import substiti^ion w ith the export o f manufactures. If we had done so we would now be able to face up better to the external vulnerability of our peripheral economies. Are we going to continue indefinitely with this to-and-fro movement? What is involved is not, o f course, the search for a golden mean, but the need to make fundamental changes aimed at correcting the great structural imbalances of our development: the imbalance with the centres, with the tendency towards an external bottleneck choking development, and the in­ ternal imbalance which is responsible both for the exclusive tendency of the system, with its inability to provide productive employment for the great masses relegated to the bottom of the social structure, and for the conflictive tenden­ cy in the distribution of the fhiits of develop­ ment which gives rise to the grave problem of social inflation. The consequences of these imbalances are combined with cyclical or conjunctural move­ ments which generally arise from them, as the cycle is the characteristic form of evolution of the capitalist economy. This gives rise to intri­ cate phenomena which are both structural and conjuctural at the same time, as we are witnes­ sing now, when the serious decline in the growth rate of the centres is having troubling repercussions on the periphery which aggra­ vate the effects of our own actions. The following chapter will be devoted to this latter point, after which we shall deal with structural imbalances. The ultimate aim of all this is to reflect on the right road to follow in the development of the periphery. II Conjuctural policy A distinction should be drawn right away be­ tween conjunctural and structural phenomena: this is a useful practical distinction, provided that we do not lose sight of the fact that conjunc­ tural phenomena are almost always the result of structural imbalances. Thus, the adverse con­ juctural effects of monetary policy stem ulti­ mately from the structural faults in the system or, to be more exact, from the structural imbal­ ances which occur in the course of develop­ ment and the changes which take place in the power structure. The correction of these structural imbal­ ances is not something which can have imme­ diate effects, but takes a certain amount of time. Indeed, there is by no means general agree­ ment on the interpretation of these imbalances, especially as regards the imbalance between the rate of consumption and the rate of accumu­ lation on the periphery. These phenomena could hardly be tackled, then, without first of all trying to clarify and explain them.^ However, the presence of structural phe­ nomena does not justify the relegation to a lower level of priority of the need for a conjunc­ tural policy. At the same time, the most impor­ tant measures involved in such conjunctural policy should not run counter to those which would have to be followed in a policy of struc- iP r o m t h e v e r y f ir s t d ay s o f C E P A L it w as s tr e s s e d th a t t h e te n d e n c y to stru c tu ra l im b a la n c e in th e re la tio n s w ith t h e c e n t r e s c o u ld n o t b e c o r r e c te d th ro u g h th e s im p le p la y o f t h e la w s o f th e m a rk e t, a n d it w a s a lso n o te d th a t th e r e w e r e s tr u c tu r a l e l e m e n ts in in fla tio n w h ic h , it w a s m a in ­ ta i n e d , c o u ld n o t b e c o m b a te d w ith m o n e ta ry m e a s u re s . W e w e r e a l i t t l e lo n g e r , h o w e v e r , in r e a liz in g th a t th e in n e r l o g i c o f t h e s y s te m in e v ita b ly te n d s to w ard s c r is is , th ro u g h i t s o w n d y n a m ic s . 10 tural changes, which, by their very nature, would have to be of a long-term nature. In the final analysis, the long term has its starting point in the present We now propose to engage in a brief dis­ cussion of the main elements of a conjunctural policy, its possibilities and its limitations. T hese are short-term possibilities, of course. Beyond them lie the limitations of a structural nature, the gradual reduction of which calls for a longer space of time. This latter element cor­ responds to structural development policy. O f course the centres also have serious conjunctural problems arising from their own structural crises, the solution of which would reduce the seriousness of their repercussions on the periphery. L et us now analyse the incidence of this crisis and its conjunctural consequences on the Latin American periphery. This crisis is mani­ fested in very different aspects: — There has been a sharp reduction in the extraordinary growth rate which the centres had previously achieved. The adverse effect of this on the growth rate of the exports of the periphery, together with the resurgence of protectionism, are aggravated by the deteriora­ tion in the terms of trade, accentuated by the rise in oil prices. — These phenomena which are so ad­ verse to the periphery have brought with them a considerable decline in the latter’s rate of development, with a consequent drop in em­ ployment and income, all of which has brought about a conjunctural aggravation of the exclu­ sive and conflictive tendencies of the system. — The objective of correcting the fiscal deficit through extraordinary rises in interest rates has not only aggravated the effect of the structural crisis of the centres on the employ­ ment situation but has also helped to bring about a sharp rise in the already excessive bur­ den of Eurocurrency credits on the countries of the periphery. The IM F and the World Bank did not chan­ nel to the latter the floating assets from the Eurocurrency market, coming largely from the oil surpluses, in order to organize a sound and effective flow of resources to the periphery. It was the international private banking system which carried out this task, for which it was not C E P A L R E V IE W No. 18 /D ecem ber 1982 prepared, while the advanced countries man­ aged to attract huge investments of the oil sur­ pluses. Moreover, there has only been very scanty realization of the hopes that the oil-ex­ porting countries would invest a growing pro­ portion of their surplus resources in the devel­ opment of the Third World. — The decline in these surpluses, the high rates of interest, and the adverse consequences of the crisis in the centres are now revealing the serious effects of this imprudent indebtedness on the part of the periphery, only part of which has gone into reproductive investments. Although the incidence of these events has been very unequal in the different countries of Latin America, all of them are suffering as re­ gards the growth rate of their exports and the internal consequences, and all of them—albeit in different ways and to different extents— have to defend themselves with conjunctural measures. A distinction must be drawn, how­ ever, between the oil-exporting countries and the other countries of Latin America. L et us consider the first of these. The abundant oil resources generated veritable euphoria, both at the State level and in private activity. They gave rise to very easy availability of credit, the expansive effects of which were accentuated by the flow of Eurodollar re­ sources, and there was a very sharp upswing in economic activity and employment, above all in construction and various services not con­ nected with the exterior, but at the same time the overvaluation of the currency adversely affected exports and import substitution ac­ tivities. In the case of the other countries, whose exports suffered the consequences of the crisis inasmuch as imports and interest rates went up, the increased inflow of external resources stimulated by the rise in domestic interest rates did not serve so much to improve domestic activities as merely to lessen somewhat these adverse effects. With the same objective of combating the latter, credit restriction mea­ sures were also sometimes imposed (to which we shall refer in the following chapter), the effect of which was to accentuate the economic contraction and unemployment, especially when it was sought to combat the domestic A H IS T O R IC TU R N IN G P O IN T F O R T H E LA TIN AM ERICAN P E R IP H E R Y IRaHl Prebisch consequences of inflation through overvalua­ tion o f the currency. A conjunctural policy is therefore essential in order to face up to these problems, in view of the big differences between the countries and the degree of restriction inherent in their struc­ tural imbalances. T he starting point for all this must be the reactivation of the economy, which has two main aspects, namely, its domestic inflationary effects and its consequences on the balance of payments. Above all; it is necessary to encourage enterprises to expand their production. This requires an increase in demand in order to give an initial impulse to the production mecha­ nism, either by raising wages, when these have suffered serious deterioration, or through other promotional measures, in addition to the effects of increased exports and the adjustment of imports. Very little can be achieved without sharply reducing the present exorbitant interest rates at least down to the international level. The risk that such a reduction and the easing of credit may stimulate the flight of capital to the exte­ rior is of course a matter of great concern. We are thus fa c e d with a very difficult option as regards conjunctural policy, particularly in the period o f transition: either the outflow o f fu n d s to the exterior must be temporarily con­ trolled, w hich is a very difficult and frustra­ ting m atter, especially when there is no bank­ ing discipline, or else the contraction o f the econom y and the rise in unemployment will continue with increasingly serious economic an d social effects. There is also the problem of the unpaid debts to the banking system due both to these high interest rates and to the serious state of the economy. This is not merely a question of iso­ lated enterprises, which could go into liquida­ tion without causing serious disturbances, but affects a considerable number of firms, A gen­ eral wave of liquidation which would also shake the stability of banks and depositors is out of the question. It will readily be under­ stood that if this problem is not solved, the reactivation policy will have very little effect. It is largely a question of stretching repayment terms and lowering interest rates: a problem U which is inherently very difficult not only be­ cause of the almost inevitable bankruptcies but also because of the need to spread out their effects in an equitable manner. What inflationary effects could the expan­ sion of credit bring with it? No matter how much idle capacity there may be in the econ­ omy, it would be impossible to avoid some rises in prices as employment recovers. Indeed, it is even desirable that this should take place up to a level which enables the economic surplus to be restored, and with it the potential for the accumulation of reproductive capital which will make it possible to set about the solution of certain structural problems. I f this rise in prices is followed —above all if it has been necessary to devalue the currency— by a corrective ad­ justm ent of wages, however, the resulting infla­ tionary spiral would seriously compromise the success of the reactivation policy. This is a matter whose importance should not be overlooked. Here we encounter the question of the economic surplus once again. We already explained in another study why the continuous growth of this surplus is of great importance for the growth of the economy. A clear distinction must be drawn, however, be­ tween this dynamic significance of the surplus and its appropriation. This raises some very serious queries. Is the surplus going to be in­ creased in order to restore and increase the privilege consumption of the upper strata as well as their capital accumulation? Will the accumulation continue to take place for their benefit? And would it be socially and political­ ly acceptable to keep down the wages of the labour force in spite of the rise in prices so that the surplus can grow on such terms? Getting to the bottom of the problem of the social use of the surplus is a very intricate and difficult matter which cannot be lightly impro­ vised in the face of the urgent need for a reacti­ vation policy. The immediate containment o f w ages in order to reduce or avoid the inflation­ ary spiral would have to be compensated, how­ ever, with som e form o f participation o f the labou r fo r c e in the growth o f the surplus, not only in order to increase its inadequate con­ sum ption but also in order to enable it to share in accumulation. All this must take place at the 12 expense of the consumption of the privileged strata. In this way, it would become possible to reduce the inflationary effect of increased wages on costs and prices. O f course the reduc­ tion of interest rates would also have this effect by compensating to some extent for the reper­ cussions of wage increases, as would the reduc­ tion in costs made possible by better utilization of production capacity. There is usually a great deal of talk in this respect about income policy. The results of this would be very precarious, however, if the la­ bour force were not made to participate in one way or another in the growth of the surplus. T he same could be said of price controls, to which temporary recourse could be had in acute cases, although this could run counter to the need to restore the surplus. Concern about combating inflation now brings me to the question of the fiscal deficit. T he application of drastic measures would en­ able this to be reduced or eliminated, although they might at the same time cause or aggravate unemployment. On the other hand, it would be a very serious matter to add the expansion of credit for the purposes of reactivation to such a deficit. In undertaking such expansion, it would therefore be necessary to increase taxes and reduce expenditure in proportion as the econ­ omy is reactivated. From the external point of view, the expan­ sion of credit would bring with it an increase in imports, thus accentuating or provoking an external imbalance* Of course, where over­ valuation of the currency had been corrected, the immediate effects of this would be favour­ able, but if the circumstances call for a very sharp reduction in imports, as might happen in certain cases, especially when the burden of oil imports is very heavy, perhaps this would not be sufficient, even if prudent use were made of the monetary reserves or external credits. It would therefore be necessary to apply severely selective measures through emergency taxes, rather than resorting to rationing, with its dis­ turbing effects. All this should be accompanied by measures aimed at giving a strong stimulus C E P A L R E V IE W No. 18 /D ecem ber 1982 to exports. I do not believe that currency deva­ luation should be resorted to for this purpose. In this respect, it is necessary to distin­ guish between two types of devaluation. There is one kind which must inevitably be applied —and the sooiler the better— in order to bring the exchange rate in line with domestic infla­ tion. The other type of devaluation is that re­ sorted to as a means of securing external equi­ librium, and this type is not advisable, for rea­ sons which I shall set forth elsewhere. We have spoken of the domestic and ex­ ternal possibilities and limitations of aconjunctural policy. We have noted that it is indispens­ able in order to increase employment and re­ store the surplus, the latter being the starting point for the vital growth of reproductive ac­ cumulation, which will subsequently open the way to a structural policy. We must not, how­ ever, fall into tempting illusions. Conjunctural measures are an urgent requirement. But they cannot serve as a substitute for a longer-term policy aimed at gradually correcting the ten­ dency towards structural imbalances. We noted elsewhere that the conjunctural policy is a matter which depends on our own decisions. Nevertheless, the co-operation of the centres would be of great importance in this respect. It is true that —^jaded as they are by their own problems— they could hardly be ex­ pected to take a very different view from the very narrow one which they have displayed so far. There are urgent measures which they should take, however, especially as regards the external debt of the countries of the periphery. In spite of the seriousness of the problem, the broad solutions of elementary precaution which are called for if we are to avoid a ruinous financial collapse have not yet been achieved at the international level. This must form the starting point for mea­ sures designed to support the domestic reacti­ vation of the periphery. The policy of limiting imports will be very difficult in some cases, and until such time as it begins to show its effects the IM F could play a valuable and timely role by helping to reconcile the growth of employ­ ment with external equilibrium. A H IS T O R IC T U R N IN G P O IN T F O R T H E LATIN AM ERICAN P E R IP H E R Y ¡Raúl Frebisch 13 III The structural tendency towards domestic imbalance As we have already noted, the exclusive and conflictive tendency of development derives from structural factors whose manifestations are aggravated by conjunctural problems. No matter how much we try to attack these prob­ lems with measures such as those just men­ tioned, the effects of these measures will be limited by imbalances of a structural nature which call for thorough-going changes. Let us now consider the tendency towards domestic imbalance, by raising some important queries in order to guide our discussions. Why is it that the great disparities in the structural distribution of income cannot be cor­ rected beyond certain limits? Why does social or distributive inflation occur when these li­ mits are passed? Why does monetary policy becom e ineffective and counterproductive? Inequality is and essential element in the dynam ics o f peripheral capitalism^ since the surplus fro m w hich the accumulation o f re­ productive capital derives depends primarily on this. At the same time, however, the surplus stimulates the privileged consumption of the upper strata. Thus, the upper social strata, which have most o f the means of production in their hands, appropriate a large part of the increase in pro­ ductivity of the system, the fruits of which are only transferred to a small extent to the labour force, because of the heterogeneity of the social structure. This structure displays great dispar­ ities o f productivity due to the different de­ grees o f penetration of technology, so that those employed at tiie lower levels of technology and income are competing with otfiers employed in higher-productivity strata, thus making it dif­ ficult to achieve an improvement in their wages with respect to the latter. That part o f the increased productivity w hich is not thus transferred to the labour fo r c e rem ains in the hands o f the owners o f the m eans o f production in the form o f a surplus, becau se o f their pow er o f appropriation. At the same time, in the course of the struc­ tural changes the trade union and political power of the labour force gradually increases, thus enabling it to share in the fruits of greater productivity through higher wages. The growth rate o f the latter cannot exceed the growth rate o f productivity, however, without causing dis­ turbances in the system. This is not subject to any regulatory principle. This is w here the monetary instruments are o f great significance. They have a dual ob­ jectiv e: to m ake possible the appropriation o f the surplus and to defend it from the attempts to bring about its redistribution. Money is very f a r fr o m being neutral, as fr often claimed. On the contrary, it is a decisive element in social inequality. The theory of the neutrality of mon­ ey merely stems from reluctance to recognize the social structure and the changes in it. In order to understand this matter it is ne­ cessary to explain the monetary requirements of unfinished production. In the evolution of the latter, the production of final goods de­ velops more rapidly than that of the employ­ ment which gives rise to it and the correspond­ ing income, thanks to rising productivity. Con­ sequently, if the demand for such goods came only from this income, prices would go down in proportion as productivity rose. In reality, how­ ever, demand does not result from such in­ come previously paid in the course of the pro­ duction of such goods, but from the larger in­ come resulting from the as yet unfinished pro­ duction of a larger quantity of goods which will subsequenty come on to the market. Thus, the demand arising from this larger income pre­ vents prices from going down. The monetary authorities play an impor­ tant role in this, since enterprises turn to the banking system in order to secure the expan­ sion of the money supply with which to pay the income of the labour force. This expansion per­ mits the enterprises to retain and increase the surplus. The surplus is o f a structural nature, w hereas its appropriation is o f a monetary nature. 14 What happens when wages increase? The answer is that in order to meet this increase the enteiprises will need to increase the flow of money which they had previously had at their disposal. I f they succeed in doing so, then de­ mand will rise. Thus, a moment will come when, thanks to the redistributive pressure, wages will exceed the increase in productivity, and the greater demand thus generated will cause prices to rise. This rise in prices restores the growth o f the surplus, w hich had been flagging to the extent that the higher wages had increased the la bou r fo r c e ’s share in the fruits o f productivi­ ty. Before we go any further with this line of reasoning it should be explained that the la­ bou r fo r c e is not only strugglirtg f o r higher w ages hut also seeks, uihen it has sufficient trade union and political power, to offset the fa c to r s w hich have adversely affected its real incom e, the most important of tihese being the taxes and other pharges levied by the State, which fall on the labour force’s shoulders in one way or another, in response to them, the labour force seeks to recover the lost ground through an increase in wages. To the extent that it succeeds in gaining such an increase, it in­ creases the tendency of wages to exceed the rate of growth of productivity. It is hardly sur­ prising, then, that in such conditions taxes or o th er charges becom e a source o f inflation. The same occurs with other factors of do­ mestic and above all external origin which, by reducing real wages, give rise to this action of seeking compesation. The system lacks a mechanism which would enable it to deal equitably with these adverse effects on wages. In all this there is a b ias in fa v o u r o f the upper strata, which obtain a con siderable part o f the fruits o f technical progress. When the labour force tries to gain a bigger share of these fruits beyond the limits mentioned, or to offset the adverse effects on its income, the system reacts with a rise in prices, thus restoring the growth of the surplus and the capacity for privileged consumption. Whatever happens, every time that the la­ bour force gains sufficient power in the course o f the democratization process this means that every increase in prices is necessarily followed C E P A L R E V IE W No. 18 /D ecem ber 1982 by a rise in wages, in the all too well-known inflationary spiral, and the surplus swells and contracts alternately, to flie detriment of its growth-producing role. What can the monetary authorities do to check this spiral? They must not resort to any o f the actions which it was possible to carry out in previous stages o f structural evolution, w hen the labour fo rc e lacked pow er or was only ju st beginning to gain influence. I f an attem pt is m ade to repeat this approach in later stages, the consequences are counterpro­ ductive. ' In those earlier days, the monetary author­ ities could simply refuse to giant firms a larger supply of money to pay the increased wages. This brought with it recession or contraction, with consequent unemployment. The unem­ ployment eventually compressed wages, and the labour force was then not only compelled to retreat from what would otherwise have repre­ sented a real improvement, but also to bear the burden of the fiscal taxes and charges which fall upon it, as well as the other internal or external adverse factors referred to earlier. L et us reflect on what all this means. The labou r fo r c e h ad to compress its consumption in this way in order to restore the surplus: not only the surplus a s a source o f accumulation, but also as the element making possible the privileged consumption o f the upper strata. Those who believe that flie free play of market forces tends towards distributive equity justify the drop in real wages by claiming that this merely corrects the harmful consequences of the violation of the market laws by the trade union and political power of the labour force, which they considered to be abusive. O f course they overlook the appropriation and retention of the surplus by the upper strata, which pre­ vents the spontaneous social diffusion of the fruits of technical progress. When the trade union and political pow er o f the labou r fo rc e is vigorous, however, and resists the drop in wages, a singular phenom­ enon o f our days takes place: a rise in wages takes p lace side by side with recession or con­ traction o f the economy. This is explained by the fact that the restrictive monetary policy obliges enterprises to divert part of their mone­ tary flow to the payment of higher wages, to the A H IS T O R IC T U R N IN G P O IN T F O R T H E LATIN AM ERICAN P E R IP H E R Y ¡Raúl Prebisch detriment of the growth of employment and of production in progress. Unshakeable faith in restrictive policies leads some persons to advocate their persistent application until the labour force is completely mastered. Even if this took place and wages fell because of unemployment, however, the suc­ cess would only be momentary, because with the subsequent improvement of employment the labour force would recover its trade union and political power and would again begin to exert pressure for higher wages. What use would the heavy economic and social cost of this poli­ cy then have been? Monetary policy is also counterproductive when it is used to compensate for the creation of money caused by the fiscal deficit, which Ijeads to a contraction in the amount of money available for the needs of private activity. If instead of this a more orthodox procedure is followed and recourse is had to taxes, the con­ sequences are also adverse. If the costs fall upon the labour force and the latter has suffi­ cient power to gain compensation for them, the taxes become inflationary, as already noted. And if they fall upon the upper strata, ffiey have a negative effect on the accumulation of capital. There is yet another possible expedient: at­ tracting public saving by raising interest rates, for which purpose bank interest rates are also raised, through credit restrictions. If this is done, then in the best of cases, even if it proves possible to reduce the fiscally generated infla­ tion, this will only be achieved at the cost of compressing the global product and employ­ ment, as in the previous case. Raising interest rates obviates the flight of resources to the exterior; moreover, in order to obtain Eurocurrency credits it is usual to place severer restrictions on credit in order to make these operations attractive. This attraction of external resources ob­ viously has inflationary consequences which counteract the domestic effects of the credit restrictions, as well as making the cost of work­ ing capital of enterprises excessively high and thus further accentuating the ill-effects. What is to be done, then, in order to contain price rises? T h e answer in the view of some, is simply to resort to overvaluation of the currency in order to stimulate competition from imports, to the 15 detriment of domestic production and exports. The effects of these monetary manipulations carried out under the aegis of the laws of the market are too well known for us to spend more time on them. In shorty although monetary orthodoxy an d fis c a l orthodoxy were effective in other timeSy they have now ceased to he soi the mone­ tary authority has been knocked o f f his throne. This is the consequence of the changes which have taken place in the social structure as the technology of the centres has penetrated and the power relations have changed. It will thus be understood that for those who attribute inflation to the trade union and political power of the labour force, it seems necessary to eliminate this power by inter­ rupting the process of democratization and at the same time dismantling the State apparatus in order to make it “subsidiary”. It cannot be denied that the restoration of the surplus in tfiis way could have positive dynamic effects if the accumulation potential were devoted to pro­ ductive investments. If this were done, it would gradually eliminate the exclusive ten­ dencies of the system. Unfortunately, however, this has proved to be a tragic illusion, for in the very far from austere capitalism of the periph­ ery, the restoration of the surplus flagrantly fa­ vours the privileged consumer society rather than the accumulation of reproductive capital. There is no doubt in the minds of some that the use of the power of the State to compress wages can reduce domestically generated in­ flation. If such inflation continues, it is main­ tained, this is because the budget deficit per­ sists, even though in these circumstances fiscal orthodoxy once more comes into its own. Other factors which frequently influence this state of affairs are the abuse of consumer credits or in­ vestments, or international inflation. In reality, the objective has usually proved to be not so much that of checking inflation as restoring the surplus through this compression of wages. Once this objective has been achieved, infla­ tion once again becomes tolerable to the dom­ inant groups, provided that the i>eriodic ad­ justments of wages do not prejudice the sur­ plus. The power of the State is used in favour of the upper strata. This statement calls for an C E P A L R E V IE W No. 18 /D ecem ber 1982 16 explanation, because these strata include both productive entrepreneurs and financial entre­ preneurs. An excessive rise in domestic in­ terest rates over international rates consider­ ably increases the power of the second group, and thus gives rise to an unusual dichotomy. On the one hand, the compression of real wages makes it possible to restore the surplus and favour productive capital, but on the odier hand a frequently substantial part of die surplus is transferred to the benefit of the financial groups, thus strengthening their political weight. It can therefore be seen that the raising of interest rates is much more than a simple technocratic aberration. The foregoing discussion on the inef­ fectiveness of monetary policy for containing the inflationary spiral leads us to emphasize the structural nature of the phenomena, which are beyond the reach of such policy in the course of the structural changes. These changes and the changes in the pow­ er relations which accompany them increas­ ingly tend towards a crisis of inflation. In reali­ ty^ the crisis is a consequence o f the inner logic o f perip h eral capitalism^ which does not obey any regulatory principle in the distributive struggle. The counterpart of this struggle lies in the changes undergone by the social composi­ tion o f consumption. The increase in the private and social con­ sum ption o f the labour fo rce and the civil and m ilitary consumption o f the State (and in its non-productive investments) do not take place at the expense o f the privileged consumption o f the fa v ou red social groups, but are superim­ p osed on it. Thus, the pressure of the labour force and of the State inevitably moves towards a structural imbalance between the rate of con­ sumption and the rate of accumulation of ca­ pital. It will be understood, then, that although the crisis of the system is inflationary, it does not permit monetary solutions, as was possible in earlier phases of the structural evolution. As already noted, monetary instruments are essential in the appropriation of the surplus and also in its defence, when that structural imbalance takes place. Their economic and so­ cial cost is considerable, however, since this defence requires unemployment in order to break the power of the labour force and make it shoulder all the consequences of the deficit: a solution which is not only not a real solution but also could not possibly last for any length of time. Nothing lasting can b e achieved without a rational transformation o f the system in order to secure the macroeconom ic regulation o f the distribution o f the fru its o f technical progress, consumption and accumulation through pro­ p er planning o f the use o f the surplus. It should clearly be understood that it is not a question of restricting global consumption, but of changing its social composition. It is necessary to restrict it, it is true, in the privileged groups, so as to raise the rate of accumulation of reproductive capital and thus increase the consumption of the unemployed and of the strata of lower pro­ ductivity. This could not result from the mar­ ket fo rces, but only from changes o f great structural significance. There is no contradic­ tion betw een these changes and the market. On the contrary, they could improve its economic efficien cy and give it the social efficiency w hich it now largely lacks. IV The structural imbalance with the centres T he rate of development of the periphery is limited not only by the insufficient accumula­ tion of reproductive capital, as we have just explained, but also by the tendency to structu­ ral imbalance with the centres, with which we shall now deal. This imbalance stems essentially from the historical lag in the development of the periph­ ery, which, in turn, is explained by the centri­ petal nature of advanced capitalism. Because of this centripetal nature, the cen­ tres are not interested in the achievement by A H IS T O R IC TU RN IN G P O IN T F O R T H E LATIN AM ERICAN P E R IP H E R Y IRaUl Prebisch the periphery of development with deep social features; its development only affects them to the extent that it suits their own development, generally regarded from the viewpoint of the interests of their enterprises. Such a downright statement calls for some justification. It is to be explained primarily by the centripetal dynamics o f capitalism in the advan ced countries. In the fin al analysis^ this dynam ics com es from a persistent phenome­ non in the developm ent o f the centres^ where the fru its o f their technical progress have been ratain ed throughout their historical evolution. No matter how these fruits may be distributed within the centres, they are in no case passed on to the periphery through the lowering of prices. F or b etter or fo r worse, capitalism has never fu n ction ed as conventional theories as­ sume. This fact has had and continues to have profound consequences; in effect, the increase in the global product through unceasing in­ creases in productivity gives rise to the expan­ sion of demand within the centres themselves and continually stimulates the technical in­ novations which diversify goods and services. Likewise, these increases in productivity per­ mit a considerable accumulation of capital in order to pay for all this. Thus, technical pro­ gress and industrialization have been concen­ trated in the advanced countries, leaving to the periphery the ancillary role of providing them with raw materials, with which the periphery pays from its imports of the manufactures it needs. This is a very well known fact, but its con­ sequences have not always been grasped in their true significance. To begin with, the pe­ riphery rem ained on the sidelines o f indus­ trialization in the early development o f capi­ talism and has since participated in the indus­ trial trade o f the centres only to a very limited extent. The periphery has not ceased to be pe­ ripheral, in spite o f its industrialization. It has* still not been able to incorporate itself into the impressive technological advance of the cen­ tres. It is towards this goal that the progressive transformation of its production structure must be oriented. The industrialization of the periphery was a structural requirement for development, al­ 17 though it was initiated for conjunctural reasons mainly during the Great Depression, in order to counter the adverse consequences of the economic contraction in the exterior. And it h ad necessarily to be carried out through im­ port substitution. It could not be otherwise as long as the international system o f trade and paym ents was split up. It was a structural requirement, because the exports of primary commodities could only absorb a relatively small part of the consider­ able proportion of the labour force which was excluded from the benefits of development. There can be no doubt that if there had been any possibility of exporting manufac­ tures, this should have been done at the same time as substitution, in those early days of in­ dustrial development. When this possibility did arise, however, there was generally reluc­ tance to embark on exports, or even outright opposition to them: such was the inertia of sub­ stitution policy. This inertia was finally overcome in the long period of extraordinary growth rates of the centres, which lasted up to the first half of the 1970s. It was then that the pendulum swung to the other extreme, as already noted. There was noteworthy growth o f exports o f manufac­ tures, w hile im port substitution and the policy o f developing trade in manufactures in the La­ tin Am erica region lost momentum. This occurred in spite of the fact that the centres continued their determined protection­ ism against the manufactures which the periph­ ery was now in a position to export just like its primary commodities. In contrast, the cen­ tres engaged in an intense process of liberaliza­ tion of their industrial trade wifii each other over the whole wide range of goods which were continually being diversified through techno­ logical innovation. Thus, ju st as the periphery had previously rem ained on the sidelines o f industrialization, it was now barely able to participate in the flou rishin g mutual trade o f those boom times o f the centres. It was still far from being able to take advantage of the innovations of the centres in its own production, except in the case of a few goods where the innovations were no longer novel, since they had been overtaken by newer ideas. 18 It will be understood, then, that now that these times are over and the crisis of the centres has arrived, we are once again witnessing the persistent tendency towards structural imbal­ ance. This tendency is explained by the rela­ tive slowness with which demand tends to rise in the centres for the primary commodities and industrial goods which the periphery could ex­ port on a large scale, in contrast with the everincreasing intensity of the demand for the technologically advanced goods which we need to import from the centres. Our own rate of development is now suf­ fering the unfavourable consequences of the crisis which is affecting the centres. The growth rate of exports has suffered, and they are now insufficient to enable us to recover our growth rate and combat unemployment, while even less can we dream of raising this rate in order to absorb at a rising level of productivity the great human masses which have remained relegated to the bottom of the social structure. Without prejudice to the conjunctural measures already mentioned, it is essential to impart new vigour to the substitution policy, while however seeking to overcome the frag­ mentation of our industrial process through trade. It is not a question o f reducing the im­ ports from the centres below our capacity to pay fo r them, but rather o f bringing them into line with the limitations o f this capacity by changing their composition and eliminating from them those goods where we have already achieved or could achieve technological pro­ duction capacity, so as to import other goods which, because o f their advanced technologic cal nature or because o f our shortage o f natu­ ral resources, are beyond our possibilities in our present stage o f industrial development. Here we arrive at a very important aspect which is worth emphasizing because it contin­ ues to give rise to lamentable misunderstand­ ings. For a given rate o f development o f the periphery, the intensity o f substitution policy depends fundamentally on the extent to which the centres respond to a sustained export effort on our part: that is to say, on their own growth rate and on the intensity o f their protection­ ism. Expressed in more recent terms we could December 1982 C EPA L R EV IEW No. 18 / decisions as on the degree of openness of the centres. The old principle o f comparative advan­ tages remains valid. From every point of view, it would be in the interests of the periphery to make a vigorous effort to export technologically less advanced goods in order to import other technologically more advanced products. This depends fundamentally, however, on the de­ gree of receptiveness of the centres. When we only exported primary commodities, there could not be any comparative advantages in the export of manufactures, because there were simply no industries for producing them. Now that we are in a position to do so, however, the limited receptiveness o f the centres is a serious obstacle to the development o f our compara­ tive advantages. Development therefore calls fo r big changes in the production structure, and the question o f whether these changes place the emphasis on industrialization fo r export as well as fo r satisfying domestic consumption, or on pro­ duction fo r domestic consumption instead o f promoting imports depends in the final analy­ sis on the amount o f our exports that the centres are willing to admit: that is to say, on our capacity fo r absorbing imports from the centres. In view of the limited nature of this capacity to import, we must use it in the best possible manner so as to make the changes in our pro­ duction structure which are in keeping with the dynamics of our own development. There is no question, then, o f doing without the centres, since we need an enormous quantity o f goods from them, as well as capital and technology, just as they need the periphery. But we must link ourselves with them in line with the re­ quirements o f our own dynamics and in keep­ ing with our own decisions. This cannot be the spontaneous result o f the action o f the laws o f the international market, where the technical and economic superiority o f foreign enter­ prises is all too manifest. The historical lag in our indiistrialization, because of the centripetal dynamics of ad­ vanced capitalism and our technical and eco­ nomic inferiority, prevented us in earlier times from developing our industrialization, and it is say that the rational degree of openness of the now preventing us from advancing in it unless periphery does not depend so much on its own there is reasonable protection for import substi- A H ISTO R IC TURNING POINT FO R THE LATIN AMERICAN PERIPHERY tutes and a corresponding subsidy to promote exports of manufectures. TTiere can be no doubt that this represents an economic cost, but it is more than offset by the fact that it makes possi­ ble a higher growth rate of the product than that which would result from the application of the laws of the market at the international level. The belief has been spread around that it is better to seek this objective through devalua­ tion of the currency within the play of the laws of the market. Devaluation is fully justified in order to take account of domestic inflation, but it is not a siutable instrument for industrial promotion, since it brings with it the relative deterioration of the prices of competitive ex­ ports. Moreover, it means altering all domestic costs and prices in order to influence a small proportion of foreign trade, while its effects can only be of short duration, because of the adjustments called for by the distributive struggle. It is worth remembering that this deterio­ ration has a structural explanation. It is due to the disparities in demand which go hand in hand with our backward level of development and have a decisive influence on the produc­ tive structure of the periphery. These dispari­ ties, in turn, are due to the great structural dif­ ferences with the centres. This is why indus­ trialization is indispensable. In earlier times it was thought —and there are some who continue to think this under flie domination of the centres— that instead of industrializing to the full it would be better to increase productivity in primary activities. But what is to be done with the labour force which can no longer be absorbed by those activities? If it is used to increase primary production beyond the pur­ chasing capacity of the external market, a ten­ dency to a relative deterioration in prices will soon be shown. Industrialization is the prime form of avoiding this or at least reducing its seriousness. Protection, just like subsidies, helps to offset this tendency by diverting pro­ ductive resources to industry, A great contrast should be noted here. Whereas the centres retain the fruits of their technical progress, the periphery tends to transfer them because of its social heterogene­ ity and the disparities in the income elasticity of demand. IRaiil Prebisch 19 This tendency towards deterioration which is so adverse to the development of the periph­ ery suits the interests of the centres, of course. Deterioration in oflier countries suits them, but not when it is in their own countries, because when it affects their own primary production they take resolute action to combat this ten­ dency. We noted earlier that the tendency to struc­ tural imbalance with the centres has once again begun to manifest itself with the adverse ef­ fects of the drop in their growth rate, aggra­ vated by the high prices of petroleum imports. Moreover, as already noted, important conjunctural elements are in action in the centres, to which the periphery must reply with a similar­ ly conjunctural policy. A clear distinction must be drawn, however, between this policy and the structural need to undertake a new policy of substitution of imports from the centres. The imports mainly concerned are intermediate and capital goods and certain goods resulting from technological innovations which are or could be accessible to us. For economic and technological reasons, it is essential that this substitution should take place in a broader area than that o f national markets. The centres have not favoured this type of co-operation among Latin American countries, and much less with other countries of the periphery. It is conceivable, however, that their enterprises might be interested in viewing it more favourably and in participating in this new and promising stage of industrial­ ization of the periphery with their capital and technology, in line with suitable rules. Ob­ viously, if they are given the choice between continuing to export certain goods and partici­ pating in their substitution, they will choose the first of these. But if there is firm determina­ tion on the part of our countries to formulate and put into practice substitution programmes aimed at broad markets, it is possible that the centres will not waste the opportunity to take part in this. The support of the Inter-American Development Bank and the World Bank would likewise be very important in this. As far as I can remember, the recent economic report of the latter organization represents the first time that it has mentioned the need for a substitution 20 policy and for the promotion of exports of manu­ factures. It is necessary to take a broad view of these possibilities. These new forms of industrial­ ization concerted between countries could constitute a very important step forward in our gradual incorporation into trade in technologi­ cally advanced goods with the centres. It should be remembered that import substitu­ tion was the prior step to the subsequent ex­ port of manufactures. Undertaking new forms of substitution and mutual trade within the Latin American area -^without prejudice to certain trade possibilities with other countries of the Third World— could form the basis for this new type of international linkage. Substi­ tution industrialization, fo r all its faults, re­ presented our response to the Great Depres­ sion. Industrialization in broader markets must be our response to the structural mani­ festations o f the present crisis. It could be a response offering great possibilities, if we proceed in a rational and determined manner with the firm intention of gradually aban­ doning our position as peripheral countries. Up to what point is such an important struc­ tural change justified? Are we not perhaps exaggerating the structural nature of the crisis in the centres? It is necessary at this point to make a brief reference to this crisis, which is far from having been clarified, I am inclined to see in the crisis of the centres, too, a case of structural imbal­ ance between consumption and accumulation, due to the considerable changes which the power relations have undergone. The extraordinary consumption of the upper strata tends to spread rapidly down­ wards, and there has been a very marked in­ crease in social consumption through the State. The latter also labours under enormous and ever-increasing military spending, or, if prefer­ red, military consumption. All these superim­ posed forms of consumption tend to weaken the rate of accumulation of reproductive capital. The continuous growth of such capital is essential in order for employment and produc­ tivity to increase. Consequently, this weaken­ ing has had an unfavourable influence in this December 1982 CEPA L REVIEW No. 18 / sense, in addition to the effect of conjunctural phenomena. There has thus been a disturbance of the ideal dynamic sequence of the system: in­ creased productivity, greater accumulation, followed by a further increase in productivity. How are we to restore this dynamic se­ quence? The only solution, in my view, is to change the social composition of consumption. It is necessary to slow down its growth among the most highly privileged —above all in the top strata— in order instead to accumulate more resources and increase employment and productivity so as to expand the consumption of the least privileged. This is a solution which is apparently very simple, but politically very difficult: to such a point that extraordinary rises in interest rates have been resorted to in order to cover the fiscal deficit through saving, while simulta­ neously reducing private consumption in order to cover the heavy spending of ihe State. We already know what the consequences of this measure are. This is not all, however. While on the one hand the rate of accumulation of reproductive capital has suffered, the substitution of im­ ported petroleum and the campaign against degradation of the environment make it essen­ tial to increase capital formation in one way or another to meet the bigger capital needs per unit of the product. I do not see in what other way it would be possible to solve this structural crisis. No doubt the increase in the rate of productivity thanks to technical innovations, which has already be­ gun to be observed, will be a great relief, but it also requires increased amounts of capital. These considerations lead me to believe that the estimates made by very well-informed sources that a low growth rate will persist dur­ ing the current decade in both the main growth centre and in the other centres are probably very sound. And if these estimates turned out to be mistaken? Would we have gone too far wifri changes in our production structure, and would we have to go back on the road we have follow­ ed? By no means: it would merely be necessary to reduce the intensity of new changes aimed at the domestic market and increase the orienta­ A H IST O M C TURNING POINT FO R TH E LATIN AMERICAN PERIPHERY IRaiil Prebisch 21 tion towards the exterior. In other words, we imposition of doctrines which completely over­ should practice a certain policy of greater open­ look structural disparities between our coun­ ness on the basis of facts and not through the tries and the centres. V Reflections on the search for a new road to development We must face up to serious conjunctural prob­ lems without having solved the great structural problems of our development. We have generr ally lost sight of the latter during the boom phases of the economic cycle, when some re­ sources were available to set about their solu­ tion, but they have arisen once again in the phases of depression, when it is much more difficult to undertake profound changes. This is what is happening now, with the further aggravation that rather than a cyclical downturn in the centres the situation is one of a structural decline in the growth rate. This fact, together with other adverse factors, means that there are external structural limits on any reac­ tivation policy, as well as the internal limits. Be that as it may, the conjunctural reacti­ vation policy must be fitted into a structural framework in order to intertwine certain im­ mediate measures with others which will take longer to bear fruit. The structural problem of the insufficient productive absorption of the great relegated masses is aggravated by conjunctural unem­ ployment, above all in those countries which, through their own policies, have provoked a contraction in their economic activity, with very serious social consequences. This is a very important reason for not putting the reactiva­ tion off any longer. If it is not to bring about a perilous accen­ tuation of the tendency to external imbalance, the reactivation calls for severe containment measures. We have unfortunately not yet arriv­ ed at really large-scale solutions as regards external indebtedness, and here the reactiva­ tion policy runs into a severe stumbling block. It is urgently necessary for the IMF and the World Bank to take this matter resolutely in hand by extending repayment terms and re­ ducing interest rates, even through subsidies. The balance-of-payments difficulties would thus become more manageable and permit the reactivation to be more extensive. Moreover, improvement of the capacity to receive new long-term external resources would give a posi­ tive impulse to programmes aimed at correct­ ing the external structural imbalance. From the internal point of view, the reacti­ vation calls for the readjustment of the debts with the banking system as a matter of top prio­ rity, especially in the case of certain economic activities which have suffered particularly se­ riously because of the overvaluation of curren­ cy and the very high rates of interest. Time should be given to react, but only provided that these and other emergency measures are taken first. In addition to certain selective import measures it is necessary to introduce a policy aimed at correcting the external imbalance of a structural nature. This calls for the energetic promotion of exports and the substitution of imports from the centres within larger spaces than the national markets. Private enterprises, and where appropriate the State enterprises too, are well equipped to do so in a harmonious manner together. Anti-inflationary policy must also be car­ ried out within a structural framework. Even if it is possible to reach consensus on an incomes policy, this will be socially vulnerable if we do not tackle in some way the problem of the eco­ nomic surplus and its macroeconomic regula­ tion. The surplus must be restored and increa­ sed in order to raise the rate of accumulation of reproductive capital, but this could not be done by making all the burden fall on the labour force. I have been repeatedly bringing in this matter in order to try to spark off the unavoid­ able discussion on this point. The labour force 22 must share in the surplus and in the responsi­ bility for accumulation. By way of conclusion, I would like to reiter­ ate that in the past days of great prosperity of the advanced countries we did not clearly see the centripetal nature of their dynamics. The Latin American periphery, too, had extraordinary growth rates which had not previously been re­ gistered over such a long period. We therefore allowed ourselves to be dazzled, without fully realizing that our development did not interest the centres except to the extent that it suited their own needs, and the concern felt in earlier periods about the tendency towards external imbalance drifted away. In the correction of this tendency, the periphery has a fundamental re­ sponsibility. It must take advantage of the ex­ perience provided by a past which is still not so far off. Our exports of manufactures began to show their potential, and we cherished the illusion, which is now rapidly fading, that there would be unlimited receptiveness for them on the part of the centres. Import substitution fell into sin­ gular disrepute, discouraging integration ef­ forts even of a modest nature. It is quite true that the centres built up a very vigorous mutual trade in manufactured goods. The products in­ volved, however, were new goods or new mo­ dels of goods incessantly developed by suc­ cès ive technological innovations, and they were far from the reach of the Latin American periphery. It is in this type of goods that the comparative advantages of the centres lie: in opening up new fields of advanced industrial­ ization and producing ahd trading every type of goods for which demand grew at an unusually rapid rate, urged on by these innovations and by the mass media. But the centres did not acknowledge and still do not acknowledge the advantages of the periphery as regards the pro­ duction of those goods which, by virtue of the periphery's resources and the technology ac­ quired by it, enable it to compete on an increas­ ingly large scale in the markets of the centres. What a strange contradiction between the facts and the much-vaunted virtues of comparative advantages! The old tendency towards external imba­ lance of a structural nature has once again arisen, and the centres have done nothing December 2982 C EPA L KE VIEW No. 18 / worthy of note to co-operate with us to correct this situation. Furthermore, those times of great prosper­ ity accentuated to an impressive degree the imitative aspects of our development. We en­ thusiastically brought in the forms of consump­ tion of the advanced countries, to the clear det­ riment of the accumulation of reproductive capital, which was also adversely affected by the relentless siphoning-off of income from the periphery by the centres. The fate of the great masses of human beings relegated to the bottom of the social structure urgently called for an increase in the rate of accumulation of reproductive capital in order to raise their very low productivity and their scanty income, to say nothing of their dig­ nity as human beings. We did not effectively attack the exclusive tendencies of the system in a manner in keeping with the magnitude of the problem and the rapid population growth. After we had only gone a short way along our own road to industrialization, it became evident that the laws of the market, no matter how great their contribution to economic ef­ ficiency might be, did not lead to social effi­ ciency. The spontaneous operation of the sys­ tem is far from bringing about an equitable dis­ tribution of the fruits of technical progress, since this is prevented by the structural appro­ priation of a large part of these fruits by the upper strata. On the other hand, as the process of demo­ cratization took place, the redistributive power of the labour force was gradually taking shape and acting as a counterweight to this power of appropriation of the economic surplus. This was essential in order to correct the fundamen­ tal inequality of the system, as also was the redistributive power of the State. With all its faults, the results were frankly favourable: there was a substantial improvement in the pri­ vate and social consumption of the labour force, which was being absorbed in emplojnnent of rising productivity, although the presence of socially relegated masses at the bottom of the system continued. This improvement and the growth of the State were superimposed however, on the pri­ vileged consumption of the upper strata. This process of sharing did not obey any regulatory A H ISTO R IC TURNING POINT FO R TH E LATIN AMERICAN PERIPHERY principle whatsoever. It did not owe anything to the free play of the market forces, in spite of the theories which claim that there is an under­ lying equity in their functioning. This superimposition of different forms of consumption has gradually weakened the rate of accumulation of reproductive capital, al­ though not of other forms of capital which lack the dynamic virtue of multiplying employment and productivity. This structural tendency to imbalance between consumption and invest­ ment culminates, through the inherent inner logic of the system, in persistent social infla­ tion, where monetary policy inevitably runs into disastrous difficulties. It is simply not pos­ sible to substitute such a policy for structural changes which go to the very root of the conflictive tendencies in the system. The centripetal nature of advanced capital­ ism is the principal source of the backwardness of our development, our economic and techno­ logical inferiority, and the economic fragmen­ tation of the periphery. These are the condi­ tions which have shaped both the past hege­ mony of advanced capitalism and the new man­ ifestations of this hegemony. Certain theories which have been disseminated and continue to be disseminated on the periphery correspond to this. Whatever their scientific bases may have been in other times, they are now merely an expression of the fundamental lack of inter­ est of the centres in anything which does not suit their own development. So it was with the former system of the international division of labour, which is con­ trary to our planned industrialization. The in­ sistence on this system also led the centres to deny that there is a tendency for the periphery to transfer to the centres the fruits of the techni­ cal progress in its own primary production: a tendency which only industrialization can counteract. It also explains their opposition to import substitution, until the transnationals found sources of advantage in this. These transnational corporations were not, of course, an effective and decisive instrument of internationalization of peripheral produc­ tion, as they generally pretended to be, but were rather agents for the internationalization of imitative consumption. Now, in more recent times, the periphery has fallen back incautious­ ¡Raúl Prebisch 23 ly into a macroeconomic design involving the reduction of industrialization in favour of gene­ rous stimulation of imports, mostly of consumer goods, on the basis of the precarious resources provided by the Eurocurrency market. What are we to say of the policy of econom­ ic contraction as a means of counteracting the external imbalance? It should be understood that these and other lines of thought were promoted from other latitudes. But do those who have adopted them so enthusiastically on the periphery real­ ize what they signify and involve for our devel­ opment? This is another of the flagrant manifesta­ tions of the hegemony of the centres: the intel­ lectual dependence of the periphery. Please allow me to make a personal admission at this point. In those far-off days when I was a young man, I felt positive reverence for the economic theories of the centres. I began to lose this during the depression, however, and I have continued to lose it, so that very little of it re­ mains. The centres are no longer a model for me. On the contrary, I think I have acquired an acute critical sense regarding what they do and think, for the impressive advance registered in other scientific disciplines has not yet reached that of the theories of development, caught as they are in the musty toils of the thinking of over a century ago. How could I feel otherwise, when during the great depression I witnessed so many tre­ mendous erros? In the main centre of capital­ ism, in the midst of a cyclical decline, the authorities brutally restricted credit and drasti­ cally increased protectionism, bringing eco­ nomic contraction and unemployment to the entire world. Nothing was left at that time of the multilateral system of trade and payments, whose reconstruction was to last for many years. All this must sound like a picture from other ages. The years of prosperity came, and we began to believe that we had really finally learned to regulate the economy of the centres. Until the present crisis in the centres rocked the entire world. This crisis does not represent the decadence of capitalism, but rather the unsuspected overflowing of its great vigour. 24 We have not yet found hew channels for con­ taining it This is a crisis of facts and of ideas. It was not possible to contain this overflow, nor the structural imbalances represented by the ex­ pansion of the money supply, which, after be­ ginning in the United States, ended in the form of world-wide inflation. It is a structural imbal­ ance which cannot be corrected, any more than other problems, through the wild raising of in­ terest rates, which spreads unemployment throughout the capitalist world, with serious economic, social and political consequences. The centres, too, must rectify the course of their development, but it does not seem that they are willing yet to do so. In spite of all their unfortunate consequences, however, crises often have the virtue of renewing ideas. I be­ lieve we are now more inclined to take ftie necessary measures, because we have longer experience of the great vicissitudes of devel­ opment. I do not believe that orthodox social­ ism is outside this need for renewal either. Everywhere the active presence of the State is needed: not a subsidiary State, but one that regulates and promotes development, although not necessarily producing goods. The quest for an economic incentive, inas­ much as it spurs the initiative of entreprises and individuals, is a powerful generator of ef­ ficiency and growtib, but it does not solve the C EPA L REV IEW No. IS / December 1982 serious problems which technology has brought with it as regards the environment, natural resources and social equity. This is where the State has an absolutely fundamental role to play, in a manner compatible with the market, with its great economic and political importance. This is not all, however. The economic in­ centive increasingly goes beyond the sphere of business and penetrates into areas which it should never enter, because it perverts great values and degrades human fellowship. No matter how effective the enterprise may be within the limited sphere of its own rationality, in reality it lacks a social and ecolo­ gical horizon. Attaining Such a horizon is an urgent task in the centres, and much more so on the periphery. Consensus must go beyond the limited ra­ tionality of the market, for ethical objectives of an increasingly pressing nature are arising. Technology has an enormous potential for in­ creasing human well-being, and has begun to show this in a limited portion of the planet. But it is running the imminent risk of losing this potential because of the limited rationality I spoke about. We must not do away with this rationality, but extend it to include those great objectives without which development cannot achieve true social legitimacy. CEPAL REVIEW December 1982 Adjustment, redeployment or transformation ? Background and options in the current situation by Pedro Sdinz* Since 1973, the Latin American countries have had to adjust to a world economy and a world trade situa­ tion which are characterized by slow growth and instability in the central countries. Between 1974 and 1980, the region managed to remain relatively dynamic, considering the internal circumstances. Most governments seemed to take the attitude that the crisis was mainly conjunctural in nature, al­ though they did acknowledge the existence of some structural elements as well. In 1981 and 1982, as the signs of recession were accentuated, it became obvious that there were cer­ tain aspects of the crisis of the central countries that were definitely structural in nature. The region suf­ fered simultaneously the 'impacts’ of the deteriora­ tion of the terms o f trade, the rise of protectionism and the increase of interest rates on an external debt which had grown excessively, especially as regards the short-term component thereof. The author presents background information which should be useful in the redefinition of policies which is made necessary by the situation. It has now becom e evident that marginal changes will not suf­ fice; the magnitude of the challenge has proved them to be of little use when they have been at­ tempted. Hence the need to gather background in­ formation on the structural aspects of the situation. Although in some ways the crisis is similar to that of the 1930s, there can be no question that today the region is quite different and that international relations are also different. The author therefore makes an assessment of the 1970s in order to reach conclusions regarding the structural conditions that exist at the beginning of the 1980s. He then presents a brief description of the problems facing governments under the current cir­ cumstances. He also outlines two prototypes of policy options based on whether the crisis is consi­ dered to be conjunctural or structural in nature. Finally, taking the long-term standpoint the author examines certain elements pertaining to economic dynamism, income distribution, external economic relations and the sectoral structure that should provide the framework within which econo­ mic policies for the situation may be outlined. Introduction** The serious economic situation in which most of the Latin American countries find them­ selves at the beginning of the 1980s is causing them to make more or less profound changes in their economic policies. During the crisis of the 1930s, the coun­ tries applied certain economic policies which greatly influenced the subsequent develop­ ment of the region; today, in the face of a di­ lemma in which some of the important features of that time appear to be reproduced, it seems essential to gather as much useful information as possible in order to study what policies should be applied in dealing with the current crisis. In this paper, three types of information are discussed. First, an appraisal is made of the economic aspects of the 1970s; the results of this appraisal provide some of the data which must initially be home in mind in designing a policy for the 1980s. Different positions have been taken vis-à-vis these results by those who stress the importance of transforming produc­ tion and finding new forms of international in­ sertion and those who emphasize the &ct that structural problems still remain. For this reason, the first section is devoted to a review and assessment of the appraisals of the devel­ opment process that were made during the 1970s, considering that we are now in a better position to look back at the decade as a whole. In the second section, the current situation is discussed and an analysis is made of the factors that brought about the crisis, the main problems arising from it which require short­ term solutions, and two strategic options to be used in considering the possible orientation of conjunctural economic policies. Finally, some of the components that should be included in a conjuntural policy are explored from the standpoint of a vision of de*Deputy Director of the Economic Projections Centre o f CEPAL. **T he author is grateful for the helpful comments and suggestions made by Claudio Marinho, Adolfo Currieri, Arturo Nufiez del Prado and his colleagues in the Econo­ mic Projections Centre of CEPAL. The views expressed here do not necessarily reflect their views. As the author recognizes in the article, part of the background material used in its preparation came from papers prepared previ­ ously by the Centre, some o f which have already been published in the Review. December 1982 CEPAL REVIEW No, 18 / 26 velopment which is aimed at solving die main sometimes profound changes that have taken structural problems that remain despite the place in the region. Appraisals of development during the 1970s A review of the numerous appraisals of the de­ velopment process of the Latin American coun­ tries that were made during the 1970s will al­ low us to make some comments that might be useful in designing policies for the 1980s. Since different conclusions were reached in the different appraisals, we must in the first place set forth some of the criteria on which they were based. We shall then present the main conclusion of these appraisals, distinguishing betw een those which stress the successes achieved and those which refer mainly to neg­ ative results. This section concludes with an overall evaluation of the trends noted during the 1970s, for which we are able to take advant­ age of the hindsight we now enjoy. 1. Criteria used in making the appraisals The diversity of the conclusions reached in the different evaluations is to a large extent a measure of die differences between the various criteria on which they were based. The dimension of time is one of the most important of these criteria, as many of the eval­ uations were aimed at assessing the results of short-term economic policies. The conjunctural nature of these exercises is shown by die fact that they attribute a central role to the re­ sults obtained in aspects such as inflation, open unemployment or variations in the reserves. Other appraisals, on the other hand, concen­ trated on the structural aspects, assessing the changes brought about over the medium and long term and attributing special importance to factors such as the transformation of produc­ tion, technological and social change and die nature of external economic relations. The influence of time-oriented approaches in the evaluation of results becomes evident when one takes into consideration the sharp contrasts between different periods of die 1970s as regards short-term indicators —for ex­ ample, in the economic growth and balance-ofpayments series— and the factors implicit in those indicators, such as the international eco­ nomic situation, socio-political organization and the principles guiding the international economy. The model or pattern used as a standard for each appraisal also helps establish the differ­ ences between them. In this regard, there is great diversity: the evolution of the Latin Amer­ ican countries during the 1970s is compared with previous periods, or with what happened in the central countries, or even with para­ digms taken from Marxism, neoliberalism or the CEPAL view of development. Finally, another important criterion is that of the scope of the appraisal, which may be wide ranging and not be broken by social groups, if the object of die appraisal is the ‘country as a whole*, or, on the other hand, it may have a different scope if it assesses die situation of one or several specific social groups. In considering the conclusions which axe discussed below, it is important to bear in mind the differences between the criteria used and not to forget that the past decade was character­ ized by its contrasts. At die temporal level, there was a succession of periods of economic boom, contraction and uncertainty. As regards the orieniation of policies, there was a wide variety of schemes, some of which were based on doctrines as disparate as Marxism and neoliberali$m, and the contrast between the results obtained by different countries and social groups is no less sharp. Hence, in considering the successes and frulures of the decade, it must be borne in mind that no general conclusions can be applied widiout proper study to any particular country. A D JU STM EN T, REDEPLOYM EN T OR TRANSFORMATION? 2. Fositim and negati\>e findings in the appraisals o f the 1970s In the compilation of findings which fol­ lows, emphasis is placed on aspects of a struc­ tural nature. Although short-term results are also considered, those aspects have been selec­ ted which have persisted long enough to be viewed as conditions which might be carried over into the 1980s. The positive aspects set forth in the apprai­ sals show that, despite the difficulties encoun­ tered, economic growth did consolidate some productive, technological and institutional changes which, from the perspective of post­ war proposals, unquestionably represent pro­ gress. The most notable of these are the follow­ ing: (a) The great dynamism achieved by many countries of die region in the early 1970s. The growth rate of the regional product had been accelerating since the mid-1960s and during the early years of the 1970s the region’s tre­ mendous potential for growth was reaffirmed. In some countries and for some products, mar­ kets were large enough to create dynamic spaces suitable for carrying out efficient pro­ jects having broad scales of production. (b) The relatively intense process of in­ vestment and productive and technological transformation in some of the regional econo­ mies which was reflected in the appearance of new branches of industry and modem agricul­ tural and service enterprises, and in die expan­ sion of the infrastructure. However, and espe­ cially in this regard, the disparities between countries were considerable. (c) The capacity of the economic policy to seek new forms of insertion in the international economy. From the beginning of die 1970s, most of the external conditions created during diat decade were reconciled with the trans­ formation of production in order to alter the stmcture of exports, diversifying the basket of basic commodities at die national level and in­ creasing its content of manu&ctures; then, when international liquidity increased, large amounts of external financing were attracted. For the period 1975-1981, the medium-term growth rates of the volume of exports rose in IPedro Sàinz 27 most of the countries to the highest levels of the postwar period. This adjustment to the chang­ ing conditions of the international economy was often interpreted as a guarantee of the re­ gion’s capacity to deal widi difficult external situations. The policy followed made it possi­ ble to take advantage, depending on die cir­ cumstances, of the positive conditions of world trade or the abundant availability of financial resources. (d) The capacity of die State to improve the operation of the markets, to modernize tax and financial structures, to establish and man­ age efficiendy State enterprises that play a key role in the transformation of production, to maintain the major economic balances within acceptable ranges and to raise significandy the shares of the product earmarked for domestic savings and for investment. (e) The resilience shown by many Latin American economies in preserving, after 1974, their overall industrial and economic dyna­ mism, despite the limited growth of the central countries. Some Latin American countries kept their industrial transformation on the course previously followed, reducing the relative im­ portance of the branches producing non-durable consumer goods and increasing that of die intermediate and metal-mechanical industries. This evolution made it possible, in many cases, to deal with the balance-of-payments problems through import substitution and the expansion of exports of manufactures. At any rate, it should be noted that die trend in another group of countries^ was highly negative during the period under consideration. The positive aspects noted above were countered by the inability of the region to alter long-standing social imbalances and imbal­ ances in external relations. Some of the main negative aspects stressed in the appraisals are die following: (a) Contrary to expectations, dynamism and productive transformation were not suffi­ cient to prevent die development of extremely unjust societies having a high concentration of ^Argentina, Chile, E l Salvador, Nicaragua, Panama and Peru. December 1982 28 wealth and income, high unemployment rates and a large segment of the population living in poverty. A significant part of the transformation of production was channelled towards meeting the consumption requirements of the high in­ come strata, strengthening the transnational corporations and thus giving rise to a highly dependent technology and to balance-of-payments problems. 2 (b) The rate of economic growth noted in most of the Latin American countries during the second half of the 1970s declined and its recovery seemed limited by factors of instabil­ ity and uncertainty which were to a large extent linked to external variables. (c) Despite the progress made, the trans­ formation of production did not include a suffi­ cient degree of vertical integration; this is evi­ dent in the lag in the production of interme­ diate and capital goods. The inadequate degree of internalization and technological devel­ opment played a major role in this lag. At the same time, the meagre success of the efforts made to find formulas for bringing the interests of the transnational corporations in line with those of the Latin American countries has made it even more difficult to solve these problems. (d) The structure of external relations is still asymmetrical, both as regards the nature of the flow of exports and imports and as regards the unfavourable trend in the terms of trade in the non-oil-exporting countries; to this is added the external indebtedness, its real and financial effects on the real national income, and the deterioration of the balance of payments. All this leads to an extremely vulnerable and unsta­ ble economic growth process. In view of many authors, the accentuation of this asymmetry is due to a large extent to the transnationalization of the economies. The role of the transnational corporations is increasing in importance and many of the economic flows recorded as flows between States actually take place wiffiin a single economic agent which acts independently of national boundaries. ^ See, for example, Luis Claudio Marinho, “The trans­ national corporations and Latin America's present form of economic growth”, in CEPAL R eview No. 14, August 1981. CEPAL REVIEW No. 18 / 3. The appraisals viewedfrotn the perspective o f the 1980s The successes and failures noted in the appraisals made during the 1970s may now be re-interpreted from the improved perspective of the 1980s. Thus, we shall examine die con­ tinuing validity of these findings, the positive factors carried over from the 1970s into the 1980s, and the problems of the early 1980s which remain unsolved. This will enable us to make some preliminary comments. In the first place^ underlying many ctmjunctural appraisals is the external situation which often is not considered explicit enough during boom periods and the impact of which is underestimated during difficult periods. Be­ cause of the difficult international economic situation, in many countries the optimism of the early 1970s began to pale and by the end of the decade had changed to pessimism. During the triennium 1971-1973, the rapid growth of world markets and the improvement of the terms of trade created a feeling of optimism regarding the possibilities that were opening up for the countries of the region. As a long­ standing policy of industrialization and moder­ nization matured, most of the countries were able to support a new and more diversified export structure that included increasing per­ centages of manufactured goods; as they were freed from the restrictions brought about by a relatively rigid external supply, they were able notably to accelerate their economic growth. Beginning in 1974, the external situation began gradually to deteriorate, especially in the non-oil-exporting countries. Nevertheless, an abundance of external financing and a rap­ id increase in exports made it possible to main­ tain external balance; the countries were thus able to keep their imports at acceptable levels and, in this way, to sustain the level of internal activity. Towards the end of the 1970s, both these mechanisms began to lose their effective­ ness. On the one hand, the rapid growth of the debt and the changes in credit terms and in­ terest rates meant that interest and amortiza­ tion payments absorbed increasing percent­ ages of the purchasing power of exports. On the other hand, the deterioration of prices for basic commodities eventually counteracted the ef- A D JU STM EN T, REDEPLOYM EN T OR TRANSFORMATION? feet of the large increase in the volume of ex­ ports. Moreover, the considerable increase in net external financing was accompanied by a radical change in the sources of such financing. Indeed, from the 1950s to the early 1960s, the bulk of capital entering Latin America had come from official sources, with long repay­ ment terms, and, part of it consisted of direct investments. During the 1970s, on the offier hand, a large share of such financing came from private banks and commercial sources; it con­ sisted of short and medium-term loans and was subject to constantly increasing interest rates. The shortening of repayment terms and the rise in interest rates increased at the beginning of the 1980s, reflecting the fact that the region is in a clearly asymmetrical position with regard to the international financial markets. As a result of this trend, one positive factor that remains is the new structure and level of exports. Despite the repercussions of the cur­ rent unfavourable situation on the export-ori­ ented sectors of production, in many cases markets have been opened up and consoli­ dated and, in macroeconomic terms, the in­ creasing deterioration of the region’s share in world trade has been stopped. On the negative side, it should be noted that the new financial insertion has accentuated the asymmetry of ex­ ternal relations and has transferred to the do­ mestic economy, and often increased, the more unfavourable effects of the recession of the cen­ tres. In the second place, as has been mention­ ed above, the changes in economic policy were judged in positive terms —because of the role they played with regard to productive transformation and external insertion— and in ^ negative terms because of their inability to sol­ ve social problems and because of the continu­ ing asymmetry of external relations. Beyond these judgements, it must be stressed that qual­ ity of the management capacity attained during the decade, which underlay these successes and failures, depended on the orientation of the economic policy followed. The economic policies of the 1970s com­ bined in very different proportions various forms of State intervention, which we shall call active and passive. The active ones are those which contribute to the strengthening of public IFedro Sáinz 29 institutions and public intervention policies. Concrete examples of this form of intervention are the creation of State enterprises concerned with exports (promotion, marketing, financing, negotiation and opening up of markets) and with production in key sectors of the economy, the establishment of policies providing for sub­ sidies and incentives to production, and the monitoring of the activities of the transnational corporations (including the amounts, terms and channelling of external financing). On the other hand, the passive forms of intervention are those which tend to reduce or eliminate the activity of public institutions in order to facili­ tate the action of domestic and foreign private agents. Some examples of this are the policies providing for the liberalization of foreign trade and of the financial sector and the opening up of the financial sector to the international banks. A study of the Latin American countries will reveal the distinction between those poli­ cies where the active elements were predomi­ nant and those where the passive elements were predominant. Although some hold the view that there was no substantial difference between them, because of the decisive in­ fluence of external agents on State action, it should be stressed that the economic results were clearly different.^* ^ The countries which applied mostly active forms of intervention during the period 19741979 followed a State policy aimed at promot­ ing industrialization and the modernization of other sectors. This policy was aimed at co-ordi­ nating the recent insertion into the internation­ al economy with the expansion of production. Thus, part of the investment in industry was oriented towards taking advantage of both do­ mestic and external markets, external financing ®Ten Latín American countries representing nearly half the population of Latin America in 1975, in which the State plays an important role in industry, either through direct action or through promotion, achieved average an­ nual growth rates in the manufacturing sector of between 5.7% and 12.1%, ^According to other criteria, the spread o f transnation­ als has also been classified as either active or passive. See, for example, Raúl Tr^tenberg and Raúl Vigorito, “Econo­ mía y política en la &se transnacional; reflexiones prelimi­ nares”, in C om ercio E xterior, Vol. 32, No. 7, Mexico, July 1982, 30 or surpluses were used to support a relatively explicit productive transformation project and, in general, the financial sector was better ba­ lanced with the productive sector, when it was not subordinated to it. Despite the &ct that the change in the international scene of the 1080s produced a disarticulation of this policy and prevented most of the countries following it from maintaining their previous growth rates, there is no question that the organization of the State places them in a better position to esta­ blish development policies than is the case with those countries where the passive forms of intervention were predominant. In the third place, despite the disparity between countries and periods, it was clearly shown that the region possesses a considerable potential for transformation and economic growth. In certain periods —for example 19701974— the region grew at rates of close to 7.2%,* thus demonstrating its great capacity to absorb investment and to balance the growdi of domestic and external savings. Throughout the decade, certain productive branches of the in­ dustrial sector were strengthened, part of die agricultural sector was technified and diversi­ fied, and commercial and financial services were modernized. In many appraisals, the view is taken that most of these transformations, as well as the economic dynamism, were brought about by internal and external economic agents which used the changes to gain greater control over the rest of the society. This is not the view expressed in other appraisals, which dispute the statistical quality of the indicators used to measure the concentration of income and of wealth or consider concentration as an inevi­ table stage in the process of growth and econo­ mic transformation. What should be stressed here is that, even if one accepts the first view, it seems reasonable to hold that the point of de­ parture makes it possible to reach higher levels of production with a more complex structure. Moreover, since an appreciable percentage of the infrastructure and of the productive capac­ ity created can be used in a relatively flexible * Estimated at 1975 prices. Taking into account only the non-oil-exporting countries, the annual growth rate was over 7.5%. December 1982 CEPAL REVIEW No. 18 / manner, they may also be useful in very diffe­ rent development patterns. In brief, with a higher material base and with the region's demonstrated potential for economic growth, it is possible to think in terms of much more ambitious development strategies based to a greater degree on the in­ ternal development capacity of the countries. Nevertheless, and in fourth place, the most important conclusion to be drawn, from the perspective of 1982, is concerned with tiie persistence of the structural problems of Latin America. The deterioration of external condi­ tions showed that: (a) The changes which took place in com­ mercial and financial relations did not change the asymmetry of external relations, but instead strengthened it. (b) Economic dynamism did not create the internal foundations the region needed to protect itself to a reasonable degree from the periods of sharp depression in the centres. Be­ tween 1974 and 1980, the region seemed to have attained a degree of autonomy that would en­ able it to maintain relatively high growth rates, although it was affected by the fluctuations in the centres and in their growth rates. Events have shown that external indebtedness had played a greater role in creating this presumed protective capacity than had been acknowl­ edged in many appraisals. (c) The inequality in the distribution of political and economic power among the vari­ ous social groups has either continued or in­ creased; likewise, the inequitable nature of Latin American societies has been evident in the distribution of the costs of the crisis. These preliminary remarks provide some background on the issues that should be con­ sidered in designing a strategy for the 1980s. On the one hand, the structural problems have persisted, albeit under new conditions and in new institutions; macroeconomic and institu­ tional tools put into use through existing public and market mechanisms are in and of them­ selves inadequate to overcome social ineq­ uities, the high degree of dependence on the exterior and the instability and vulnerability of economic growth. Moreover, the region might lean more A D JU STM EN T, REDEPLOYM EN T OR TRANSFORMATION? heavily than it has to date on its internal poten­ tial for growth and transformation. A material and institutional base has been created which, if used for other goals, could significantly re­ duce the problems affecting the most backward strata of Latin American societies. The poten­ ¡Pedro Sáinz 31 tial for development which this material base provides could be considerably reinforced if the countries utilized it in a more co-ordinated fashion; this in turn would enable them appre­ ciably to increase their autonomy with respect to the exterior. II The current situation 1. Background o f the current crisis Having explored the positive and negative long-term aspects of the trends noted during the 1960s, we must now look at the current situation from the short-term viewpoint. The crisis which began in 1981 and was in full swing during 1982 originated from external disequilibria. The region had satisfactorily withstood the sharp deceleration of growth in the developed countries between 1974 and 1980, but the policies used then did not bring success in dealing witii the current crisis. Several factors worked together to bring about the current situation of sharp external disequilibrium. As mentioned previously, the region had been dealing with its external prob­ lems through both an increased indebtedness and an accelerated growth of exports. The sec­ ond rise in oil prices and the new economic policies of the Reagan administration in the United States, among other frctors, affected the growth of the value of exports because of the drop in real demand and in prices. Moreover, the export promotion mechanisms that had been operating actively to take advantage of the strengthening of productive capacity turned out to be inadequate because of the increasing protectionism of the centres. Then, die rise in interest rates significandy increased the cost of servicing the external debt. These events oc­ curred at a time when the level and the profile of indebtedness had already, in 1978,® led CEPAL to foresee that it would be impossible ^See, for example, “Tendencias y proyecciones de lar> go plazo del desarrollo económico de América Latina”, C u ad ern os d é la CEPAL, Santiago, Chile. 1978. to maintain the trend of the second half of the 1970s. Indeed, it would have been difficult to maintain the ratio between the service of die debt and the value of exports in view of the situation with regard to the external demand, interest rates and overdue loans. The external disequilibrium was transfer­ red to the Latin American economies by mech­ anisms that either did not exist or were not widely disseminated in the early 1970s. During the 1970s, the region was rapidly integrated into the international financial system under circumstances which were clearly asymmetri­ cal. The loans received from international pri­ vate banks were transferred to the national pro­ ductive sectors quite flexibly, although some­ times on unfavourable terms. Thus, a high per­ centage of Latin American enterprises was di­ rectly subject to the conditions of the interna­ tional financial markets and to fluctuations in the exchange rate. Likewise, in 1981 and 1982, the international financial crisis and the exter­ nal disequilibria of the countries also affected certain sectors that had very few trade links with the exterior. As the seriousness of the situation became evident, there began in 1981 a gradual disar­ ticulation of the policies that had made possi­ ble the type of external insertion that was typi­ cal of the 1970s. There was a spate of devalua­ tions, rises in tariffs and otiier measures aimed at palliating the external commercial disequi­ librium, although the increased efforts to pro­ tect the countries wiffi regard to external trade has deepened the ffnancial crisis for many en­ terprises. The ambivalent impact of these mea­ sures on business has made it necessary to take additional action, such as the creation of diffe­ December 1982 32 CEPAL REVIEW No. 18 / rential exchange rates for the payment of debts and different types of moratoria or State sub­ sidies for debtors. The economic situation varies from one Latin American country to another. In most of them, the external disequilibria go hand in hand with a drop in the level of economic activity and, in some cases, there axe also sharp increases in inflation or unprecedented levels of unemployment. Despite these differences, action by the public sector is increasing every­ where without regard to ideological considera­ tions, and a new economic situation is begin­ ning to take shape in which there is an altera­ tion both of the distribution of functions as be­ tween the public and private sectors and in the economic parameters within which flie agents must act. Latin American economic history once again shows how much depends on the direction and magnitude of public action in this type of crisis. In view of the above, it is worthwhile to summarize those problems that are perceived as urgent in the current situation and look at the framework in which they are viewed and the strategy to be chosen in dealing with them. In a crisis situation, there are usually cer­ tain imbalances, financial or real, external or internal, of such a magnitude that it becomes essential to And a quick solution to them; what is important is to remember fliat such a solution is far from being the only one and that the solution adopted will have quite a different effect on the structural problems faced by the economies. Thus, the consistency of the short­ term policy will depend on the long-term vi­ sion with which the numerous emergencies characteristic of such situations are met. 2. Short-term p u b lic action As has been mentioned repeatedly, the countries are faced with serious structural problems that give rise to conjunctural disequi­ libria which are accentuated in times of crisis. Some of these conjunctural problems are evi­ dent in almost all flie Latin American countries and, because of their seriousness, require an urgent solution. (a) Renegotiation of the debt The service of the external debt as envissaged for 1982 and 1983 is of such a magnitude that it cannot be met, especially in view of flie circumstances surrounding external trade fliat are described above. The solution is to renego­ tiate the debt, for the previous situation of abundant supply, when new loans amply cov­ ered interest payments, has changed radically. Those countries which must cover a substantial portion of the debt in one or two years are in the most serious trouble; in such cases, the classi­ cal solution of paying the interest and renewing the debt does not work and consequently they must now replace the current debt with another one having a longer term. The conditions for renegotiation that the external agents might try to impose could reduce a country*^s manoeuvr­ ing room, therefore, action by the public sector, at the national or international level, is essen­ tial in dealing with this problem. (b) The crisis of the externalfinancial sector Because the internal financial crisis has spread to most sectors, many enterprises have become insolvent. There has been a mutual feedback between the internal financial crisis and the slowdown of activity. This has accentu­ ated the problem for business and often the market has not offered any solution to the dise­ quilibria other than bankruptcy. A more or less profound intervention on the part of the central bank is becoming essential to restore the nor­ mal operation of the productive system. (c) The depression of the producHce system The years 1981 and 1982 were character­ ized by a considerable slowdown of economic growth and in many countries by a vertical drop in the level of the product, so that open unem­ ployment and underemployment have in­ creased notably. Public action is required to reduce the deficits on the trade balance, al­ though, since it is quite unlikely that exports will increase significantly, there is the problem of reducing imports with minimum effect on the level of domestic activity. Expenditure must be reoriented towards activities that will put less pressure on the level of imports and imports must be controlled if a level of activity A D JU STM EN T, REDEPLOYM EN T OR TRANSFORMATION? or employment compatible with a non-repressive policy in the political sphere is to be main­ tained. (d) The boundary between public and pri­ vate activity The degree to which the State does or should intervene to deal with the crisis brings out in the open a dilemma regarding the protec­ tion of public interests. There are cases when, in order to keep an enterprise in operation, the public sector must provide, on very favourable repayment terras, financial resources that are almost equal to the capital of the enterprise. In order to guarantee the proper use of such re­ sources, the State must create control mecha­ nisms. When the government provides a large proportion of a company’s capital and takes over central aspects of its administration, the borderline between this situation and the man­ agement of a public enterprise becomes hazy. In other cases, the operation of the market does not suffice to control the imbalance, e.g., with regard to crises in the exchange rate, and State intervention involves an implicit transfer of large amounts of resources between economic agents. The use of such resources for purposes other than those pursued by the State might be contrary to the public interest and changes might have to be made in the delimitation of the public and private sectors. Finally, during periods of crisis it is usually necessary to adopt measures that entail great commercial or finan­ cial risk and the private sector is usually not prepared to assume those risks under such un­ stable circumstances. In such a situation, the government must redefine the boundaries be­ tween the public and the private sectors and take emergency measures as well. ¡Pedro Sáinz 33 ferent governments are also in different posi­ tions with regard to the balance of payments: some still have a considerable export potential while others seem to have reached the limits of their installed capacity. There are also con­ trasts in the capacity for reducing imports and in the relative importance and the profile of the debt and the service thereof. Despite the afore­ mentioned disparities, the great majority of countries have serious internal and balanceof-payments problems and the differences noted have a bearing more on the possibilities for action than on the existence of difficulties. 3. Long-term frameworks fo r short-term problems Because of the many different policy mea­ sures that governments must take to solve the wide variety of problems with which they are faced, they must devise an overall fiamework to give such policies consistency. Moreover, be­ cause of the very nature of the problems, cer­ tain measures will have to be taken which will gradually determine long-term development; viewing such measures within a long-term con­ text will make it easier to appreciate their full implications. Hence, a long-term framework will be essential to the definition and study of short-term policy options. We shall describe only two types of strate­ gy options to illustrate the long-term considera­ tions on which a short-term position must al­ ways be founded. Under the first option, public action is guided by the conjunctural approach and the attitude towards external circumstances is pas­ sive. This option would be taken by countries where the public sector had a limited capacity for intervention or those whose governments assigned a high value to liberal mechanisms and to the operation of the market within those The public sectors facing these conjunctural problems have started out from very diffe­ rent positions, which should be borne in mind mechanisms. When this option is taken, the form of external insertion of the 1970s is not before strategic options are proposed. There are public sectors in which State intervention was questioned; rather, the aim is to alter it as little active during the 1970s and which therefore as possible with a view to returning to it when have a vast institutional arsenal in the fields of the central economies —and with them inter­ investment, production, finance and external national trade— recover. trade. Other governmens^ however, have con­ Within this line of Blinking, public inter­ centrated their action on the more aggregated vention must change the allocation of resources instruments of macroeconomic policy, Dif­ arising spontaneously firom the maiket as little 34 December 1982 CEP AL REVIEW No. 18 / as possible and new trends must be expressed through the market. Thus for example, a deval' nation should transmit enough internal signals to make it possible to reassign resources be­ tween production for the domestic market and production for export, making any kind of con­ trol or foreign trade subsidy unnecessary. Mor­ atoria in the payment of die external debt should take the form of long-term renegotia­ tions within the parameters of the financial market itself and aid to the most seriously af­ fected sectors should not involve profound changes in the structure of distribution. In this type of option, any discussion is of a practical nature, because the central objectives of the development pattern are not questioned. The inherent primacy of market mechanisms under­ lies this option and interferences in the opera­ tion of those mechanisms are accepted only temporarily; they would be considered unne­ cessary in the absence of factors of rigidity such as the refusal of entrepreneurs to declare bank­ ruptcy or of workers to accept wage cuts. The second option is bases on a different interpretation of the situation and involves making substantial changes in current develop­ ment patterns. In the view of those who take this approach, the current crisis shows once again the inability of the central countries to maintain a stable growth in the level of world activity and trade. The deterioration of the terms of trade in the periphery once more shows that in the trade of basic commodities and industrial goods, those who specialize in commodities are at a disadvantage and that it is the countries that are better able to protect themselves that are in a position to export man­ ufactured goods. The instability of the market for basic commodities and the benefits which the developed countries obtain from the de­ cline in the terms of trade when the markets suffer contraction, are viewed as structural characteristics of the present world trade sys­ tem. The fact that the countries of the periphery have little or no influence in the establishment of real interest rates, the terms under which external financing is granted or decisions regard­ ing monetary policy reflects the of external economic relations. The transmission of the high interest rates makes it almost impossible to find productive investments that can asymmetry compete with speculative investments and the resulting slowdown of domestic economic ac­ tivity and the high unemployment rates of the Latin American countries show how extremely vulnerable the region is to external conditions. Finally, the fact that the system has very little capacity to distribute equitably among the dif­ ferent social groups both the cost of the crisis and the fruits of the growth of the boom period, is a confirmation of its inability to solve the problems of distribution. Hence, those who take this approach no longer hold to the illusion of the early 1970s regarding the productive and distributive potential of foil insertion in world trade or the value attributed subsequently to full participation in the new international fi­ nancial system. They do not think that the world trade boom of tiie 1970s can be rei)eated or that external financing can be used to the extent, in terms of percentage of the product, that it was during the period 1974-1980. Hence, they consider that the approach must be diffe­ rent from that of the 1970s and that the ele­ ments of dynamism must be found within the Latin American countries and the region. It will be important, however, to retain all those elements that demonstrated the region's poten­ tial for mobilizing resources and penetrating external markets. Economic reactivation will thus cease to depend solely on the reactivation of the devel­ oped countries. It will depend, first of all, on the capacity of public policy to establish more stable, dynamic and fair regional and national markets and to encourage those activities to which priority is assigned. In the second place, it will depend on the collective capacity of the region to restore suitable external conditions. This will involve collective negotiations re­ garding the general terms of external financing and protectionism and the building up of more effective regional co-operation in the fields of trade and finance. The establishment of markets is aimed at implementing a policy for the redistribution of income and consumption that will equitably spread out the deterioration of real income and guarantee a minimum degree of stability in the operation of the market. In order to ensure greater stability, it will be important to make clear, among other parameters, to what extent A D JU STM EN T, REDEPLOYM EN T OR TRANSFORMATION? domestic activities will be protected or ne­ glected; this also refers to the government's attitude regarding ehanges of policy in the dev­ eloped countries (protectionism and subsi­ dies). To guarantee a greater degree of autonomy and symmetry in external relations, a long-term policy regarding the transformation of produc­ tion must be designed. The State should play an important role in the stages of definition and execution of such a policy. The emphasis given under this option to structural issues should not be construed as indicating a lack of concern for conjunctural problems; on the contrary, the solution of such problems should constitute a first step towards structural change. Indeed, the new delimita­ tion between the public and private sectors, die full or partial operation of market mechanisms, the degree of protection given to the produc­ tive sectors, the deliberate action of public agencies and enterprises —using indicators other than the current erratic prices of world trade and real interest rates rather than those of late 1981 and early 1982— constitute basic in­ ¡Pedro Sáinz 35 gredients for the solution of the problems per­ taining to reactivation and to the balance of payments. Thus, under this second option, the cur­ rent crisis is viewed as yet another demonstra­ tion of the inability of the current forms of inter­ national insertion used by the region to solve its structural problems and an active national and regional policy is proposed in order to bring about fundamental changes in the devel­ opment pattern. Finally, it should be mentioned again that both the definition of the problem and the pol­ icy options presented in this article are generic in nature and do not refer to any country in particular. At the national level, both tasks should be undertaken with due regard to the circumstances that are specific to each country, such as its economic and social systems, the organization and scope of its public sector, and the participation of external economic interests as well as to the differences between countries as regards size of the population and the eco­ nomy and the availability of resources. III Structural elements in the solution of the crisis The economic crisis of the period 1981-1982 is without a doubt profound and far-reaching. In 1982, the service of the debt in many countries will exceed half the value of exports and the situation will deteriorate for as long as the prices and volume of exports continue to drop while interest rates rise and the proportion of the short-term debt increases. Not only is infla­ tion higher than 50% per year in several coun­ tries, it is rising rapidly in most of them, open unemployment is in the two-digit range and activity is slowing down seriously in many branches of the economy. The policy measures that are being adop­ ted also give an indication of the seriousness of the crisis; one devaluation follows another and over a period of one year they amount to or are close to 100%, the money stock is growing rap­ idly, tariffs are being raised and high subsidies are being granted to major sectors of the eco­ nomy. Under such circumstances, the measures that are being taken to deal with the crisis will inevitably produce results of a structural na­ ture. Indeed, many branches, if not sectors of production, are being seriously undermined and the relative position of the economic and social groups is changing significantly. More­ over, if the structural nature of the crisis is not recognized in time, especially if the problem is viewed as being of a temporary nature, the situ­ ation will deteriorate very seriously. What usu­ ally happens in such cases is that radical mea­ sures are eventually adopted which only deal with the problem piecemeal and do not take into account what should constitute a compre­ hensive strategy for facing the crisis. Thus, for example, when economic and political pres­ 36 sures made it necessary to apply heavy devalu­ ations to solve the balance-of-payments crisis, the solution of which had been postponed, they caused serious financial imbalances, explosive inflation, and rising unemployment, as well as other undesirable effects whereby the prob­ lems were transferred to another sector of the economy without any overall approach having been taken to deal with them. In mid-1982, the situation of many coun­ tries was such that the instruments of economic policy could no longer be applied in a marginal fashion and it was becoming increasingly evi­ dent that a structural framework was needed withing which to manage economic policy, in other words, a medium and long-term vision of the international situation and of the domestic problems pertaining to which priorities might be established, at least in connection with the sectors or branches of production which were to be protected against deterioration or disap­ pearance, and the distribution of costs among economic and social groups. Likewise, policy schemes should be established for attacking the problems with some degree of simultane­ ity; in this regard, it should be recognized that in view of the magnitude of the disequilibria, the economy cannot function the way it did before the crisis and that, therefore, instru­ ments that might be effective in more normal times cease to be so and in critical times may even be inefficient. Following is some background informa­ tion which may be useful in devising a structu­ ral frame of reference for a policy option of the second type described above, i.e., an option based on the view that the current crisis of the central countries is not conjunctural in nature and aimed at solving the problems of social equity and the lack of dynamism which affect the Latin American countries. The Economic Projections Centre of CEPAL 7 has prepared several studies which explore aspects relating to economic dyna­ mism, income distribution, external economic relations and the structure of production, ana­ lysing the requirements and possibilities for See, especially, “Latin American Development Pro­ jections for die 1980s", E stu dios e In form es d e la CEPAL No. 6, Santiago, Chile, October 1981. December 1982 CEPAL REVIEW No. 18 / achieving a more dynamic, equitable and autonomous development. This information should be useful in studying the extent to which current public action might be oriented towards structural considerations rather than merely conjunctural ones. In the first place, a review is made of some ratios and orders of magnitude pertaining to economic dynamism, employment and underemployment, sectoral productivity and redistribution policies; then, a study is made of the orientation that is desir­ able for a trade and external financing policy in order to achieve greater economic dynamism and greater autonomy in the decision-making with regard to the exterior; finally, an estimate is made of the needs for industrialization that are implicit in this strategy and some questions are raised regarding certain key subsectors. This background information should be in­ terpreted as an exploration into orders of mag­ nitude, prerequisites and restrictions which is designed to provide guidelines for the State intervention which seems inevitable under present-day conditions. 1. Dynamism and equity One of the central problems with the de­ velopment pattern being applied in the great majority of the Latin American countries is that it leads to the formation of unjust societies. We shall not stress here the controversial subject of how the distribution of wealth and of political power influenced the distribution of income, but shall limit ourselves to pointing out two elements we consider vital in determining the basis for which any redistribution policy, i.e., employment and sectoral differences in the product per employed person.® This does not imply disregard for the feet that distributive policies and, especially, profound political changes can bring about substantial changes in the distribution of consumption and income; rather, the aim is to describe the challenge with which the policy chosen must deal, beginning with the current situation in which the families ®The ideal would be to have some way of measuring marginal productivity; as an approximation, we shall use the product per employed person, which is representative o f average productivity. A D JU STM EN T, REDEPLOYM EN T OR TRANSFORMATION? that are suffering the most are associated with the sectors where unemployment is high and the product per employed person is low. If a minimum acceptable level of produc­ tive employment is to be established, the level of activity must increase. In previous studies, CEPAL has already stressed the unusual chal­ lenge which the need to provide jobs for a ra­ pidly growing labour force represents for the region. In this exercise, the labour force has been estimated on the basis of population data which make it possible to estimate the active popula­ tion; the proportion of the active population that enters the labour force is the result of com­ plex mechanisms linked to different ÜEictors, such as the labour market, the age structure of the population, its geographic location (partic­ ularly with reference to urbanization proces­ ses), the type and duration of education, and the participation of women in the labour force. In the projections, conservative parameters have been used which are based on the assump­ tion that the percentage of the active popula­ tion joining the labour force does not increase much over time. The product per employed person has been estimated separately for the different sec­ tors of the economy and the level is assumed to depend on the level of income and on the trend in the product per employed person in coun­ tries having a high income level, from which a substantial part of the capital goods and tech­ nology used come. Quantitative estimates for countries and sectors have been made, by using econometric methods, on the basis of data on central countries and Latin American coun­ tries. In accordance with these criteria, the re­ gional growth rate of the labour force has been estimated at an average of 2.8% per year for the 1980s and around 2.5% for the 1990s. As men­ tioned above, the growth of productivity de­ pends on economic dynamism. Disregarding the particular features of different countries and sectors, it is estimated that in order for the per capita product to grow by 3.3% per year—a rate similar to that of the 1960s— the product would have to grow at the rate of 5.9% per year during the 1980s, and a growth rate of 4.2% for the per capita product would call for an annual ¡Pedro Sáinz 37 growth rate of 7.3%. In the first case, open un­ employment would be in the order of 10% and in the second case, in the order of 5%. This first fact gives and idea of the effect capital accumulation and economic dynamism have on employment. If we consider 5% to be the maximum ac­ ceptable rate of open unemployment —and bear in mind that a rapid increase of the product per employed person over a period of ten years would reduce to an acceptable magnitude the difference between the central economies and the Latin American economies— we may reach the conclusion that 7% is the minimum accept­ able long-term growth rate for the region. If the per capita product were to grow in the manner postulated above, this would pre­ sent new challenges relating to distribution be­ cause, as is well known, there are at the present time considerable differences between sectors as regards the product per employed person. Indeed, according to a rough estimate, the pro­ duct per employed person in the agricultural sector represents around 30% of the average for the economy, in the manufacturing industry it is practically double the average, in the other goods-producing sectors (mining, quarrying and construction) and in basic services it is 50% higher than the average, and in all other ser­ vices, it is close to the average.^ The acceleration of growth under the con­ ditions described above would tend to aggra­ vate some disparities, particularly because of the rapid growth of the product per employed person which is to be expected in manufactur­ ing and in basic services. In respect of the aver­ age, the position of these two sectors would improve even more, while the services sector, excluding basic services, and agriculture would see their position somewhat worsened. The main changes in the structure of em­ ployment would still be, fundamentally, a transfer from the agricultural sector to the ser­ vices sector (excluding basic services). The current agricultural employment rate of 36% ®It should be borne in mind that when the product per employed person is used without regard to the relationship between capital and labour, the wrong conclusions may be reached for particular branches. However, for aggregated sectors, the macroeconomic figures are close enough to show the overall picture. 38 December 1982 CEPAL REVIEW No. 18 / would drop to 31%, while the rate for services, excluding basic services, would increase from 38% to 43%. The manufacturing sector would maintain a share of close to 14%. Under such circumstances, the region would have a new structure of employment and of the product per employed person. A better distribution of income would be fostered by the reduction of unemployment and underemploy­ ment and of the percentage of the population employed in agriculture; on the other hand, the growing discrepancies in the product per em­ ployed person would produce the opposite ef­ fect. These global figures, despite their being aggregated, make it possible to appreciate the magnitude of the challenge. The difficulty of achieving long-term annual growth rates in the order of 7% is a mystery to no one. Although, as has been explained above, this dynamism would alleviate the problems of unemploy­ ment and underemployment, it would at the same time make it absolutely essential to take other measures relating to redistribution and to capital accumulation. If the Latin American economies were to continue distributing in­ come among social groups and between con­ sumption and savings according to the patterns of the past decade, they would in many cases be faced with excessive needs for external savings and with increasingly unjust societies. Neither the market, which in the words of Raúl Prebisch was neither a temporal nor a social hori­ zon, nor current public policies are capable of achieving both the growth objectives and the equity sought. Hence the imperative need for new policies especially designed to attract part of the value added in those sectors where its value per employed person is higher and grows more rapidly, so as to ensure that a substantial part of this income is channelled in the right direction. 2. External economic relations and the structure o f production The increased economic dynamism and the problems now facing trade and external financing call for changes in external economic relations; such changes, in turn, cannot be car­ ried out without affecting to some extent the internal structure of production. Following are some considerations to be borne in mind in formulating a proposal for new internal struc­ tures of production and new external economic relations. The evolution of foreign trade and the pro­ ductive structure of the Latin American coun­ tries in the postwar period have been dealt with in detail in other CEPAL documents. One of the central concerns of these studies has been the structural inclination towards a deficit in the balance of payments resulting from the fact that the expansion of production requires in­ creasing amounts of capital goods and interme­ diate inputs of industrial origin. Over the long term, the decision to import or produce these goods depends on the possibilities of exporting other goods or services on terms considered beneficial. Traditional behaviour, i.e., the ex­ port of basic commodities, is faced with two main difficulties: the serious deterioration of the terms of trade, especially in times of crisis, and the slow growth of the demand for such commodities. Moreover, Latin American ex­ ports of basic commodities have risen at lower rates than the world demand, largely because of the policy of diversification of the supply (investment in other areas) and the protection­ ism of the central countries. Thus, a group of countries promoted their economic growth through the substituting of industrial imports; this was a decision regarding supply which was forced on them to a large extent by external conditions. From the mid-1960s on, the previ­ ous industrialization process opened the door to a new form of decision as to what to produce, what to import and what to export. The pos­ sibility of exporting industrial goods, both to the region itself and to the rest of the world, made it possible inter alia for exports to grow at rates similar to or higher than the growth rates of the gross domestic product. The economies in which the relative importance of external trade with respect to the product was declining changed their direction and began to ‘open up' to the exterior; The increase of imported industrial goods required by growth was then achieved thanks in part to an external trade of industrial goods; however, some problems still arose. Industrialization does not allow for con­ stant and similar progress to be made in every A D JU STM EN T, REDEPLOYM EN T OR TRANSFORMATION? branch; if advantage is to be taken of external markets, there must first be an industrial in­ frastructure and the time needed for installa­ tion and the magnitude of the investment re­ quired present difficult problems of scale. This in turn explains the attempts at integration and the greater success of those countries which managed to make progress in this regard or which because of their economic and demog­ raphic size were able in certain stages to handle the problems of scale by themselves. Beginning in 1973, two new elements were added to the factors affecting the equilibvium of the balance of payments: the abun­ dance of external financing and the increased value of fuels. External financing, which had traditionally been used by the region, more than doubled in importance relative to the prod­ uct and made it possible, for a relatively long period (1974-1980), to support a level of im­ ports which could not have been supported by exports alone. The rise in the prices of oil had different effects on different countries, since some were net exporters, others were net im­ porters and a third group had a relatively balan­ ced external trade in fuels. Most of the coun­ tries resorted, for different reasons, to external financing, including the net exporters of oil. In the early 1980s, it is difficult to increase the debt any more, as the cost of so doing is high and the service of the debt is beginning to put pressure on the levels of imports. As regards the increased price of fuels, the deficit coun­ tries have made great efforts to adjust their eco­ nomies to the new situation by increasing ex­ ports and, in some cases, reducing imports. The surplus countries have adjusted their econo­ mies to higher levels of imports relative to the product. Therefore, it does not seem likely that these two elements could again, during tibe 1980s, play the role they did during the period 1974-1980. On the contrary, they have both created the need to increase exports substan­ tially in order to make it possible to maintain the relative position of imports and to service the debt. This all leads to the conclusion that, unless imports can be restricted, the region must continue to increase its exports rapidly and, for the reasons explained before, such growth must be based on manufactured goods ¡Pedro Sáinz 39 and must be achieved in the regional and nontraditional markets. In order better to describe these concepts, we shall now look at some data for the region as a whole. In making the projections, an import product elasticity of somewhat over one has been used, although this is lower than that of the 1970s; in this respect, is should be recalled that because of the lower elasticity of fuel con­ sumption, a global elasticity of more than one is especially meaningful. This position is based on recognition of the fact that, despite the ex­ pansion of industry, it will be necessary to in­ vest higher proportions of the product than are being invested now and to have access to ca­ pital goods and inputs which most countries cannot easily produce over the medium term if each market is considered separately. More­ over, if a reasonable degree of efficiency is to be achieved, a certain openness to external commercial markets must be maintained. As mentioned above, net external finan­ cing increased significantly as a percentage of the product, rising from levels of around 2% during the 1960s to around 4% in the mid-1970s and 3% towards the end of that decade. As a result of this trend, the servicing of the debt, which up to 1975 had represented about 25% of exports, rose to nearly 45% to­ wards the end of the 1970s, despite the acceler­ ated growth of exports. The projections show that, even with high export growth rates, it would be impossible to keep net external finan­ cing at the levels attained since 1974, particu­ larly if interest rates remain at positive real levels and if the profile of the debt continues to worsen. In this exercise, moderate assumptions regarding these last two factors have been used and net external financing has been fixed at relatively high levels, around 2.7% of the prod­ uct, and in percentages of exports that are clear­ ly higher than those of the 1960s, although somewhat lower than those of the late 1970s. In this way, the service of the debt could re­ present, as previously, 25% of exports. The assumptions adopted for imports and external financing mean that the equilibrium of the balance of payments will depend on the terms of trade and on the growth of the volume of exports. Without considering differences be­ tween countries, especially as regards external 40 trade in fuels, a ratio similar to that in force in 1979 has been assumed. As a point of reference, it should be recalled that the index of the terms of trade in 1981 was 40% higher than in 1979 for the oil-exporting countries, whereas it deterio­ rated by 20% for the rest of the Latin American countries. In these circumstances, in order to balance external accounts, the long-term growth of the volume of exports would have to be 8.5% per year. If the terms of trade improved by 10% during the first years of the decade, the require­ ment for the growth of exports would be re­ duced by approximately 1%. The recent experi­ ence of some Latin American countries, where the deterioration of the terms of trade has made it necessary to force the growth of exports, pro­ vides a good example of the importance of this ratio. Therefore, a relatively dynamic growth of imports accompanied by a bearable external financing and terms of trade which, although unfavourable for most of the countries, are higher than at present, places the burden of the effort on exports. To find out whether such a high volume of exports can be achieved, we shall now explore the implications of such a goal in terms of con­ tent and destination. Latin American exports were placed on a world trade scenario that is divided into re­ gions: the developed market economies, the centrally planned economies, Latin America, the OPEC countries (except Venezuela and Ecuador) and the rest of developing countries. The foreign trade of each of these regions de­ pended on the internal level of activity. While it is true that long-term trends tend to increase the deficit that has been evident in Latin Amer­ ica’s trade in goods, if one takes into account what has happened since 1976, one may see that the region has reacted to external prob­ lems by increasing its exports at record rates. What is significant, in any event, is the dispar­ ity in the growth of the markets for the different goods. It is estimated that, with world trade growing at average annual rates of between 7 and 8%, the trade in manufactured goods grew at between 8.3 and 9.7%, while the trade of commodities only grew between 4,2 and 4.8% and fuels grew between 3.1 and 3.7%. December 1982 CEPAL REVIEW No. 18 / The region already has a significant share of the international commodity market and in the past has had to face heavy competition from other developing regions, as well as the pro­ tectionism of the centres. The low growth rate of the commodity market, together with the difficulty of increasing Latin America’s share in it, would make it impossible to base a growth rate of nearly 8.5% on commodities; moreover, a great effort will be required to maintain or increase, even marginally, the region’s share in the international markets. The option that is considered most acceptable would be to re­ verse, or at least stop, the downward trend in the share of commodities (from 17% in 1955 to 12% in 1980) and raise it slightly in order to reach 12.5% in 1990. A similar assumption has been made with respect to fuels, which would remain at 12%, i.e., with an average annual growth rate of 4.5%. Therefore, the growth of exports required to balance the balance of payments should be based primarily on manufactured goods. These goods, which represented 1.3% of world trade in 1980, will represent 2.4% in 1990; in order to appreciate the relative importance of these per­ centages, it must be borne in mind that in 1990 the world trade in manufactured goods will be five times greater than the trade of commodi­ ties. This means fiiat Latin American exports of manufactures must increase at average annual rates in the order of 17%, This new composition of exports would re­ quire a significant restructuring of the destina­ tion of the goods. It is not realistic to think that the developed countries are going to change their behaviour radically and allow the devel­ oping countries easily to increase their share in those markets; moreover, the imports required by Latin America create a good market for re­ gional projects, especially pertaining to man­ ufactured goods. Indeed, by 1990, nearly two-thirds of imports will be manufactures. If the region were to aim by 1990 to supply 30% of its imports with goods produced in the region, as compared with the present 17%, the 8.5% growth of exports would break down into aver­ age annual growth rates of 5.7% for extraregional exports and 13.2% for intra-regional exports. In this way, the composition of intra-regional trade would change substantially and manufac­ A D JU STM EN T, REDEPLOYM EN T OR TRANSFORMATION? tured goods would account for 64% in 1990. At the end of the 1970s, the figure was 30%. The data and projections just described are based on the assumption that there will be sig­ nificant changes in the magnitude, composi­ tion, origin and destination of foreign trade. They simultaneously serve two purposes: they make a high economic growth rate viable and strengthen such growth, and they introduce greater symmetry into external economic rela­ tions. Such changes can alter the region*s posi­ tion as regards world production and trade, im­ proving it both quantitatively and qualitati­ vely. Thus, the structural modification of exter­ nal economic relations appears to be closely linked to changes in the internal productive structure. The subject will be discussed on the following pages, 3. The productive structure o f the Latin American countries The discussion on foreign trade has been guided by the need to allow for economic growth with respect to the supply of imported industrial goods and to place the problem of financing within manageable boundaries. The magnitude of exports is conditioned here by the need to strike a balance between the ba­ lance of payments and its composition and die dynamism and elasticities of demand. The structure of external trade that is implicit in these projections must be consistent with the internal productive structure, which means that the Latin American countries must meet a basic requirement: that of having an industrial sector capable of supporting the new composi­ tion of exports, since, in quantitative terms, in­ dustrial exports should grow at much higher rates than the product This need to industrialize appears even greater when one bears in mind the magnitude and nature of the domestic demand that is im­ plicit in a more equitable and accelerated growth. Investment requirement would gener­ ate a heavy demand for industrial goods, parti­ cularly from the metals and metal products sec­ tor, and the rapid growth of private consumption would also increase the demand for such goods. While it is true that measures regarding dis­ tribution can modify this trend somewhat. ¡Pedro Sáinz 41 there is no question that the demand for indus­ trial goods would grow more rapidly than the income. Therefore, everything seems to indicate that the industrial sector should grow at higher rates than the product. In the projections made, it is estimated that the manufacturing sector would have to grow at an annual rate of some­ what over 8%, which would mean that the sec­ tor's share in the product would be around 30% in 1990. Industrial growth that met the require­ ments described here should be different from that which has been occurring in Latin Amer­ ica. A look at the growth of the domestic de­ mand will show that the expansion of invest­ ment and of private consumption would direct­ ly and especially create pressure on the metals and metal products sector, while the projec­ tions for the external trade indicate that those export products with respect to which the greatest growth should be sought are machin­ ery and transport materials, which should grow at annual rates of 21% between 1978 and 1990, and whose share of exports would rise from 4.1% to 16.3%.“ This growth of die metal and metal pro­ ducts sector would create a substantial addi­ tional demand for basic intermediate inputs. It would be essential to develop, among others, the branches of ferrous and non-ferrous metals, petrochemicals and heavy chemicals particu­ larly considering that die projections for im­ ports do not envisage an accelerated growth for this type of goods. In addition, it would be necessary to correct the problems of vertical integration in the industrial sector, through a greater integration of the intermediate and me­ tal and metal products branches. It is easy to understand that the growth of regional tmde and development of branches which generally pose problems of scale will make it necessary to apply selective criteria. Likewise, access to the technology of the cen­ tres is restricted and burdensome, so that in choosing an alternative it will be necessary to ^®This subject is discussed in greater detail in ''E s­ trategia de desarrollo sectorial para los años ochenta: in­ dustria y agricultura", E stu dios e In form es d e la CEPAL No. 9, Santiago, Chile, 1981. December 1982 CEPAL REVIEW No. 18 / 42 examine the prospects on both the internatio­ nal and the Latin American scenes. In this connection, many questions arise that must be explored. For example, as a result of the energy crisis and its repercussions, some developed countries seem to have abandoned to some extent certain energy-consuming sec­ tors, particularly certain parts of the steel and heavy chemicals industry. At the same time, the OPEC countries seem to be developing a strong chemicals and petrochemicals industry, while an examination of the Latin American industrialization process shows that between 1974 and 1980 the bulk of industrial growth was based on the development of intermediate branches. In this respect, it will be necessary to determine what the current Latin American de­ ficits are, what openings might be created as the developed countries abandon certain interme­ diate branches and what would be the reper­ cussions of the entry into production of OPEC investments. A close study should be made of the devel­ opment of die transport materials industry. The developed countries are engaged in a tech­ nological battle in this branch and the new plants in Europe appear to be achieving cost levels comparable to those of the Japanese. It would therefore be essential to determine whether the existing plants in Latin America are adjusting adequately to fhese innovations. In brief, a study of a set of selected indus­ trial branches would be essential in order to draw up guidelines for the economic policy that is implicit in the industrialization goals discussed here. These would indicate the pos­ sible combinations of investment, technologi­ cal innovation and margins of protection that have to be established in order to make the industrialization process desired a reality. For example, CEPAL is currently conducting a study on the production and external trade of capital goods, the preliminary fíndings of which show the potential for regional develop­ ment that exists in this field.“ Finally, industrial development should al­ so be considered from a broader sectoral pers­ pective. Agricultural growth would have quite a different significance for the countries of the region if they increased the use of regional ma­ chinery and raised the value of their commodi­ ties through agro-industry. The same may be said with regard to services. It is well known that services are expanding considerably in the developed countries and that their nature de­ pends to a large extent on their association with the goods-producing sectors and especially with the industrial sector. As long as part of the growth of services is associated with an indus­ trialization process, they will represent actual increases in productivity and make a real con­ tribution to the well-being of the population. This was the case of the increase in percentages of the population employed in services under the accelerated growth option described above, which is different from the case of the increases that took place in some Latin Ameri­ can countries, where they represented a mech­ anism for redistributing income. IV The current situation and structural change It might seem out of place, in 1982 when many and the data available have shown the pro­ Latin American economies are in the midst of a found effect which this crisis has had on Latin crisis, to take a medium and long-term ap­ American societies. As is usual in this type of proach to the transformation of production, the new forms of insertion into the international economy and the issue of distribution. ^^Some preliminary findings are discussed in the arti­ Nevertheless, with the passing of time, the cle by Jorge Beckel and Salvador Lluch entitled “Capital f markets, sectoral structure and evidence has confirmed the fact that the crisis goods, Size oLatin America”, in CEPAL R eview demand prospects in No. 17, of the central countries is structural in nature August 1982. A D JU STM EN T, REDEPLOYM EN T OR TRANSFORMATION? deep-seated external crisis, any change that takes place in respect of the disequilibria in the balance of payments will in the long run affect the parameters under which the economy as a whole operates. A comparison between the direction which changes are actually taking and the di­ rection they should be taking in order to bring about a more equitable and dynamic society in which decisions can be taken independently, will show similarities and disparities. There are elements in the changes pro­ duced in the external sector that could be help­ ful in establishing a productive structure that would meet the requirements for an external trade similar to that proposed above. In effect, devaluations, increases in tariffs and other measures designed to restore balance or to at­ tain a surplus on the trade balance tend to fa­ vour production for domestic and regional markets. Although it is true that, theoretically, exports to the central countries should also be encouraged, it is well known that this potential growth is held back by the protectionism of those countries, especially as regards manufac­ tured goods, and by the new drops in the prices of commodities which could go hand in hand with an increase in the supply. For this reason, the measures adopted have a more direct effect on the domestic mar­ ket because they provide greater protection to those who produce for it; at the same time, one of the areas of foreign trade in which there is a certain degree of autonomy is that pertaining to a possible policy of regional co-operation as regards manufactured goods and the govern­ ments are now taking certain measures to pro­ mote such a policy. Nevertheless, three phe­ nomena affecting demand and productive ca­ pacity conspire against these advances: the de­ pression of the domestic markets brought about in many countries by measures designed to restric expenditure, the deterioration —not easily reversed— of productive capacity in many branches as a result of the policies of the 1970s, and the magnitude of the financial problems of many enterprises, which are further aggravated by devaluations. There is no question that in most of the countries, dynamism has been sacrificed to ex­ ternal balance, although this has been done to ¡Pedro Sáinz 43 different degrees in different cases; indeed, there are substantial differences as regards the will and capacity to reduce and restructure de­ mand. Some countries have tried to replace domestic demand by external demand in order to avoid a decline in the product and at the same time to restore external balance. Other countries have tried to restructure domestic de­ mand in order to reduce the demand for im­ ports. Insofar as possible, reserves and import substitution have also been used. Naturally, the governments that had devel­ oped more active economic policy schemes during the 1970s are now able more success­ fully to face the need for restructuring than those which based their policy fundamentally on macroeconomic tools; likewise, those which had developed their manufacturing sector to a greater extent now have a greater margin of flexibility as regards supply. Nevertheless, despite the efforts that have been made, the decline of external demand from the central countries, the internal finan­ cial disequilibria and the strong dependency of certain vital sectors on external supply have limited the effect of the measures designed to check the fall of global demand. To this is ad­ ded the fact that, unfortunately, measures aimed at restructuring demand have not always been applied in connection with a supply pol­ icy and on occasions they only seem to be part of a chain reaction to unstable external condi­ tions, with serious and not easily remedied consequences for the productive sector. Thus, in general, the recession has had a very nega­ tive effect on economic dynamism; this has been particularly true in the case of employ­ ment and often also in the case of real wages. Government policies have attempted, with dif­ ferent emphases, to reduce these undesirable effects of the recession on production. How­ ever, it appears that in general the cost of the recession has not been distributed with due regard to criteria of equity. In the cases where high-income groups have continued to receive large shares of the income, it does not seem to have been channelled towards investments capable of sustaining a new structure of pro­ duction; this behaviour is reinforced by the prevailing uncertainty and instability. Moreover, there are indications that a cer­ 44 tain amount of that income has been channel­ led towards speculative investment, which in general aggravates the external crisis, the pro­ ductive depression, and the productive disequilibria. Thus, there is every indication that the current situation has accentuated the exis­ ting inequities. On the other hand, since the political process has become more firaught with conflict, changes are taking place which in some cases favour ihe return of democratic forms. In summary, the policies are simultaneous­ ly producing signs of adjustment, redeploy­ ment and transformation. The appraisals of the 1970s, and the prospective exercises discussed clearly show the need for transformation. If the orientation tiiat is implicit in the new parameters of the external sector is considered by the authorities to be a phenomenon that is not conjunctural in nature, if the domestic mar­ kets recover and if regional co-operation efforts succeed, the current situation might point to a structural change in the orientation of invest­ December 1982 CEPAL REVIEW No. 18 / ment and, consequently, in the productive structure of the countries. However, it is still too early to determine which of these trends will predominate in the current crisis. Because of die magnitude of the problems, so evident everywhere, and the many opinions and pres­ sures favouring the adoption of an approach ranging between adjustment and redeploy­ ment we must conclude by stressing the fact that the crisis also offers possibilities. Possibil­ ities, because it has become evident that despite the progress made to date, the structural prob­ lems remain; they are still critical and must be faced. Possibilities, because many restructur­ ing measures that could not be applied in more normal economic situations are now politically viable. Possibilities, finally, because circum­ stances are making it clear that, in the face of difficulties of this magnitude, it is essential to establish political systems that will allow for the participation of the majority social groups which will, in the last analysis, bear the brunt of any structural solution. CEPAL REVIEW December 1982 Growing labour absorption with persistent underemployment Norberto E. Garcia* C EPA L has always devoted special attention to the problems o f employment, to the extent that it consid­ ers the phenomenon of the productive absorption of labour to be the most obvious manifestation of eco­ nomic development. From that point of view, this article is particularly interesting for its analysis of what has occurred in Latin America with respect to this phenomenon between 1950 and 1980, and to that end the author expresses his intention from the start of explaining the apparent paradox implied in the coexistence of a considemble growth in the ab­ sorption capacity of the non-agricultural modem strata along with a persistence or slow decline in underemployment T he basis of his argument is to demonstrate that the series of phenomena whose interaction explains the results of absorption in modem segments and the evolution of underemployment has a different impact according to groups of countries and leads to very differentiated results: countries which show a rapid absorption in modem segments along witii a slow but significant reduction in underemployment, and countries which show a slow absorption in these segments along with persistently high rates of underemployment. In particular, the substantial and increasing difference in resource requirements per employed person between modem activities and traditional agricultural activities, together with the rapid growth of the non-agricultural economically active population (EAP), the small initial importance of the modem strata and the slow rate ofjob retention in modem agricultural activities largely explain why even those countries which show a great effort at accumulation and economic growth, although they manage to reduce undemtilization, are unable to absorb the entire transfer of labour from the agri­ cultural sector to the modem segments. As a result, the author concludes that it is a problem not only of the size of capital formation —especially in the coun­ tries which show slower rates of absorption— but also o f the limited effects of this capital formation and the pressures of the urban labour supply. Thus, what is relevant is not only the size but also the composition o f the use of resources and their greater or lesser homogenizing effects. *Stafl member of the Regional Employment Program­ me lor Latin America and the Caribbean (PREALC). Introduction* Since the end of the war, the majority of Latin American countries have been undergoing profound changes in their occupational situa­ tion, which correspond essentially to a dual phenomenon: the process of transfer of labour to more highly productive activities and the pressure of the growth —natural and migrato­ ry— of the urban labour force, with a decline in the relative weight of the agricultural sector in total employment. For explanatory purposes —and by over­ simplifying the analysis— it is possible to con­ struct two opposite hypotheses with respect to the results of the abovementioned processes. The first of these would hold that in the de­ cades after the war there was a significant growth in employment in Latin America, es­ sentially non-agricultural, in acceptably pro­ ductive strata or activities. The second hypoth­ esis would emphasize the persistence of seri­ ous underemployment problems in the context of the growing urbanization of this underem­ ployment. Two opinions with respect to the process of capital formation might also be associated with these two approaches. The first would emphasize that Latin America's attempts to promote investment and economic growth during the past decades have been more than considerable, reaching at least the level of the historical experience of many of today’s advanced countries in their respective periods of change in occupational structure. The sec­ ond opinion would hold that the effort to promote investment has been insufficient to absorb, in the modern non-agricultural strata, the growth and transfer of the economically active population which has occurred in the past decades. It is not the purpose of this study to offer a comprehensive interpretation of these phe­ nomena. Its objective is less ambitious; to contribute elements to the discussion, in the sense of suggesting that what has occurred in Latin America in the past three decades tends to be a synthesis of the above two hypotheses *I would like to thank V.E. Tokman, Director of PREALC, and A. Monza and H. Szretter, staff members of the same Programme, for their comments and suggestions. C E P A L R E V IE W No, 18 /D ecem ber 1982 46 and their respective sub-hypotheses. Thus, besides verifying a part of the evidence and/or the empirical estimates available, the study points out some of the factors which allow the two apparently opposite hypotheses to be reconciled. These factors correspond, on the one hand, to phenomena present in the develop­ ment of most of the countries of the region in the postwar period; and, on the other, to the different intensity with which they act in the various countries of the region. As a result, the reconciliation or synthesis of the opposing hypotheses is proposed at a dual level: first, that of the presence of phenomena which in themselves explain why in many countries of the region there is simultaneously a high growth of employment in modern non-agricultural strata and a persistence —in some coun­ tries declining— of high levels of underem­ ployment, in the context of a great effort to invest. The second level is that of the increas­ ingly decisive importance of differentiated behaviours among the various countries, the identification of which may help to explain the coexistence in the region of trends which are nearer to one or the other hypothesis. Section I of this study analyses the absorp­ tion capacity of modern non-agricultural activi­ ties during the period 1950-1980, in the light of the available evidence, and points out the prob­ lems arising from it. Section II summarizes the available estimates on the evolution of total underutilization of labour and the coverage of underemployment —and its composition—, and it brings out the most relevant features for the purpose of the study. The following section develops a working hypothesis with respect to resource requirements in general —not only investment— imposed by a process of long­ term transfer of the labour force; it relates its intensity to the initial degree of, and trends in the period with respect to, structural heteroge­ neity and points out the various investment efforts being made in the region in the genera­ tion and use of resources. Section IV discusses three phenomena in addition to those already mentioned, which are useful for an understand­ ing of why the interpretation of what has oc­ curred in Latin America is closer to a synthesis of the abovementioned hypotheses; namely: (i) the rate of growth of the non-agricultural economically active population; (ii) the initial impact of the modern non-agricultural strata on total employment; and (iii) the evolution of em­ ployment in modern agricultural activities. Finally, the last section states the principal conclusions, and re-emphasizes the reconcilia­ tion of the above hypotheses on the dual level already mentioned; principal elements or factors and diversity of behaviour by groups of countries. I Absorption capacity of modern non-agricultural activities It is useful as a first step to verify the available evidence. Table 1 summarizes the estimates of employment growth in modern non-agricul­ tural activities * —which PREALC calls formal * The definition and methodologies of estimation are similar to those used in a previous study —see note 2 below. In regard to the evolution of modern non-agricul­ tural employment, the proxy used is the employment of sa la rie d non-agricultural workers, excluding domestic ser­ vice and including professionals, technicians, executives and similar classifications within the category of ownaccount workers. urban activities— for 14 countries which repre­ sent 95% of the economically active population (EAP) of Latin America in 1980, so that its con­ clusions are representative of the region as a whole. This table shows three groups of coun­ tries:^ G roup A, including those which show a reduction in the rate of underutilization of their urban labour force in 1950-1980, particularly ^The same grouping criterion is used here as by PREALC in D inám ica d el Subem pleo en A m érica Latina, Santiago, Chile, CEPAL, 1981, chapter II and Metho­ dological Annex. GROWING LABOUR ABSORPTION WITH PERSISTEN T UNDEREM PLOYMENT /N orberto E. G arcia due to a decline in underemploymentf Group B, including those countries which do not show a significant decline in this rate; and Group C, including three countries in special situations, because of the characteristics of their popula­ tion and productive structures at the beginning of the period of study and because of the effect of the reorientation of the economic policy model (in the last five years of the period) on the formal-informal composition of urban em­ ployment, The growth rates in table 1 may be consid­ ered one of the indicators of labour absorption in m odern non-agricultural strata, during a period in which most of the countries of the region were going through the process of transfer of EAP from agricultural activities to non-agricultural activities with relatively higher productivity. As a result, any evaluation assumes an im­ plicit reference to the historical experiences of other countries, during the period in which they transferred the bulk of their labour force from traditional rural labour to more highly pro­ ductive activities; otherwise, it is difficult to qualify the efforts as either strong or weak. Taking this into account, let us now see what table 1 suggests. ready occurred in the decades previous to 1950, Thus, in this perspective, it is helpful to ex­ clude Argentina and analyse what occurred in the remaining countries,^ Excluding Argen­ tina, the growth rate of modem non-agricul­ tural employment for the region was 4.2% over 30 years. In contrast with the record of other historical experiences, this performance can­ not be considered poor, but rather significant. Table 1 LATIN AM ERICA: GROWTH O F E M P L O Y M E N T IN FORM AL NONAGRICU LTU RA L A C T IV IT IE S, 1950-1980 (Annual cumulative average rates, in percentages) 1950-1980 1950-1970 4.6 4.2 5.2 5.1 4.4 4.3 4.5 4.5 4.7 5.1 4.6 4.4 4,5 4.3 4.2 2.9 3.8 4.2 4.0 1.4 4.0 4.0 1.8 2.6 0.8 2.1 2.8 0.8 3.7 3.7 4.2 4.1 Group A M exico Panama Costa Rica V enezuela Brazil Colom bia Guatem ala 1. For the region as a whole, the growth Group B Peru rate of modern non-agricultural employment Ecuador was 3.7% on average annually. Nevertheless, a Bolivia study of table 2 shows that by 1950 the relative E l Salvador weight of the modern non-agricultural sector in the national EAP averaged 26.3% for the group Group C Argentina of countries analysed, excluding Argentina, C hile while in this latter country, by 1950,57% of the Uruguay EAP was located in modern non-agricultural activities. Latin America (14 countries) I f the purpose is to analyse, as mentioned, the long-term transition process of the occupa­ Latin America tional structure, the problem here is that in the (excluding Argentina) case of Argentina most of this process has al­ ^The third chapter describes the categories men­ tioned. To fiacilitate their interpretation at this stage, it is useful to recall that the underemployment rate is an indi­ cator o f the coverage of this phenomenon, whereas the total underutilization rate i.s an indicator of coverage and inten­ sity which includes open unemployment and equivalent underemployment in terms of totally non-utilized workers. For the respective definitions, see PREALC, Dinámica del su h em p leo..., op. cit. 47 S ou rce: Developed from preliminary PREALC estimates, based on population censuses, economic census­ es, household and establishments surveys, compatibilized and adjusted. ^Similar reasoning may be used for Uruguay, which by 1950 showed 63.4% of its national EAP in modem urban activities. For reasons of relative weight, the exclusion of Uruguay does not change the regional averages. 48 C EPA L REV IEW No, 18 /D ecem ber 1982 Table 2 LA TIN AM ERICA: R ELA T IV E W E IG H T O F TH E FORMAL NON-AGRICULTURAL EAP IN 1950 AND 1980 (Percentages) Share o f the formal EAP in total EAP Share o f the formal EAP in non-agricultmal EAP 1950 1980 1950 1980 21.6 26.8 29.7 34.7 28.5 23.9 15.2 39.5 41.2 52.9 62.6 45.2 42.6 26.7 62.5 74.7 70.6 67.9 72.5 61.0 48.5 64.3 68.4 81.0 79.2 72.8 65.7 60.0 19.1 21.5 9.1 18.5 35.0 22.7 19,9 28.6 53.0 64.8 37.8 57.3 59.6 47.3 43.6 60.2 Argentina C h ile Uruguay 56.8 40.8 63.4 65.0 54.1 63.3 78.9 64.8 81,4 77.0 72.9 76.9 Latin America (14 countries) 30.5 44,9 69.3 69.8 26.3 42.6 66.4 68.7 Group A M exico Panama C osta R ica V enezuela Brazil Colom bia G uatem ala Group B Peru Ecuador Bolivia E l Salvador Group C Latin America {excluding Argentina) S ou rce: Developed from preliminary PREALC estimates, based on population censuses, economic censuses, household and establishments surveys, compatibilized and adjusted. 2. Furthermore, table 1 shows the diversi­ agricultural activities. As a result, two con­ ty of situations present in the region in the clusions in addition to those mentioned in the period 1950-1980, Countries in Group A show previous point may be drawn; (i) the long-term growth rates of modem non-agricultural em­ average regional growth in modem non-agri­ ployment in general hig h er than the average cultural employment conceals fairly diverse regional rate of 4.2% mentioned; all the mem­ behaviours; (ii) in particular, if it is agreed that bers are located in the range of 4.2% to 5.2% on the regional average of 4.2% annual growth indicates an outstanding performance, this is average annually. Group B shows average rates in a range of 2.9% to 4.2% annually, and Group even more tme for the historic record of Group A, whose members show higher rates than this C 0.8 to 2.6% annually. It should be recalled average. This latter point is important in view that the three countries of this latter group are those which at the beginning of the period al­ of the fact that Group A represented around ready showed considerable advances in the 70% of the EAP of the region in the period analysed. process of transfer of labour to modem non­ GROWING LABOUR ABSORPTION WITH PERSISTEN T UNDEREM PLOYMENT /N orberto E, G arcia 3. In the region as a whole, there do not appear to be very significant changes between the record from 1950 to 1970 and what occurred in the last decade. Changes did occur at the country level, but none were so great as to imply that the previous conclusions are based on what occurred in the last decade. In general, a comparison of columns lA and 2A of table 1 suggests that the countries which had been doing well —^on the level analysed— in the first two decades continued to show a favourable record in the last decade,® 4. The three conclusions above suggest a relatively high dynamism in the long-term growth of modem non-agricultural employ­ ment in most of the countries of the region. Nevertheless, it is useful to situate their inci­ dence correctly in order to be able to evaluate their impact. Table 2 provides information on 49 the relative weight of modem non-agricultural EAP in the total EAP for 1950. This brings out a fact which is not usually taken into account when only the employment growth rates are analysed in modem non-agricultural sectors, namely that by 1950 the proportion of modem non-agricultural employment in total employ­ ment was fairly low: 26.3% on average for the region, excluding Argentina. As a result, even though the growth rates may be significant, they refer to and have an impact on an initially m uch low er base than total non-agricultural employment. {Thus, while the modem nonagricultutal EAP represented 30.5% of the regional EAP by 1950, the total non-agricul­ tural EAP amounted to 44% of the regional EAP.®) We will see the implications of this fact in section IV, II Evolution of total underutilization in 1950-1980 T he undemtilization of the labour force, in the Latin American context, includes basically the incidence of open unemployment and the ex­ pansion and intensification of invisible under­ employment. The open unemployment rate re­ flects both the extension (coverage) of the phenomenon and its intensity, since the openly unemployed, with a productive contribution of zero, are fully underutilized. The underem­ ployment rate is an indicator of the extension of the phenomenon which does not reflect the degree of intensity of the undemtilization af­ fecting the underemployed, since the latter are employed at very low levels of activity but their productive contribution is not zero. The con­ cept which takes into account the extension and the intensity of underemployment expres­ ses the number of underemployed in equiva- ^Two of the most significant changes occurred in Ve­ nezuela and Ecuador, where there was a sharp acceleration in the growth of modern non-agricultural employment in the last decade. The favourable impact on the modern ur­ ban centre of the oil boom in the last decade is undoubtedly one o f the explanatory factors of this acceleration period. lents of fully undemtilized persons and is thus known as equivalent unemployment.’^® Thus, ' the total undemtilization rate is a result of adding the open unemployment rate to the equivalent unemployment rate. The idea of utilized underemployment corresponds principally to employed persons in activities w ith very low productivity, which are unorganized, weakly integrated into the modem productive apparatus, and which have very little access to resources, little or no ac­ cumulation and incipient or backward technol­ ogies. This applies both in agricultural areas — where these activities are usually called ^Excluding Argentina, the regional figures are 26.3% and 40% respectively. ^ For a summary of the operational definitions of these categories and the respective method of estimation, see PREALC, D inám ica d el subem pleo..., op. cit,. Metho­ dological Annex. *^The expression of the number of underemployed in terms of the corresponding number of fully underutilized persons implies using a weighting system which reflects the average rate of underutilization of the underemployed persons. 50 traditional— and in non-agricultural areas, where there predominates what PREALC has been calling informal urban activities. As a result, there is a clear relationship between underemployment and the structural heteroge­ neity of the productive apparatus.^ The results of a recent study have made available the indicators of the phenomena initially mentioned for the period 1950-1980. This chapter presents some of its principal results and respective conclusions.^® Table 3 illustrates the coverage and composition (agri­ cultural and non-agricultural) of underemploy­ ment in 1950-1980, in the same 14 countries analysed in the previous section. Table 4 provides information on the rates of open un­ employment, equivalent unemployment and total underutilization for the same period and gfoup of countries. (It is interesting to note that the results which may be inferred from both tables justify the grouping of experiences mentioned in the previous section. Group A was defined as the series of experiences which had shown, in the period 1950-1980, a signifi­ cant reduction in underemployment and total underutilization; G roup B are those which did not experience this trend; and Group C re­ flected the situation of experiences whose structural data at the start and conjunctural situation at the end of the period suggested they should be analysed separately.) The prin­ cipal conclusions which are interesting to note for the purpose of this study are the following: 1. For the region as a whole, the principal result is the slow rate at which the rate of total underutilization is reduced, and this is ex­ plained essentially by the persistence —al­ though declining— of high levels of underem­ ployment (coverage and intensity). Between 1950 and 1980, the total underutilization rate fell from 22.9 to 19.9%. 2. The aggregate behaviour of the region conceals situations and performances which ^In the sense used by Aníbal Pinto. See this author, “Concentración del progreso técnico y de sus frutos en el desarrollo latinoam ericano”, in El Trimestre Económico, M exico City, Fondo de Cultura Económica, Jannuary-March 1965, and also, in the same review, “Naturaleza e implica­ cio n es de la heterogeneidad estructural de la América La­ tin a” , Ja n uary-March 1970. P R E A L C , Dinamica del suhempleo..., op. cit. December 1982 CEPA L REVIEW No. 18 / are very differentiated. Group A shows a signif­ icant reduction in total underutilization, main­ ly explained by the clear decline in equiva­ lent unemployment, although underemploy­ ment —coverage and rate— continued to be very high. Group B did not show any significant drop, and it has the highest rates of equivalent unemployment in the region. In both groups, the coverage and rate of underemployment are the principal determining factors of the rates of underutilization recorded. In Group C, the coverage and intensity of underemployment were much lower by 1950 than in the rest of Latin America, which explains why it shows a much lower underutilization. Open unemploy­ ment is, in this case, an important part of the explanation of the levels of underutilization shown. (In this group, the drastic reorientation of the economic policy models used in the last five years of the period alters the long-term trends, either on the level of open unemploy­ ment or on that of equivalent unemployment — or both— and it is an important part of the explanation of the results achieved at the end of the last decade.) 3. The above confirms that, for Latin America as a whole, open unemployment is not the principal form of underutilization. Nor does there seem to be any explosive and widespread trend with respect to the evolution of the open unemployment rate; if anything may be said in this respect, it is that in general, with occasion­ al exceptions, there were no large fluctuations in the trends. 4. Table 3 points out an important aspect; the trend towards growing urbanization of underemployment. By 1950, 70% of those af­ fected by underemployment were in agricul­ tural activities; in 1980, this figure had been reduced to 53%. This reflects the rapid growth in the significance of what PREALC calls informal urban activities in the total EAP, It is the latter which explains why the coverage of non-agricultural underemployment —essen­ tially urban— rose from 13.6% of the total EAP of Latin America in 1950 to 19.4% in 1980, while the coverage of agricultural unemploy­ ment fell from 32.5% of the total regional EAP in 1950 to 22.6% in 1980. As a result, the slow decline in underemployment is occurring in a context of a growing urbanization of this under- Norberto E. Garcia GROW ING LABOUR ABSORPTION WITH PERSISTEN T UNDEREM PLOYMENT / Table 3 LA TIN AM ERICA; COVERA GE AND C OM POSITIO N O F UN D EREM PLO YM EN T, 1950-1980 (Percentages ofEAP) Coverage o f underemployment 1950 1970 1980 Total (Agricultural) (Non-agricultural) Total (Agricultural) (Non-agricultural) Total (Agricultural) (Non-agricultural) Total (Agricultural) (Non-agricultural) Total (Agricultural) (Non-agricultural) Total (Agricultural) (Non-agricultural) Total (Agricultural) (Non-agricultural) 56.9 (44.0) (12.9) 58,8 (47.0) (11.8) 32.7 (20.4) (12,3) 38.9 (22.5) (16.4) 48.3 (37.6) (10.7) 48.3 (33.0) (15.3) 61,0 (44.8) (16.2) 43.1 (24.9) (18.2) 47.5 (31.7) (15.8) 31.5 (18.6) (12.9) 42.3 (19.9) (22.4) 48.3 (33.4) (14.9) 40.0 (22.3) (17,7) 54.3 (37,0) (17.3) 40.4 (18.4) (22.0) 45.5 (24.6) (20.9) 27.2 (14.8) (12.4) 31.5 (15.1) (16,4) 44.5 (27.6) (16.9) 41.0 (18.7) (22.3) 50.9 (33,1) (17.8) Total (Agricultural) (Non-agricultural) Total (Agricultural) (Non-agricultural) Total (Agricultural) (Non-agricultural) Total (Agricultural) (Non-agricultural) 50.7 (39.0) (11.7) 56.3 (39.4) (16.9) 68.7 (53.7) (15.0) 48.7 (35.0) (13.7) 64.9 (41.2) (23.7) 58.4 (37.7) (20.7) 73.1 (53.5) (19.6) 44.6 (28,0) (16,6) 63.3 (37.9) (25.4) 55.8 (32.0) (23.8) 74.1 (50.9) (23.2) 49.0 (30.1) (18.9) Total (Agricultural) (Non-agricultural) Total (Agricultural) (Non-agricultural) Total (Agricultural) (Non-agricultural) Total (Agricultural) (Non-agricultural) 22.8 (7.6) (15.2) 31.0 (8.9) (22.1) 19.3 (4.8) (14.5) 46.1 (32.5) (13.6) 22.3 (6.7) (15.6) 26.0 -(9.3) (16.7) 23.7 (6.9) (16.8) 43.8 (26.9) (16.9) 25.7 (6.3) (19.4) 28.0 (8.8) (20.1) 27.0 (8.0) (19.0) 42.0 (22.6) (19.4) Group A M exico: Panama: C osta Rica; V enezuela: Brazil: C olom bia: G uatem ala: Group B Ecuador: Peru: Bolivia: E l Salvador: Group C Argentina; C hile: Uruguay: Latin America (14 countries) Source: PREA LC, Dinámica del subempleo en América Latina, Santiago, Chile, C EPA L, 1981. 51 December 1982 52 C EPA L REV IEW No, 18 / Table 4 LA TIN AM ERICA: OPEN UN EM PLOYM EN T, EQU IVALEN T UN EM PLOYM EN T AND TO TAL UN DERU TILIZA TIO N , 1950-1980 (Percentage o f EAP) Equivalent unemployment rate Open unemployment rate Total rate of underutilization 1950; 1970 1980 1950 1970 1980 22.4 27.8 16.9 11.0 20.2 27.3 26.2 15.3 18.2 12.6 10.3 21.4 23.1 24.2 12.7 13.0 9.3 8,0 17.0 22.8 22.2 1.3 9,3 4.1 6.3 3.4 6.2 0.4 3.8 7.7 3.5 6.2 2.5 6.0 1.4 4.3 7.3 3.9 4.2 2.9 5.2 1.4 M exico Panama C osta Rica V enezuela Brazil C olom bia Guatem ala 23.7 37.1 21.0 17.3 23.6 33.5 26.6 34.3 28.0 37.2 24.5 31.7 34.1 39.3 20.4 29.6 31.1 38.5 22.4 3.8 4.0 0.8 5.1 5.6 3.2 4.2 10.2 6.7 3.0 3.0 11.2 35.9 38.1 32.0 38.0 29.6 2.2 12.6 5.3 19.5 2.5 9.2 4,2 18.5 2.2 9.7 6.6 16.0 2.8 5.2 6.0 3.4 2.4 5.7 6.7 3.8 1.8 10.0 6.0 3.9 Peru Ecuador B olivia E l Salvador Group C Argentina C h ile Uruguay Latin America 1980 23.0 19.1 25.9 16.1 16.5 23,9 30.3 25.6 J9 .7 17,0 25.8 13.2 12.2 19.9 28.0 23,6 37.7 36.3 37.3 37.3 43.5 30.6 36.3 34.1 41.5 33.6 8.5 Group B 1970 24.7 Group A 1950 7.7 8.4 5.0 17.8 11.3 22.9 4,9 14.9 10.9 22.3 4.0 19.7 12.6 19.9 (14 countries) Source: P R E A L C : Dindmica del subempleo..., op. cit. employment, which introduces qualitative dif­ ferences and social implications which tran­ scend what is reflected by the abovementioned quantitative indicators. 5. Another relevant aspect which may also be seen from table 3 is that the reduction in agricultural underemployment has been much more accentuated in Group A than in the rest of the region. This is important because the trend towards the urbanization of underemployment, which is present in the three groups, acquires a different meaning according to whether it is accompanied by very significant or not very significant reductions in the proportion of agri­ cultural underemployment. We will return to this point in section IV. 6. In Group A two very well-defined pat­ terns of reduction in underemployment were recorded. The first was characterized by a very significant drop in agricultural underemploy­ ment accompanied by a partial transfer of the latter to urban areas; such are the experiences of Mexico, Panama, Brazil and Colombia. The second is characterized by a decline in agri­ cultural underemployment, without an in­ crease in the relative weight of non-agricultural underemployment, such as in Costa Rica and Venezuela.^^’ ^^ T h e Experience of Guatemala shows a pronounced d eclin e in agricultural underemployment accompanied by a small increase in the relative weight o f non-agricultural underem ploym ent. should be pointed out that Venezuela initially shows a considerable transfer of agricultural underemploy­ m ent to urban areas, as can be seen by observing the data for 1970 in table 3. Subsequently, at the beginning o f the 1970s, there was accelerated reabsorption of non-agricultural underemployment, as a result o f the rapid expansion o f modern urban activities stimulated by the oil boom. Norberto E. Garcia GROW ING LABOUR ABSORPTION WITH PERSISTEN T UNDEREM PLOYMENT / 7. A fact which should be pointed out that the greater success of Group A in reducing the coverage and rate of underemployment is not explainable by a slower growth in its labour force. All the experiences of Group A —except Guatemala— show equal or higher growth rates in the total EAP and the urban EAP than those recorded by Groups B and G. In par­ ticular, the two experiences which show the greatest reductions in underemployment and 53 is total underutilization —Costa Rica and Vene­ zuela— are also those which show the highest rates of total EAP growth and urban EAP growth in Latin America. (This does not mean that the behaviour of the labour supply does not have an influence on the evolution of under­ utilization, but that it is not an explanatory factor in the differences in performance be­ tween groups with respect to the reabsorption of underemployment.) Ill Differences in productivity and resource requirements T he higher the difference in the total resources necessary to generate jobs in modem activities vis-à-vis traditional activities, and the higher the proportion of the employed EAP in the latter, the greater the pressure on the resources required by the transfer of the bulk of the tradi­ tional EAP to more productive activities. The gradual incorporation of new population con­ tingents into more productive occupations helps to raise productive potential and thus makes it theoretically —but not necessarily— possible to reproduce additional resources. This latter is undoubtedly a way of dealing with the greater pressure on resources required by the long-term process of transferring labour. But it is useful to keep one fact in mind: the expenditure of resources necessary to allow for the absorption of a new contingent of labour in modem activities —or at least a large propor­ tion of the latter— must necessarily be imple­ mented b e fo r e the possible reproduction of new resources coming from the greater produc­ tivity of those recently transferred can take place. As a result, the financing of this initial expenditure, period to period, depends on the amount of surplus per employed person ac­ cumulated previously in the modem sector, or rather, on the part of this surplus which is not devoted to other uses, (It should be recalled that essentially we are dealing with the surplus generated by those who are already employed in the modem sector.) In a dynamic perspec­ tive, the process described has a problem; the greater the resource requirement per worker to be transferred, in relation to the available por­ tion of the surplus of the modem sector, the greater the historical period required to trans­ fer a given proportion of the EAP. (Incidental­ ly, note that another factor affecting the length of time is the destination or use of the surplus; the greater its non-productive use, the lower the proportion of the surplus generated, period to period, which may be used to cover the re­ source requirements of the transfer process.) As a result, the expenditure of resources required to implement the transfer continues to be great, even in a dynamic perspective which accepts the greater productivity of the use of resources in modem sectors, because it is one of the factors which influence the am ount o f tim e necessary to complete the transfer. In this perspective, it is not the total amount of re­ sources required to create a job in modem ac­ tivities that matters, but rather the d ifferen ce between the latter and the amount of resources required to create a job in traditional activities. In the context of a process of long-term transfer of labour from traditional agricultural activities to modem non-agricultural activities, the notion of resources required for the trans­ fert^ transcends the well-known concept of dif- T h e difference betw een the resource requirements for generating jobs in modern activities for that proportion o f the labour force and the resources required to generate jo bs in traditional activities. 54 ferences in investment per employed person between modem and traditional activities. As an example, one may reflect on the fact that the gradual transfer of a given proportion of the EAP from agricultural activities to modem industry implies dealing with significantly more than the already high difference between the respective capital-labour r e la t io n s .I t implies meeting the greater resource require­ ments of the differences in productive infra­ structure, without which modem industry could not operate. It also requires taking into account the differences in social infrastmcture in urban areas versus traditional mral areas, and their implications in terms of resources. Finally, it requires commiting resources to satisfy the differences in per capita consump­ tion between the level associated with the new occupations in modem activities and that prevailing in traditional mral areas. One part of this greater consumption by the population group transferred is required for reasons of fu n ctio n a lity at the higher levels of productive efficiency of modem activities.^® Another part is explained by the social pressure to identify with the urban patterns of consumption and the legitimate desire to participate in the fruits of the greater productivity achieved. Thus, the difference in resources required to generate jobs in modem activities uis-d-uis traditional activities is not only a result of trends in technology and scale of plants in modem industry versus those predominating in traditional agriculture, which already in themselves lead to sharp differences in invest­ ment per person. It is also a result of a series of phenomena —with their corresponding ex­ pression at the level of resource use— which *^'*Even at the level of the units of production, there are additional expenditures of resources involved in the transfer w hich transcend the notion implied in a capitallabour relationship. Accordingly, technology^ and know­ how are not free goods, and this cost is present in the transfer. Sim ilarly, the type of efficiency required by a m odern productive process makes it necessary to organize th e plant and allocate resources for a continual and ongoing system o f apprenticeship and on-the-job training. And, in this sense, it would b e required for the pro­ cess o f labour transfer. A modern plant requires behaviour, habits and perm anent labour contracting which are diffi­ cu lt to achiev e without this greater consumption, both for reasons o f incentives and because it is materially required in order to develop this behaviour. December 1982 CEPA L REVIEW No. 18 / are indispensable if the modem activities are to develop, function more or less efficiently and retain the labour necessary in a form which is functional for their development,^® As a result, different variants of models or styles of devel­ opment of modem activities may lead to dif­ ferent resource requirements for the transfer, even in a similar historical and technological context. There are no indicators available which, if added to the incidence of the diversity of phe­ nomena mentioned, would reflect the differ­ ence in resource requirements for generating employment in modem non-agricultural activi­ ties in Latin America in the period 1950-1980. Nevertheless, if we accept that the differences in productivity between modem and tradi­ tional activities express, to some extent, differ­ ences in resource requirements per person, we have, in a broad sense, an indirect indicator, especially in understanding the evolution of the phenomenon discussed,^'^ Although in reality the difference in resource requirements per employed person might be low er than the difference in productivities between modem and traditional activities, the relevant point is whether the evolution of the respective pro­ ductivities is an acceptable proxy for the long­ term behaviour of this difference in resource requirements.^® I f this hypothesis is correct, the ^®This is one o f the principal factors which is usually ignored when, in analysing the resource requirements for transferring labour to more productive activities, it is con­ cluded that it is Just this greater productivity that will make possible the real financing o f the effort. As observed, the pressure on the resources is much greater than the initial investm ent effort alone in the modem plants. And, perhaps more important, the commitment of resources involved is im plem ented before the modem plant can reproduce, with its production flow, the financing o f all the expenditure of resources involved. In other words, although the modem sector may operate with high productivity o f the resources invested* and a high saving coefficient, the amount of the initial requirem ents and the delay in time betw een the initial requirem ent and the implementation of the new flow o f production im plies real saving needs which neces­ sarily bring pressure to bear on the product and saving capacity in the modem activities which are already in oper­ ation. T h e contribution o f these new activities may be high, bu t it requires time to materialize. Thus, this process begins to introduce a limitation o f resources which is not absolute but rather temporary, from period to period. 17-l8To avoid confusion, it is worth clarifying the mean­ ing of the above. In more technical terms, the significance of a limited process of technological spread —particularly technological progress which is not incorporated in capital Norberto E. Garcia GROWING LABOUR ABSORPTION WITH PERSISTEN T UNDEBEM PLOYMENT / increase over time in the already originally high d iffe re n c e in productivities could be ac­ cepted as an indicator that the difference in resource requirements per employed person tends to rise in the period analysed.^®’ ^ This would imply accepting a growing expenditure of resources during the period, for the transfer o f labour from traditional agricultural areas to modem non-agricultural activities, which would have acted as a restriction, extending the length of time necessary to implement the absorption of the bulk of the traditional EAP. The relevant difference in productivities goods— would lead to the assumption that: (i) differences in productivity would not necessarily be explained by the d ifferen ces in the capital-labour relations betw een modem strata and traditional agricultural strata; and (ii) the differ­ e n ce in the growth rate of the respective productivities would not necessarily b e explained by the difference in the growth rate o f the respective capital-labour relations. But this is n ot the point under discussion; the text emphasizes the d ifferen ce in resource requirem ents in general, not only capital requirem ents, and thus it does not focus atten­ tion on capital-labour relations but rather on the resource relationsh ip in general, per employed person, in modem v er su s traditional strata. In this sense, technological prog­ ress, even that w hich is not incorporated in capital goods, brings pressure to bear not only on the capital of the mod­ ern establishm ent that incorporates it, but a ls o on a wide range o f additional functional resources required for its absorption with a minimum o f efficiency. There is thus a n eed for apprenticeships and on-the-job training, know­ how and m anagem ent capacity, whose generation implies a cost in resources. Furtherm ore, the absorption o f technical progress in a m odem establishm ent, for it to yield a mini­ mum o f efficiency and result in increases in productivity, requires surroundings and a co n tex t that are functional to th is process; it requires habits o f behaviour and discipline w ithin the establism ent and o u ts id e o f it. It necessitates a certain standard o f living for those working in the establish­ m ent and for those working ou tsid e the establishment whose work is vital to the former for reasons o f interaction (and this both for reasons o f yield and for reasons o f incentives). It thus requires a productive and socially functional infra­ structure, and a standard of living and training for the work­ ers inside the modern establism ent and for those workers outside the establism ent with whom the former interact. As a result, reaching a given level o f productivity in modem v er su s traditional strata is not only a problem o f more per capita capital invested in the establishm ent of this stratum, it is also — basically— a problem o f reproducing surround­ ings or a c o n te x t w here the modem establishments are inserted , and without which the increases in productivity would not b e realized with the same intensity. Thus, the significant point is not the difference in capital-labour rela­ tions betw een the m odem establishm ents and traditional on es; what is relevant is the general pressure on resources requ ired to em ploy a person in one context or the other. It is in this sense that the differences in productivity are more accep tab le as proxy. 55 which could act as proxy is that between modem non-agricultural strata and traditional agricultural strata?^ This implies studying the evolution of the productivity between modem and traditional strata, and identifying the respective segments in each sector. Informa­ tion is not yet available for the Latin American countries as a whole which would make it pos­ sible to estimate the long-term evolution of productivity among strata. Nevertheless, it is possible to infer something from the long-term evolution of the inter-sectoral difference in productivity by taking into account the proba­ ble trends in the modem segments in terms of product and employment, within the produc­ tive sectors being compared. Thus, by compar­ ing the 1950-1980 evolution in non-agricultural productivity with agricultural productivity, if there is an increase in the difference in produc­ tivities it may be concluded that the difference in productivities between the m od em nonagricultural activities and the traditional agri­ cultural activities has increased even more, since (i) in the non-agricultural sector the in­ crease in the share of modem activities in the product was greater than their share in employ­ ment; (ii) it is not likely that productivity in traditional agricultural activities has grown more rapidly than agricultural activity; on the contrary, the opposite would be expected. they are not decreasing at the speed necessary to have a decisive impact on the rate o f jo b creation in the m odem sector within a reasonable period o f time. 20Even recognizing a long-term increase in the pro­ ductivity o f the resources in modem activities, the above im plies accepting that the d iffe r e n c e betw een the growth in productivity and the growth in per capita resources in th ese activities is very low, and that the increases in the productivity o f the resources in modem activities is very slow. ^IRelevant in the sense o f the high proportion o f the labour force which was and is to be transferred from one to the other sector in Latin America. It would b e theoretically po ssible today to identify some activity, in an advanced econom y, whose productivity when compared with that of the m odem activities shows a s im ila r difference to that shown in Latin America betw een modem non-agricultural activities and traditional agricultural activities. But the rel­ evant point is that the labour force employed in this partic­ ular activity would b e a tiny proportion of the labour force o f the m odem sector. This is not only a problem of differ­ e n ces in productivity and requirem ents but also the size o f th e transfer and the proportion o f the labour force employ­ ed at low lev els o f productivity which is to be transferred. 56 Table 5 provides some data on the evolu­ tion, from 1950 to 1980, of the d ifferen ce be­ tween agricultural and non-agricultural pro­ ductivities in the 14 Latin American countries analysed in this study. In Latin America, agri­ cultural productivity was exceptionally low in 1950 in comparison with non-agricultural, in relation to the experience of today’s advanced countries in a similar phase of the displacement of their respective EAPs.^^For the region as a whole the d ifferen c e in productivities —equiv­ alent in 1950 to four times the agricultural pro­ ductivity of the base year— has grown signifi­ cantly over the three decades. In 1980, it totals an equivalent of 7.5 times the agricultural productivity of the base year. 23 xhis result for the region as a whole is representative of what occurred in practically all the countries, since, with the sole exception of Argentina, all show increases in the difference in productivities in the period 1950-1980, As a result, if we take the statement of the previous paragraph as an indicator of what oc­ curred with respect to the difference in re­ source requirements per person, we could con­ clude that, over the period 1950-1980, the ex­ penditure of resources implied in the transfer o f a given contingent of agricultural EAP tended to increase significantly (for the region as a whole, at a rate of 3% annually). But if we also admit that modem non-agricultural pro­ ductivity grew during this period at a higher rate than total non-agricultural productivity, and that traditional agricultural productivity did so at a lower rate than total agricultural productivity, then the expenditure in resources ^ Latin Am erica does not show — as did the majority of today's advanced capitalist econom ies in their time— a m assive and com plete productive transformation of the agricultural sector w hich precedes or accompanies the de­ velop m en t o f the m odem non-agricultural strata. As a re­ sult, part o f the explanation of tihe relatively high differ­ e n ces in requirem ents is that in Latin America, because o f th e relatively low level of productive transformation, agri­ cultural activities require a low level of resources — in a broad sense— to generate jobs. 23 R ecall that since it is a question o f a proxy for the behaviour o f the absolute difference betw een the re­ sources requirem ents per person employed in modem ac­ tivities and those corresponding to traditional activities, th e significant point is the difference in productivities at th e start o f the period, and the evolution o f this difference through tim e. C EPA L REVIEW No. 18 /D ecem ber 1982 required for the transfer of a given contingent of the EAP to modem non-agricultural activi­ ties must have grown at substantially higher rates than what would be suggested by the in­ crease in the difference in productivities shown in table 5 (thus, at rates much higher than 3% annually for the region as a whole). A complementary aspect of the above is related to the importance which the expendi­ ture of resources might have had in the process of transfer as a limiting factor for the absorption capacity of the modem non-agricultural seg­ ments. An indicator which suggests that this must have been significant is the fact that the difference in productivities between non-agri­ cultural and agricultural, as a proportion of nonagricultural productivity, rose in 1950 to 79% for the region as a whole, excluding Argentine?^ — which implies that as a proportion of the surplus per person employed in non-agricul­ tural activities, the percentage must have been much higher— when, as mentioned, the share of the modem non-agricultural sectors in total employment was relatively low that year. In 1980, the difference in productivities contin­ ued to represent 78% of non-agricultural pro­ ductivity, but now with a much greater relative weight of the modem non-agricultural sectors. All this suggests that the expenditure of re­ sources involved in the process of transfer must have played an important role, but with the passage of time the growth of the productive potential of the modem segments generated a greater possibility of covering this expense. All the above leads to one conclusion. Both the initial size of the difference in resource requirements per employed person and their probable trends in the period 1950-1980 are phenomena which have influenced the rate of absorption of labour in the modem segments of Latin America. It is therefore particularly relevant to bear in mind that the experiences of today’s advanced countries, in similar phases in the evolution of their respective job stmc241 f we accept the difference in productivities (nonagricultural, agricultural) as a proxy for the resource re­ quirem ents associated with the transfer of labour from tra­ ditional areas to modern non-agricultural activities, it is relevant to note that the productivity in the latter is also an indicator o f the per capita productive potential, from which the real financing is obtained to cover these requirements. Norberto E. Garcia GROW ING LABOUR ABSORPTION WITH PERSISTEN T UNDEREM PLOYMENT / 57 Table 5 LA TIN A M ERICA : D IF F E R E N C E S B E T W E E N AGRICULTURAL AND N O N -AG RICULTU RAL P R O D U C T IV IT IE S, 1950-198(P (Agricultural productivity in 1950 = 100) Agricultural productivity Non-agricultural productivity** Difference between nop-agricultural and agricultural productivity 1950 1980 1950 1980 1950 1980 100 100 100 100 100 100 100 260 175 213 412 242 265 192 770 244 294 1000 752 233 400 1507 432 498 1336 183 7 409 611 670 144 194 900 669 133 300 1247 257 285 924 1595 144 419 100 100 100 100 154 166 155 143 500 278 769 303 758 662 964 406 400 178 669 203 604 496 809 263 100 100 100 235 174 141 192 ¿70 151 285 650 272 92 270 51 50 476 131 100 216 500 967 400 751 100 234 481 1067 381 833 Group A M exico Panama C osta Rica V enezuela Brazil C olom bia G uatem ala Group B Peru E cuador B olivia E l Salvador Group C Argentina C h ile Uruguay Latin America (14 countries) Latin America (excluding Argentina) Source: Based on figures on the gross sectoral product provided by the C EPA L Statistics Division, and data on the sectoral EA P provided by PREA LC. ^Productivity defined as product per econom ically active person. **Includes m ining. tures, do not show a very pronounced initial difference in productivities, nor is the long­ term behaviour of this difference of the same intensity as that of the Latin American experi­ ence —which would suggest that the expendi­ ture of resources involved in the transfer plays a less significant role as a limiting factor in the absorption capacity of their respective modem segments.^® 25As shown in table 5, in Latin America the relation­ ship b etw een non-agricultural productivity and agricultur­ al productivity remains practically constant in the long term ; it w ent from 4.8% to 4.6% betw een 1950 and 1980. As an illustration o f the discussion in the text, let us recall that in the U nited States the same relationship drops from 3.8% to 2.1% b etw een 1870 and 1903, In Sweden, the relation­ ship d eclin es from 2.3% to 1,7% betw een l891 and 1920. S e e C. Clark, The Conditions of Economics Progress, Lon­ don, M acM illan & Co. Ltd., 1951; S. Kuznets, “Quantita­ tive Aspects o f the Econom ic Growth o f Nations: II. Indus­ trial Distribution o f National Product and Labour Force”, in Economic Development and Cultural Change, Chicago, R esearch C en ter in Econom ic Development and Cultural C hange, Ju ly 1957, supplem ent to volume V. (Quoted by V .E . Tokm an, Desarrollo desigual y absorción de empleo (América Latina 1950-1980), Santiago, C hile, PREA LC , 1981; prelim inary draft.) 58 Obviously, behind the high and still grow­ ing resource requirements for employing la­ bour in the modem sectors lies the problem of the composition of investment by destination which, as already implied, responds to the characteristics of the models or styles of devel­ opment current in the region in the period analysed, in the same way that other character­ istics of the same styles explain the use of re­ sources and the behaviour of productivity in traditional agricultural areas. It is not the pur­ pose of this study to discuss relevant interpreta­ tions in this respect. But it is important to point out one implication: both the high difference in resource requirements involved in the process of absorption in modem areas, and the prob­ lems of composition of investment widiin these areas, would lead to the hope that the effort at capital formation to carry out the transfer of the bulk of the EAP to modem activities should be more intense and prolonged than has been shown by today’s advanced economies during their respective processes of change in their occupational stmctures. As a result, both points —high and still growing difference in resource requirements per person between modem activities and traditional agricultural activities and problems of composition of investment within the modem sectors— are part of the explanation of why, despite the strong efforts at capital forma­ tion made by Latin America between 1950 and 1980, they have been insufficient to absorb all the labour transferred from agricultural activi­ ties to the modem segments. In other words, even experiences which generate a surplus amount and show a higher accumulation rate than those of today’s advanced economies in the period of transfer of the bulk of their EAP to modem activities may require longer periods o f time to complete this process if the impact of this higher rate of accumulation is mediatized by the two factors mentioned above. It is thus understandable why many of the countries analysed in this study, with gross investment coefficients and economic growth rates in the period 1950-1980 which place them at the level of or even above the record of today’s advanced countries in the correspond­ ing transition period, do not manage to absorb all the displacement of the active population CEPA L REVIEW No. 18 /Decem ber 1982 from the agricultural sector in their modem segments.^® A glance at table 6 will show that all the countries of Group A —except Guatemala— are moving towards high investment coefficients in the period.^^ In some cases, they even begin the period with higher investment coefficients than the maximum reached by today’s ad­ vanced capitalist economies in their respective transition phases and m aintain the effort for 30 years. (See, for example, the cases of Brazil and Venezuela.) In Group B —except Pern in the first half of the period— all the countries show —in 19501980— a lower investment effort than that shown by Group A, despite the increases in their respective coefficients in the last decade, once again excepting Pern. Group C —as mentioned, with a much more advanced process of EAP transfer to modem sectors and lower EAP and urban EAP growth rates than the rest of Latin America— tend to exhibit a relatively less effort at capital formation than Group A (even though the long­ term trend shows significant changes in the latter part of the period in some of the countries of this group, which makes it difficult to draw conclusions). As a result, although the countries of the region showing a significant reduction in underemployment and higher growth rates of employment in the modem non-agricultural sectors (Group A) in 1950-1980 are the same ones which show relatively greater efforts in the area of gross investment, it is nonetheless tm e that after 30 years of such efforts —very strong by international standards— they do not manage to absorb all the EAP displacement of the period in their modem segments. 26From 1870 to 1900, the United States shows a similar growth rate in the EA P and a process o f urbanization sim i­ lar to those o f Latin America since 1950. It is also the country which, in the period o f transition, showed the greatest efforts at capital formation. Betw een 1870 and 1910 its investm ent coeffcient grew from 19% to 23% o f the product, later to d ecline and stabilize after 1920 around 16%. All the other capitalist experiences of the period have lower long-term investm ent coefficients than those o f the U n ited States, but they also have lower total EA P growth rates and urban EAP growth rates than those of the United States. 27High in relation to the experience of today's ad­ vanced countries in the equivalent transitional phase. Norberto E. García 59 GROWING LABOUR ABSORPTION WITH PERSISTEN T UNDEREM PLOYMENT / T a b le 6 L A T IN A M E R IC A : E V O L U T IO N O F T H E G R O S S IN V E S T M E N T C O E F F I C I E N T W I T H R E S P E C T T O T H E G D P , 1 9 5 0 -I9 8 (P F iv e -y e a r p erio d s 1 9 5 0 -5 4 1 9 5 5 -5 9 1 9 6 0 -6 4 1 9 6 5 -6 9 1 9 7 0 -7 4 1 9 7 5 -7 9 17 .6 14 .0 17.4 4 7 .0 2 3 .9 2 4 .2 10 .2 17 .8 16 .6 18 .8 4 2 .9 2 2 .8 2 4 .2 1 5.6 18.7 17.9 18 .6 2 6 .1 2 1 .9 2 1 .5 11.3 2 1 .0 2 1 .6 2 0 .2 2 6 .8 2 2 ,7 2 0 .5 12,8 2 1 .3 2 7 .5 2 2 .1 3 0 .6 2 6 .8 2 0 .5 13.1 2 2 .2 2 2 .4 2 6 .5 4 1 .4 2 9 .8 19.1 1 6.5 2 4 .2 11 .3 1 0.1 1 1.3 2 2 .6 13 .6 13.4 12.2 19.6 12 .6 1 4.2 1 4.7 18.4 12.5 17.3 15.4 15 .6 2 1 .4 1 7.7 1 5.6 15 .4 2 2 .8 2 0 .5 19 .8 1 5.2 15.1 17 .5 1 4.8 1 4.4 13 .3 1 8.7 15.4 12 .5 17 .9 15.1 9 .8 2 0 .2 1 3 .1 11 .0 2 0 .6 9 .0 1 4 .8 Group A M e x ic o Panam a C o s ta R ic a V e n e z u e la B r a z il C o lo m b ia G u a te m a la Group B P eru E cu ad or B o liv ia E l S a lv a d o r Group C A r g e n tin a C h ile U ru g u a y Source: C E P A L Statistics Division. ®F iv e-y ear coefficients, sim ple average o f the annual coefficients, in percentages. A s e x p r e s s e d in t h e p re v io u s p a ra g ra p h s , it is n o t in c o m p a t ib le to sa y th a t th e in v e s tm e n t c o e ffic ie n ts o f G ro u p A w e re s a m e tim e insufficient t o high b u t a t th e a b s o r b a ll th e tr a n s fe r reso u rces. B o th th e sh a rp d iffe r e n c e s o u r c e re q u ire m e n ts m e n t in m o d e m in re­ fo r g e n e r a tin g e m p lo y ­ a c tiv itie s versus t r a d i t io n a l a c t i v i t ie s — a n d t h e ir ra p id g ro w th — a n d th e o f la b o u r fro m a g r ic u ltu r a l a re a s . B u t b y p r e ­ p ro b le m s s e n t i n g i t i n t h i s w a y , o n e i m p l i c i t l y a d o p ts a n w ith in th e m o d e m a p p r o a c h w h ic h p la c e s a ll th e e m p h a s is fo r th e w h ic h a r e c lo s e ly a s s o c ia te d w ith t h e h e te r o g e ­ e x p l a n a t i o n o f t h e l o n g - t e r m a d ju s t m e n t p r o ­ n e o u s n a tu r e o f th e p ro d u c tiv e s tru c tu re a n d c e s s o n th e amount o f c a p i t a l fo r m a t io n . I f t h e o f th e c o m p o s itio n o f in v e s tm e n t se g m e n ts a re p h e n o m e n a w ith t h e m a in ta in in g o f th is n a tu re a s a n e s ­ t w o f a c t o r s m e n t i o n e d a b o v e a r e in t r o d u c e d s e n tia l — h ig h a n d s t ill g r o w in g d if f e r e n c e in t h e r e ­ (th u s , to s a y th a t L a tin A m e r ic a sh o w s a m u c h s o u r c e r e q u i r e m e n t s n e e d e d to g e n e r a t e jo b s h i g h e r d i f f e r e n c e i n r e s o u r c e r e q u i r e m e n t s fo r in m o d e m a c tiv itie s versus t r a d i t io n a l a c t i v i ­ t i e s a n d p r o b le m s o f c o m p o s itio n o r d e s tin a tio n o f in v e s tm e n t th e within e x p la n a to ry th e m o d e m a c tiv itie s — e m p h a s is fe a tu re th r o u g h o u t its d e v e lo p m e n t g e n e r a t in g e m p lo y m e n t in m o d e m s tra ta sus ver­ tr a d itio n a l s tra ta th a n th a t s h o w n in th e ir t i m e b y t o d a y 's a d v a n c e d c a p i t a l i s t e c o n o m i e s , ch an g es and now a n d to r e c o g n iz e th a t t h e lo n g -te rm e v o lu tio n o f i n c lu d e s o th e r p h e n o m e n a , c lo s e ly a s s o c ia te d t h i s d i f f e r e n c e w a s v e r y d i s s i m i l a r i n t h e tw o w ith th e im p lic a tio n s o f s tm c tu r a l h e te r o g e n e - cases, ity 28 w i t h r e s p e c t t o t h e u s e a n d g e n e r a t i o n o f A m e r ic a h a s h a d a m u c h m o re p ro n o u n c e d h e t­ is e q u i v a l e n t to a c c e p t i n g t h a t L a t i n e r o g e n e ity 28ln the sense expressed by Aníbal Pinto in “Concen­ tración d el progreso...” , op. cit. w h ic h h a s la s te d a m u c h lo n g e r t i m e h i s t o r i c a l l y , t h a n t h a t o f t o d a y 's a d v a n c e d e c o n o m i e s (a s a r e s u l t , i t i s n o t o n l y a p r o b l e m C EPA L REV IEW No. 18 /D ecem ber 1982 60 of insufficient capital formation —more clearly perhaps in the countries of Group B— but es­ sentially of the greater or lesser homogeneizing effects which might result from the long-term evolution of a given composition and destina­ tion of resource use in general and the structure of investment in particular. IV Additional reconciling factors Section II presented a hypothesis to explain why a significant investment effort leads to a high absorption of labour in modem non-agricultural strata, but that it is insufficient to neutralize the quadmple impact of: (i) natural growth of the urban labour force; (ii) ruralurban migration; (iii) behaviour of the urban rates of participation; (iv) initial size of urban underemployment. The framework of the situ­ ation as perceived in the non-agricultural area is a very high growth of employment in modem non-agricultural strata, accompanied by a sig­ nificant growth in underemployment. In this section, we will discuss three phenomena which need to be taken into account in any explanation which tries to reconcile the dif­ ferent hypotheses under discussion: (i) growth of the urban EAP; (ii) initial weight of the modem non-agricultural strata; (iii) employ­ ment in the modem agricultural strata. 1. G row th o f the non-agricultural EAP, 1950-1980 T able 7 summarizes the information on the growth of the total EAP and non-agricultural EAP in the period under analysis. From this it can be seen that between 1950 and 1980 the total EAP —excluding Argentina— grew at a rate of 2.5% annually. Even more important, the non-agricultural EAP —excluding Argenti­ na— increased at a rate of 4.1% annually, re­ flecting the triple impact of natural urban growth, mral-urban migratory pressure and the behaviour of the rate of participation. In partic­ ular, the countries in Group A show a higher average growth in their non-agricultural EAP than the Latin American average, or approxi­ mately 4.4% annually. The first relevant fact is that the growth of the labour force and, in particular, that of the non-agricultural labour force, was very high during the period. Undoubtedly, it was much higher than the respective growth of the labour force —total and non-agricultural— of today's advanced European countries in their respec­ tive phases of change in their occupational stmctures. But with respect to the United States, the results of the comparison are dif­ ferent; from 1870 to 1903, the annual growth of the United States labour force was 2.4% on average annually, a figure similar to that of Latin America in 1950-1980, and slightly lower than that of Latin America excluding Argenti­ na.^^ In the period 1870-1903 annual growth in the United States urban labour force totalled 3.7%, a similar figure to that shown for Latin America, but significantly lower than that of Latin America excluding Argentina (4.1%), and still lower than that of Group A (4,4%). As a result, if we exclude Argentina, the growth of the non-agricultural labour force in Latin America in 1950-1980 appears to have been h ig h er than that of the United States in the relevant period of comparison; and here it should be recalled that among today’s ad­ vanced economies, that of the United States had the highest rate of non-agricultural EAP growth during the period of change in its oc­ cupational stmcture. 29The period 1870-1903 was chosen because during this period the proportion o f the agricultural labour force as a percentage o f the total fell from 55% to 35% in the United States, showing sim ilar figures to those of Latin America b etw een 1950 and 1980. See V .E , Tokman, D e sa rr o llo d es­ ig u a l..., o p . cit. T h e figures cited, as well as those used in the text, com e from S, Lebergott, M an p ow er in E co n o m ic G r o w th : T h e A m erica n R ec o rd sin ce 1800, New York, M cGraw H ill, 1964, Norberto E. Garcia GROW ING LABOUR ABSORPTION WITH PERSISTEN T UNDEREM PLOYMENT / Table 7 LA TIN A M ERIC A : GROW TH O F T H E EAP, 1950-1980 (Annual cummulative average rates, in percentages) EAP total Non-agricultural EAP 61 be inferred that in Latin America, excluding Argentina, the growth rate of employment in m odem non-agricultural activities was slightly higher than the growth rate of the non-agricul­ tural EAP (4.2% as against 4.1%). In particular, in all the countries of Group A the growth rate of modem non-agricultural employment ex­ ceeded the growth rate of the non-agricultural EAP, except in Brazil, where the two are equal. In all the countries of Group B the same occurs —except in Ecuador where the growth rate of non-agricultural employment is lower. Group A Mexico Panama Costa Rica Venezuela Brazil Colombia Guatemala 2.5 2.7 3.2 3.1 2.8 2,4 2.5 4.5 3.9 4.8 4.6 4.4 4.1 3.7 Group B Peru Ecuador Bolivia El Salvador 2.1 2.7 1.5 2.7 3.8 3.9 3.3 4.0 Thus, although in most of the countries of the region the growth rate of the non-agricul­ tural labour force was higher than that of the United States and today’s advanced economies of Europe, the expansion of the modem strata generated a modem non-agricultural employ­ ment growth rate which was equal to or higher than that of the respective labour force. Group C Argentina Chile Uruguay 1.4 1.6 0.8 1.9 2.2 1.0 2. Initial weight o f the modem non-agricultural strata Latin America (14 countries) 2.4 3.7 Latin America (excluding Argentina) 2.5 4.1 Source; P R E A L C estim ates. It is in the above-mentioned sense that it may be asserted that the long-term growth of the non-agricultural labour force in the rele­ vant countries of Latin America“^ was more intense in 1950-1980 than that of the advanced European and United States economies in the past. A second aspect of interest arises from the contrast between the second column of table 7 and the first column of table 1. From this it may 30As explained in section II, the study centres its atten­ tio n on th e process o f long-term transfer o f labour from the agricultural sector to non-agricultural sectors. Given the fact that by 1950 Argentina had already com pleted the bulk o f th is transfer — in that year, only 27.5% of its EA P was in th e agricultural sector— it is fair to exclude Argentina from th e series o f countries o f the region, especially for interna­ tional com parisons. To evaluate the incidence of the growth rate of modem non-agricultural employment versus the growth rate of the non-agricultural labour force, it is relevant to take into account the relative initial weight of the two. For Latin America —excluding Argentina—, as shown in table 2, the weight of modem non-agricultural employment in 1950 was 26.3% of the total EAP, while the non-agricultural EAP repre­ sented nearly 40% of the total EAP that year. As a result —and this is a factor which is not usual­ ly taken into account— even though modem non-agricultural employment grew in 1950 at a slightly higher rate than that of the non-agricul­ tural EAP, the significant point is that the respective growth rates operated on very dif­ ferent bases or amounts, the first being only two-third of the second. Accordingly, the abso­ lute annual increases in modem non-agricultural employment were lower than the abso­ lute annual increases of the non-agricultural labour force, which explains the raising trend in non-agricultural underemployment. Natu­ rally this is not an explanation of the trends recorded, but it does make it possible to reconcile the trend in non-agricultural under­ December 1982 62 C EPA L R EV IEW No. 18 / employment with the rapid growth of modem non-agricultural employment, 3. Employment in modem agricultural activities A third relevant factor to be taken into account is the evolution of the relative weight of the modem agricultural strata. For Latin America as a whole, from 1950 to 1980, this fell from 22.2% to 12.3% of the total EAP, All the coun­ tries of Group A —except Panama— and all the countries of Groups B and C show a signifi­ cant decline in their share of the modem agri­ cultural strata in the total EAP, In relative terms, this reduction is more important than that shown in the traditional agricultural strata, whose share dropped from 32.5% to 22.6% of the EAP of Latin America in the same period.^^ Thus, although high growth rates of modem non-agricultural employment are shown, ac­ companied by high growth rates in the nonagricultural EAP —with the resulting rise in urban underemployment— the results in re­ gard to total underemployment may vary ac­ cording to the greater or lesser capacity for retaining labour shown by the modem agricul­ tural strata vis-d^vis the traditional agricultural strata. Thus, the countries of Group B —except Ecuador— are characterized by having shown a higher growth rate of modem non-agricultural employment than the growth of the non-agri­ cultural EAP, but with a drop in the proportion of the agricultural EAP in the total EAP, which is explained more by the decline in modem agricultural employment than by that of tradi­ tional agricultural employment. Consequently, in these experiences the high growth of modem non-agricultural employment co-exists with the continuation of a significant propor­ tion of agricultural underemployment. V Conclusions It is now possible to draw together the various elements described in the preceding sections to obtain a more integrated view of their inci­ dence: 1. The countries in Group A, during the peri­ od 1950-1980, showed the greatest investment efforts in Latin America, at a comparable level and in some cases higher than those of the United States and the European experiences during their respective processes of change in their occupational structures. This group also shows the highest growth rates of modem nonagricultural employment—in the range of 4.2% to 5.2% annually over 30 years—, and these are higher than the respective growth rates of the non-agricultural EAP in all the members of the group. T he group is also characterized by a 3 lF o r a description o f what occurred in the relative proportion o f the m odem and traditional agricultural EAP in the countries o f the region, see PR EA LC , Dinàmica del subempieo..., op. cit., table 1 and section B of the annex to ch ap ter II. higher retention of employment in modem ag­ ricultural activities.^^ This clarifies why this group shows a significant reduction in the total undemtilization rate between 1950 and 1980, essentially due to the slow but continual decline in total underemployment. In particu­ lar, one of the characteristics of this process is the sharp reduction in agricultural underem­ ployment, at a faster rate than total under­ employment. 2. In addition. Group A is characterized by having shown the highest rates of non-agricul­ tural EAP growth in the region between 1950 and 1980, in a range of 4.0% to 4,8% annually, with a group cumulative average of 4.4% an­ nually over the 30 year period. Among today’s 32Except for two experiences —Venezuela and Costa R ica— which showed a sharp decline in the relative share o f m odem agricultural employment in total employment; but in both cases, it is neutralized by the high absorption o f th e m odem non-agricultural strata, without any conse­ qu en ces in terms of non-agricultural underemployment. Norberto E. García GROW ING LABOUR ABSORPTION WITH PERSISTEN T UNDEREM PLOYMENT / 63 graphs, we see that Group A’s high rates of advanced countries, there is simply no expe­ rience whatever which has such a record. {As absorption in modem non-agricultural strata is can b e seen, the country which showed the perfectly reconcilable with the declining pres­ highest growth rate of the non-agricultural EAP ence of serious underemployment problems. In particular, the growing importance of nonin its period of change in occupational structure agricultural underemployment —or expansion was the United States, with a rate of 3.7% an­ of informal urban activities— is also explain­ nually between 1870 and 1900.) Thus, the pres­ able as an expression of the imbalance between sure of the labour supply in the countries in absorption into modem non-agricultural activi­ Group A acquires special significance in ex­ ties and strong supply pressures. plaining what occurred in these experiences. 4. With respect to Group B, the relative At the same time, the initial weight (1950) of investment effort during the period 1950-1980 the modem non-agricultural strata in total is substantially lower than that of Group A, and employment was, in the countries of the group so are the employment growth rates in the mod­ fairly low —slightly higher than the ■already em non-agricultural strata—in this case, in the mentioned average of 26.8% for Latin America range of 3.0% to 4.2% annually. This group excluding Argentina— and substantially lower does not show as sharp a reduction in agricul­ than that of non-agricultural employment in tural underemployment as Group A, a fact total employment. (Accordingly, although the which is partly explained by the higher propor­ high rates of modem non-agricultural employ­ tion of labour in the agricultural sector. Nor is m ent growth remained slightly above the there retention of employment in m od em agri­ growth rate of the non-agricultural EAP in the cultural activities; on the contrary, the latter period, the difference in the relative initial have lost relatively more significance in total weight explains why the absolute increase in employment than in Group A. modem non-agricultural employment was In addition. Group B shows lower non-ag­ lo w e r than the absolute increase in the nonagricultural EAP.) Finally, all the countries of ricultural EAP growth rates in 1950-1980 than the group had a much higher initial degree of Group A —they are closer to those shown by stmctural heterogeneity than that of the ex­ the United States in 1870-1900—, but the initial weight (1950) of the modem non-agricultural periences of today’s advanced countries and, strata in total employment is substantially betw een 1950 and 1980, different —and more lower than the already low levels of Group A. unfavourable— trends in this area than those Group B also shows the influence of stmctural shown in the above-mentioned experiences heterogeneity on resource requirements; and during comparable historical periods. This tended to be expressed in a much higher re­ one might speculate here that this must have source requirement for dealing with the trans­ been even more accentuated in this group than fer of significant proportions of the EAP to in Group A. 5. What is described in point 4 explains modem strata, in comparison with a compar­ able period in today’s advanced countries. why, in Group B also, it is perfectly reconcil­ These higher requirements mediatized the im­ able that there should be a significant growth of pact of the great investment effort on the ab­ employment in modem non-agricultural sec­ sorption capacity of modem strata, operating tors —although less intense than in Group A— along with a persistence of high levels of as a break on the speed of this process. The three factors above led to pressures in undemtilization, which are higher than those the direction of prolonging the period of time of Group A and not declining. As a result, un­ required to complete the process of absorption like Group A, the reconciliation of the initial of the bulk of the EAP in modem non-agricul­ hypotheses of this study acquires, in this case, a tural strata which were substantially stronger different character: the absorption in modem non-agricultural strata is slower, and the total than those experienced by today’s advanced undemtilization rate does not show any signifi­ countries. cant reduction. Underlying this last piece of 3. I f we now analyse the interaction of the factors described in the first and second para­ information is the fact that the growing urban­ 64 ization of underemployment takes place in this group w ithou t the same reduction in agricul­ tural underemployment as in Group A. In other words, the imbalance between absorption in the modem non-agricultural strata and supply pressures occurs in the framework of very high contingents of labour surplus still retained in the agricultural sector. 6. The special characteristics of the coun­ tries o f Group C, especially the change in long­ term trends produced by the drastic modifica­ tion o f the strategic growth models adopted by them in the second half of the past decade, prevent us firom making the same analysis of the long-term process as was discussed for the two previous groups. In any case, the different character of the problem faced may be empha­ sized, because these experiences have made much more progress than the rest of the region in the process of transfer of labour to modem strata, inasmuch as they present a total EAP and non-agricultural EAP growth rate which is sig­ nificantly lower than that of the rest of Latin America, and they have been functioning with a considerably lower level of expansion and intensity of underemployment than the region­ al average. Even so, they are not an exception to the generalized trend towards a growing pro­ portion of urban underemployment. 7. An additional point which can legiti­ mately be introduced is related to the growing degree of urbanization of underemployment, even in those experiences which show a de­ cline in total underemployment. One might re­ flect that a change in the composition of under­ employment in the direction mentioned might b e judged as an improvement in the standard of living of those affected, to the extent that the intensity and characteristics of agricultural un­ employment make it a more difficult situation. On the other hand, the hardships arising from C E P A L R EV IEW No. 18 /D ecem ber 1982 underemployment become more intolerable for persons who have to endure them in an envi­ ronment in which (he fruits of abundance are more clearly visible, such as in the urban envi­ ronment. But the main point on this refers to the greater or lesser social productive contribu­ tion which this change assumes. And on this subject it is not at all clear that the social pro­ ductive contribution of an urban underemploy­ ed person is much greater than that of a rural underemployed person. Nevertheless, it is un­ doubtedly a feictor whose consideration is be­ coming decisive for those who are trying to appraise the progress made in the past decades in this area. 8. Lastly, it is feasible to integrate all the discussions of the previous paragraphs to re­ flect the predominant trend in Latin America as a whole. Essentially, this summary will be lim­ ited to pointing out, as the principal features of the period 1950-1980, a significant growth in the absorption capacity of the modem non-agri­ cultural strata and a slow decline in the cover­ age and intensity of underemployment in a context of growing urbanization of this under­ employment.“ But, as we have seen, to explain this apparent paradox—as it appears to be if we contrast the experience of the region to that of today's advanced countries— it is essential to understand that the behaviour of the region as a whole conceals different trends by groups of countries and, especially, that the principal phenomena which determine the results under discussion act with varying intensity in the dif­ ferent groups. 33Recall that the three tendencies noted —especially the slow rate at which underemployment is reabsorbed— are a result o f th e interaction o f the data recorded for the th ree groups analysed. CEPAL REVIEW December 1982 The limits of the possible in regional planning Carlos A. de Mattos* In sp ite o f the growing im portance assigned by Latin A m erican governm ents in recent years to regional planning, due attention is still not given to the na­ tional and international historical processes which s e t in m otion the spatial dynamics and shaped the particular spatial structures of each country. In the view o f the author, consideration o f these p rocesses is o f fundamental importance for identify­ in g the lim its and restrictions affecting regional p lanning and hence determ ining the possibilities w hich this activity can have in the historical situa­ tion in w hich it is carried on. On the basis of this criterio n, h e analyses the problem of the limits o f the po ssible in the case o f regional planning, in the light o f the conditioning factors imposed by a particular h istorical context. F o r this purpose, in the first part o f the article he consid ers the spatial implications o f the process of form ation o f a national system, seeking to infer from this the specific restrictions arising with regard to the developm ent o f the different areas o f the respec­ tive territories, and possible action designed to mo­ dify this situation. In the second part, he shows how the national system s — once the dominant social forces have adopted a particular political project— acquire a de­ fin ite spatial dynamic w hich leads to the formation of a particular territorial structure where the roles of each o f the different subnational units are estab­ lished. F in ally , in the third part he analyses the different factors w hich becom e restrictions on the possibili­ ties o f action in the field of regional planning and exam ines the way in which these factors define and lim it the area in w hich the planner can move when actin g as such. * S t a f f m e m b e r o f th e L a tin A m erican In s titu te for E c o n o m ic a n d S o c ia l P la n n in g ( I L P E S ) . A p relim in ary v ersio n o f th is w o rk w as p r e s e n te d at th e L a tin A m erican S em in a r on R e ­ g io n a l an d S ta te P la n n in g , h e ld in B ra s ilia from 3 0 N ov em ­ b e r to 3 D e c e m b e r 1 9 8 1 . T h e au th o r w ish es to ex p ress his g ra titu d e fo r th e cr itic is m s an d su g g estio n s m ad e b y S erg io B o is ie r , E d u a rd o G a rcia D ’A cuñ a, M artin L u , E n r iq u e M e l­ c h io r , C é s a r M o ra le s an d O sv ald o R o sale s. I Introduction A recent review of the content of the develop­ ment plans currently in force in the majority of Latin American countries^ reveals greater con­ cern with regional problems than was observed in the plans formulated during the 1960s. In most cases, this can be attributed on the one hand to the realization that such problems have persisted and even got worse, and on the other hand, to the important social and political con­ sequences which have been resulting from them. Outstanding among these problems is the disparity in living conditions affecting the pop­ ulation located in different areas of a given na­ tional unit, which has shown a strong tendency to persist and even, in many cases, to increase. In the second place comes the phenomenon of the territorial concentration of activities and population in a very small number of areas —and especially in one single area— which has given rise to the formation of metropolitan regions whose relative weight in productive and demographic terms is disproportionately greater than that of the remaining components of the national urban system. At the same time, it has been observed that these phenomena have shown great persis­ tence regardless of the variations in the growth rate of each country as a whole, and in the face of this eviderice the conviction has been grow­ ing that growth by itself does not lead to any dirhinution of these processes, as many authors had been maintaining. Moreover, the continual increase in territorial concentration has been obliging countries to assign a growing volume of resources in order to cope with the problems of the functioning of these areas, and it has been perceived that this can negatively affect the dynamics of the process of productive ac­ cumulation of the country as a whole. On this basis, it has come to be recognized that at least some degree of State intervention is necessary if it is desired to achieve some kind of correction of these imbalances: hence the fiL P E S , El desarrollo regional en los planes de des­ arrollo, Santiago, C hile, 1981 (mimeo). December 1982 CEPAL REVIEW No. 18 / 66 increased importance which governments have begun to assign in the political sphere to regional planning, even though it must be rec­ ognized that for the time being this has not gone much beyond the level of intentions and declarations. At the same time, because of the modest nature of the results obtained so far in the actual practical application of regional planning, growing concern is visible among planning specialists to find alternative ways which can make it possible to achieve greater effec­ tiveness in this area. Such is the case of the so-called “upward model of regional plan­ ning'^ which aims to give greater priority to action which could be initiated from subnation­ al units (regions, States, local areas, etc.). It may be observed, however, that these aims generally refer principally to the question of planning procedures, so that the discussions which have arisen about them have generally relegated to the background the consideration of some of the substantive aspects of the histo­ rical processes in the course of which regional problems have been generated and whose con­ sideration is essential in order to provide a suit­ able framework for action proposals; basically, these substantive aspects are related with the processes of formation of national systems, their intrinsic rationale and their concrete spa­ tial dynamics. Ultimately, as Dunham points out, this means postulating that ‘regional devel­ opment'' must be considered in the context of the structures and processes operating at the national and international levels, viewed his­ torically and with specific reference to the so­ cial formations in which they occur.^ II The formation of national systems: The assertion of a dominant rationale In essence, planning may be viewed as a pro­ cess which seeks to bring about a particular predetermined modification in the structure of a p a rt (or parts) of a w hole. Consequently, in order to analyse the feasibility of the proposed modifications it is necessary to try to identify some of the fundamental features and proper­ ties of the whole in which the part or parts in question are fitted.^ ?See in particular W alter B. Stohr, “¿H acia otro desa­ rrollo regional?” , in Sergio B oisier et al. (eds.). Experien­ cias de planificación regional enAmérica Latina, Santiago, C h ile . ILPES/SIA P, 1981. 3David Dunham , “Algunas opiniones sobre investiga­ ció n en e l campo del desarrollo y la planificación regional”, in Sergio B oisier et al, (eds.), op. cit., p. 224. 4In this article the expressions political project, na­ tional project and global model are used as synonyms and it is consid ered that the style o f developm ent derives from th e im plem entation o f the prevailing political project. For th e effects o f the theories advanced in this article, the follow ing explanation clarifies the sense in which these concepts should be understood: planning is conceived “as the effective technical instrumentation o f a political pro- In the framework of the problem of plan­ ning analysed here, the whole in question is made up of a national entity comprising re­ gions, States or provinces whose structure it is desired to change. In order to analyse the fun­ damental features of this entity, it is necessary to study its process of formation as a national system , that is to say, as “a complex of interact­ ing elements interrelated among themselves and with the environment”®or, additionally, as “a set of interrelated phenomena which must je c t. W e start from the prem ise that in every society and in every stage in its history there is an explicit or im plicit political project with m ultiple or partial objectives, o f a transforming, conservative or compromise character, refer­ ring to the more or less coactive distribution o f power and social resources” (Aldo E . Solari, et al,, El proceso de plani­ ficación en América Latina; escenarios, problemas y pers­ pectivas, Santiago, C h ile, Cuadernos del IL P E S series, 1980, p. 5). SLudwig von Bertalanífy, New York, C. Braziller, 1968. General System Theory, Carlos A. de Mattos TH E U M IT S O F TH E P O SSIBLE IN REGIONAL PLANNING / be viewed as a whole if it is desired to under­ stand any of its parts”.® In a first approximation of a general nature, it could be said that the formation of a national system in the course of the historical evolution of each country consists essentially of a process in which the pre-existing activities, as well as those emerging in the various areas and sectors of the country, establish mutual relations among themselves and become components or elements of the system: that is to say, they come to form part of the economic structure of the national entity. It is in this way that the socalled process of national integration must be interpreted. From the spatial point of view, it may be observed that during the first stages of the his­ torical evolution of national entities the limits of the incipient national system generally do not coincide with those of the national territory, because within the formally accepted frontiers of a country the articulated elements of the system usually coexist on the one hand with a set of dispersed and unconnected activities and, on the other, with substantial empty or unoccupied areas: by definition, neither of these form part of the national system which is taking shape in the territory, since they are not yet linked together by any type of relationship. The sequence of territorial articulation of the various elements which go to make up a national system may be described as the result of a process of dissemination of innovations, understood as the introduction and satisfactory adoption of any product, technique, organiza­ tion or idea perceived as being new in a parti­ cular social system.^ In the context of the analy­ sis which it is desired to carry out here, particu­ lar stress should be laid on those innovations involving the introduction of institutional changes which are significant for the future development of the system; this refers basical- SAntonip Barros de Castro and Carlos Francisco Lessa, Introducción a la economía. Un enfoque estructuralista, M exico City, Siglo X X I Editores, 1969, p. 4. TPaul O ve P edersen, Urban-regional Development in South America. A Process of Diffusion and Integration, T h e H ague, Mouton, 1975, p. 72. See also John Friedmann, "A G eneral Theory o f Polarized D evelopm ent” , in Niles M . H ansen (ed.), Growth Centers in Regional Economic Development, New York, T h e F re e Press, 1972. 67 ly to the restructuring of the forms of social organization of labour, which form a new dy­ namic of the process of generation, appropria­ tion and utilization of the economic surplus. Ultimately, it will be this dynamic which will characterize the dominant rationale of the sys­ tem being formed. In its initial stages, the process of national integration mainly operates at the level of eco­ nomic circulation, through the expansion of the market economy: the links that bind together the elements of the system in course of forma­ tion are established through the dissemination of mercantile forms and mechanisms. Thus, this stage is marked by the development of the process of articulation of capitalist activities with pre-capitalist activities. In effect, the ex­ pansion of the area of influence of the mercan­ tile economy in the national territory implies the physical expansion of the national system and, consequently, the gradual unification within the latter's effective ambit of the factor and product markets. This also means the dis­ semination and adoption of a particular pattern of social consumption, which begins to be adopted at an early stage in the historical evolu­ tion of the respective countries. In the transition from a colonial economy to a capitalist export economy based on primary sector activities, the expansion of the area of market economy within a national space pro­ gressively generated productive activities aimed at satisfying the effective world demand for certain kinds of goods, in accordance with the dictates of the then prevailing international division of labour. It should not be forgotten in this respect that this process took place at the same time that the national entities were con­ solidating their articulation within the world capitalist system. Thus, a process of introduc­ tion of different mechanisms of trade was de­ veloping, and these mechanisms, starting with the adoption of some simple type of general equivalent evolved up to the establishment and generalized adoption of a national curren­ cy, thus cementing the bases for the expansion and deepening of the process of national eco­ nomic integration. In more advanced stages, the system achiev­ ed greater expansion and consolidation through the penetration and generalized adoption of a 68 new type of social relations of production: in this particular case, the capitalist relation of production, which involved the introduction of forms of Social organization of labour and of profound changes at the level of production. At the same time, it also marked the beginning of a long process of gradual reduction of pre-capi­ talist activities, but it should be emphasized that this process of reduction in no way signi­ fies the total disappearence of pre-capitalist forms of production, as the vigorous persis­ tence of the peasant economy shows. In the case of the Latin American coun­ tries, it is possible to distinguish two situations in the formation of national systems; (a) That of the countries or regions which were set up in practically empty territories, where the formation of a capitalist system was achieved in a relatively rapid and generalized manner. In this respect, Laclau notes that “only in the Pampas of Argentina and Uruguay and in other smaller similar areas where there had not previously been any indigenous population — or, if it existed, it was small in number and its members were rapidly exterminated— did the settlements assume capitalist forms right from the beginning, subsequently accentuated by the massive immigration during the nineteenth century” .® (b) That of the countries set up in territo­ ries where substantial activities of a pre-capi­ tal isl nature had already been carried on in the pre-Columbian period (outstanding cases are Mexico, Guatemala, Ecuador, Peru and Boli­ via); here, the formation of the national system brought about the retreat of the pre-existing forms of social organization and their gradual articulation with the remaining activities in the system. These cases are examples of typical underdeveloped capitalist economies as de­ fined by Benetti; “these are heterogeneous economies, characterized by the linking to­ gether of numerous different sections, among them the subsistence economy, small-scale mercantile production, national and foreign capitalist production and segments of State ^Ernesto Laclau, “Feudalism o y capitalismo en Améri­ ca L atin a ', in E . Laclau e t al., A m érica L a tin a : fe u d a lis m o o c a p ita lis m o , M exico City, Ediciones Quinto Sol (un­ dated), p. 130. C EPA L REVIEW No, 18 /D ecem ber 1982 capitalism. This heterogeneity is not incompat­ ible with the unity proper to the category of the whole”.^ Throughout this process, which began with the expansion and consolidation of the market economy, the situations of duality — understood here in its orthodox sense— which may have existed before have gradually been disappearing. Such situations may have been due to the survival of closed systems within each of the territories where a national system was being formed, with the result that once they had been articulated within the market economy these closed systems came to function as open subsystems of the national system. In the process of formation of national systems, each nation-State played a fundamen­ tal role by progressively establishing favour­ able conditions for the expansion and consoli­ dation of the new social relations throughout the respective national territory. This process came to a head in very specific periods of the history of each country, and in many cases the national history books have even associated such periods with the names of particular per­ sons who promoted during their periods of government the achievement of greater articu­ lation of the national economy into the world market through links with capitalist centres in the metropolitan countries. In these stages, particular effort was devoted to furthering the processes of expansion of internal frontiers and the establishment of conditions to consolidate processes of national integration under the aegis of capitalist production relations. Since these processes have still not been completed, it may be observed that many of the regional policies being carried out today in various Latin American countries have been establish­ ed fundamentally with the aim of securing greater expansion and deepening of capitalism within the national territory. ^Carlos B en etti, L a a cu m u la ció n e n los p a ís e s c a p ita ­ lis ta s s u b d e s a r r o lla d o s , translated by María Isabel H er­ nández, M adrid, Fondo de Cultura Económ ica, 1976, p. 88. this respect, see for example the important study by Jo rge Jatoba e t a l,, “Expansáo capitalista: o papel do E stado e o desenvolvim ento regional recente”, ín P esqu isa e P la n e ja m e n to E c o n o m ico , Rio de Janeiro, Voi. 10, No. 1, April 1980. T H E L IM IT S O F TH E P O SSIBLE IN REGIONAL PLANNING /C arlos A. de Mattos W hen incorporated into the system, activi­ ties and areas which until then had not been connected come to play a role in it, and this role developed and was reproduced as a function of the process of the generation, appropriation and utilization of the economic surplus, which constitutes the guiding line of the overall process. In this way, a certain scheme of spatial division of labour was gradually imposed which has marked the national territorial struc­ ture in each of its stages; as Doreen Massey points out: ‘The economy’ of any given local area will thus be a complex result of the combi­ nation of its succession of roles within the series of wider, national and international, spatial divisions of labour”.^ ^ In the final analysis, in every process of formation of a national system within the frame­ work of a capitalist economy the predominant social relations of production constitute the ele­ ment which fixes the limits of and gives content to the process of the generation, appropriation and utilization of the surplus by the various interdependent parts of the whole in question. This means that there must be a dom inant ra­ tio n a le which is inherent in the system and also, consequently, that there must be certain rules compatible with it which set precise lim­ 69 its for the field of action within this system. In this interrelated set of elements, linked together under the control of specific and con­ crete rules, any change which affects one component of the system has repercussions on the remaining elements, transmitting its effects through a process of successive chain reactions. The propagation mechanisms observed in an input-output matrix are a good illustration of such interdependence. It may be inferred from the foregoing that is is useless to considérer a particular part or subsystem in isolation from its systemic con­ text; as Benetti points out, “the complete set is an entity which is radically different from the sum of its parts, whose nature and mutual rela­ tionships are modified by its presence in them. The complete set is a totality”. T h i s means that the introduction of changes within a sub­ national unit {region, State, province) cannot be approached independently of the national entity to which the unit belongs; if this were done, it would mean trying to modify a part while ignoring the presence of the totality, that is to say, ignoring the strength of the interde­ pendence existing between the unit in ques­ tion and other units or elements of the system. Ill The dynamics of spatial operation: The process of formation of regional centres of accumulation As noted earlier, every time the agents which orient and control the decision-making process in a national society have defined and effec­ tively adopted a particular political project {ul­ timately signifying the adoption of an accumu­ lation, growth and distribution model), at the same time a certain form of spatial operation of the system is explicitly or implicitly estab­ lished. In turn, this form of spatial operation llD o reen M assey, “In what sense a regional prob­ le m ?” , in Regional Studies, Oxford, Pergamon Press, Vol. 13, No. 2 ,1 9 7 9 , p .2 3 5 . means that, in general terms, each of the parts of this totality made up by the national system has been assigned the functions which it is supposed to fulfil. Specifically, this means that the fundamental lines of the accumulation, growth and distribution model which is to prevail in each of the subsystems have also been defined. In short, once a particular model of spatial operation has been shaped, certain limits are simultaneously defined which affect l^Carlos B en etti, op, cit,, p. 85. 70 the content and possible scope of actions aimed at bringing about changes in different parts or subsystems of the national system: in other words, the prevailing model brings with it ad­ ditional restrictions which demarcate the limits of the possible for actions of regional inci­ dence. This is why it is important, in each particu­ lar case, to grasp the fundamental features of the prevailing model of spatial operation it is desired to take action in terms of regional plan­ ning. In the case of the Latin American coun­ tries, just as it has been possible to characterize the various global models which have predo­ minated in different stages of their historical evolution, it is likewise possible to try to identi­ fy, through its dominât features, the model of spatial operation corresponding to each of these stages. While recognizing the danger in­ volved in trying to establish generally applica­ b le models for the very diverse national situa­ tions coexisting in the Latin American sphere, it nevertheless seems reasonable, in the light of the available evidence, to sustain that there are certain salient features which, in general terms, have characterized the spatial development of a numerous group of countries. This means accepting that throughout the process of formation of the Latin American na­ tional systems, the various alliances establish­ ed between the social forces of each national entity have led to the definition and adoption of successive political projects which in essence, from a long-term viewpoint, have had consider­ able coherence and continuity as regards the spatial operation of the system. Thus, among these processes there are no examples of politi­ cal projects of any substantial duration which have given rise to tendencies clearly opposed to the model which it is here sought to charac­ terize. Obviously, examples can be cited of some political alliances which have temporari­ ly imposed projects representing an interrup­ tion or break in the dynamics of the model of spatial operation, but once the conditions which permitted the application of these projects have disappeared, the subsequent pro­ jects have generally restored the coherence and continuity referred to; according to Villamil's theory, this corresponds to the expan­ sion of a rising style of development which has December 1982 CEPA L REV IEW No. 18 / gradually transformed itself into the dominant style in national systems. In the following pages, an attempt will be made to sketch the main lines of the model of spatial operation which has predominated up to now in most of the Latin American countries. The reader must be warned, however, that the possibility of generalizing these features to dif­ ferent national situations is conditional upon the fulfilment of at least the following two as­ pects. In the first place, the process of national articulation and integration based on the pen­ etration and consolidation of the capitalist economy must have taken place in a relatively generalized manner in the country in question and must cover a substantial part of the national territory. It must be understood that in those countries which are still characterized by a relatively poorly articulated structure and by a significant degree of survival of pre-capitalist sectors, the model of spatial operation present­ ed here has little validity. In the second place, there must have been a relatively substantial advance of the process of industrialization; this aspect is particularly relevant because the fea­ tures in question are accentuated during the period in which industry leads to the appear­ ance, expansion and deepening of industrial and financial capitalism. Bearing in mind these restrictions, the dominant aspects of the model of spatial operation which has predominated so far in most of the Latin American countries can be summed up as described in the following pages. 1. A rticulation o f the national system around cen tral subsystem s Already during the era of colonial rule, certain cities began to stand out in the territories which were later to become some of the Latin Amer­ ican nations. These cities —whose dominant social groups in many cases played a funda­ mental role in the struggle for independence and the establishment of the respective coun­ tries as separate nations— rapidly increased ^^José J. V illam il, “Concepto de estilos de desarrollo. Una aproxim ación”, in O. Sunkel and N. Glígo (eds.), Esti­ los de desarrollo y medio ambiente en América Latina^ M exico C ity, Fondo de Cultura Económ ica, 1980. Carlos A. de Mottos T H E L IM IT S O F TH E PO SSIB L E IN REGIONAL PLANNING / their political and economic influence in the period of consolidation of nation-States and becam e the centres of the national system which was then in the process of formation. It was fundamentally through and on the basis of these cities that the process of dissemination of innovations was carried out, and it was conse­ quently around them that the incipient national system began to be articulated; they initially constituted the base for the penetration and dissemination of the forms of the mercantile economy and subsequently of the social rela­ tions of production which led to the consolida­ tion of the capitalist process of economic, polit­ ical, social and territorial integration of each country. From their origins up to the present, many of these cities carried out the basic functions of the systems which were gradually being articu­ lated around them; thus, successively, and sometimes simultaneously, they were centres of colonial administration, national political power, the export-import process, services and commerce, and all this was gradually establish­ ing the bases of their subsequent transforma­ tion into poles of attraction for the first indus­ tries. When we look at the process of formation o f the Latin American national systems, we note that in mosteases the national urban struc­ ture was built up on the basis of a single main city (Mexico City, Guatemala City, San José, Caracas, Lima, Santiago, Asunción, Buenos Aires, Montevideo, etc.). In a few cases (Brazil, Colombia, Ecuador) more than one first-order urban centre has coexisted simultaneously at various periods in the process of formation of the national system; nevertheless, as the devel­ opment of the industrially-based capitalist economy has progressed, the situation has tended to become more unbalanced as a result of the increase in the relative importance of a main city (the case of Bogotá) or a large indus­ trial-urban axis (the case of Sáo Paulo-Rio de Janeiro). As a result of the economic and political processes taking place in them, the main cities have generally become more separated from the other components of the national urban structure, as may be seen fundamentally from the functions (administrative, commercial, ser­ 71 vices, industrial) carried out by each of them^^ and, ultimately, the spatial concentration of such activities and of the population. As we shall see below, the spatial concentration of the activities of the industrial and financial sectors is of fundamental importance because of its incidence on the définition of the forms of spatial operation of the system. These processes of spatial demographic concentration may be seen from the evolution of the indexes of urban primacy, which have been growing for most of the countries during prolonged periods in the past and in the case of many nations are still increasing; moreover, these indexes have been higher for the Latin American countries than for other areas of the world.^® It may however be noted in this re­ spect that in the case of some countries —most notably Brazil— even though there is evidence o f the spatial concentration of urban functions and particularly of industry, there is neverthe­ less no evidence of a particularly marked de­ mographic imbalance and growth of the index­ es of urban primacy. The data from the most recent population censuses reveal that in various countries of the region “the regional indexes of concentration of urban population in the main cities have shown a moderate but sustained downward trend, although their levels are still very high”.^ At the same time, the figures from '^ recent industrial surveys also indicate that in some countries the level of relative concentra­ tion of industry appears to have reached its peak, and from now on a slow process of rela­ tive déconcentration would appear likely to b eg in .N e v e rth e le ss, a report on the present F o r an analysis o f the problems offtinctional primacy in L atin America, see D enis-C lair Lam bert and Jean-M arie M artin, América Latina. Economías y sociedades^ Madrid, Fondo de Cultura Económ ica, 1976, p, 193 et seq. i^Regarding this problem , see Fem ando Gatica, “La urbanización en América Latina; aspectos espaciales y demográñeos d el crecim iento urbano y la concentración de la población” , in Notas de población, Santiago, C hile, Year I I I , Voi. 9 , D ecem b er 1975. ^®ViImar Faria, “O sistem a urbano brasileiro: un resu­ mo das características e tendencias recentes”, in Estados CEBRAP, Sáo Paulo, No. 18, O ctober-D ecem ber 1976, rifCEPAL, El estado de los asentamientos humanos en América Latina y el Caribe, M exico City, E dición SAHOP, 1979, p. 42. 18CELA D E, Desarrollo regional, políticas públicas, 72 situation and future trends of human settle­ ments in Latin America forecasts that “the ten­ dencies towards population concentration and the notable predominance of the main cities over the national systems of human settlements will be maintained, and it is estimated that there will be between 150 and 180 million people living in the main metropolises by the year 2000, corresponding to half the urban population and almost one-third of the total population of the region”.^ ® In this context, the advance of the proces­ ses of spatial concentration has caused the in­ crease in activities and population to overflow the limits of the main city, leading to the forma­ tion of vast and complex central regions, in some cases also called principal regions, met­ ropolitan regions or “core regions”. Such re­ gions are generally made up of a growing con­ urbation which acts as the nucleus for them, with a network of smaller urban centres and rural areas directly linked to this nucleus: these regions become cen tral subsystem s of the na­ tional system and act as the true motive centre of the latter. Thus, as from certain periods in the historical evolution of each country, the nation­ al spatial system has tended to be articulated around a central region or subsystem rather than a main city. In this situation, the process of spatial concentration takes place fundamental­ ly in this subsystem, although not necessarily in the main city; thus, a reduction in the rela­ tive weight of the main city (in terms of location of productive activities or population) is gener­ ally accompanied by an increase in the relative weight of the central subsystem as a whole. The articulation of the national systems on the basis of a nucleus made up of the central subsystem is a fact which is observed in all the countries, regardless of their geographical size, and it is even observed that the industrial and demographic weight of this subsystem with re­ gard to the national system is usually similar. Thus, the subsystem which has arisen around Montevideo (including the cities which are m ig r a c io n e s y p r im a c ía u rb a n a en A m érica L atin a: u n a in v e s tig a c ió n c o m p a r a tiv a , Santiago, C hile, preliminary version, 1980. 19CEPAL, op . c it .,p . 45. December 1982 C EPA L R EV IEW No. 18 / dependent on this centre in the Department of Canelones) or San José in Costa Rica (including the cities of Alajuela, Heredia and Cartago) have a relative weight from the industrial and demographic point of view which is very simi­ lar to that of the principal regions of Chile, Argentina and Mexico, for example. 2. Spatial concentration o f industrial, fin a n c ia l an d service activities When each of the countries began its indus­ trialization process, the main cities appeared to be the place offering the greatest advantages from the locational point of view. To start with, these centres offered the widest access to the domestic market, since they had the largest vol­ ume of population with a certain capacity for consumption in the national system, this popu­ lation being made up of that which was concen­ trated in the main city itself, plus the popula­ tion of its area of effective influence. In this respect, it should be borne in mind that, be­ cause of the way the territory had been orga­ nized, both during the era of the colonial econ­ omy and the stage when the primary export model predominated, the infrastructure and the transport and communication services gen­ erally converged on the central subsystem which was in the course of formation. Thus, the remaining centres of any importance were practically widiout any linkages with each other, since in almost all cases their links were with and through the main centre. Moreover, it was the main cities which had the best endowment of infrastructure (energy, drinking water, transport, etc.) and the largest available contingent of concentrated labour. These factors meant that at that moment these cities offered greater capacity for absorbing investment than the other possible locations in the national space. It should also be remem­ bered that it was these centres which were best equipped for cultural and recreational activi­ ties, and this powerfully influenced the subjec­ tive preferences of businessmen as regards se­ lecting their place of residence.^® 20This factor is usually of more importance than first im pressions would seem to indicate. In this respect, see Je a n Zlatiev, “E nqu êtes sur les éléments moteurs et les Carlos A. de Mattos T H E L IM IT S O F TH E P O SSIBLE IN REGIONAL PLANNING / Finally, it should be borne in mind that since most of these cities were the seat of na­ tional political power, location near them gave the agents involved in the production process better and more rapid access to discussions about economic policy decisions which might affect them, and this in itself constituted a factor of attraction for the new activities which were beginning to be developed in each coun­ try. The confluence of these elements in a sin­ gle environment is what gives the basis for Topalov's assertion that “as a spatialized sys­ tem of elements, the city is a form of capitalist socialization of the forces of production” As a consequence of this, the city offers what the same author calls the useful effects o f agglom ­ eration , a concept which corresponds essen­ tially to what regional economic theory has traditionally called “external economies of ag­ glomeration” . When the process of industrialization be­ gan to gather force in the Latin American coun­ tries, the advantages of agglomeration were most evident in the larger cities, so that the industrial activities which grew up tended to be located preferentially and in their majority in these cities or their immediate area of influ­ ence, and this is equally true for the countries which began their industrialization process early (such as Mexico, Colombia, Argentina, Brazil, etc.) as those which began it latter (Ve­ nezuela, Costa Rica, Peru, etc.). The tendency towards the spatial concen­ tration of manufacturing activities in the main cities persists throughout the industrialization process in each country and covers practically the whole range of activities of the sector: thus, this locational trend is to be observed from the stage when the first simple manufacturing ac­ tivities were established, right up to the estab­ lishment of large-scale industry, although everything appears to indicate that it reaches its greatest intensity during the period of sub­ stitutive industrialization. élém ents freins de la décentralisation industrielle”, in R e­ v u e E c o n o m iq u e , Paris, Vol. X IX , No. 5, Septem ber 1968. 2iC hristian Topalov, L a u rb a n iz a ció n ca p ita lista . A l­ g u n o s e le m e n to s p a r a su a n á lisis, M exico City, Editorial E d ico l, 1 9 7 9 ,p .2 0 . 73 This process of spatial concentration of in­ dustry has continued to prevail even in the case of activities of transnational origin, most of which have likewise been located in the cen­ tral subsystems. In this respect, Paul Singer noted that “this [international monopoly capi­ tal] approaches locational decisions exactly like any other kind of capital, showing the same tendencies to superconcentration and display­ ing a similar possibility of being reoriented through suitable government incentives''.^^ Consequently, as the process of industrial concentration went on, the central subsystems also became the natural location for most of the industrial structures of an oligopolistic or mo­ nopolistic nature, with the result that these centres not only became the seat of the largest number of industries, but also of the largest industries. Thus, economic concentration and territorial concentration have tended to streng­ then each other mutually. In turn, the development of industry in the large urban centres, through the processes of vertical and horizontal transmission of exter­ nalities, itselfbrought about the generation and expansion of new productive activities, espe­ cially in the trade and services sectors. Thus, the growth of the industrial sector led —through the increased amount of profits and wages and salaries— to an increase in the vol­ ume of disposable personal income in the main centres, and this, together with the population growth in these areas, led to a steady and signif­ icant expansion in the market, which in turn promoted the expansion and diversification of tertiary sector activities. The multiplication of these activities likewise contributed to the ex­ pansion of the market in the centre, thus giving still greater impulse to the expansion of these activities. All this reinforced the relative weight of the productive structure of the main centres in comparison to that of the remaining urban areas of each country. Furthermore, the advance of the industri­ alization process supported and promoted a steady expansion of the financial system, which assumed an increasingly important function in the growth and reproduction of the system as a 22paul Singer, E c o n o m ía p o lític a d a u rb a n iz a çâ o , Säo Paulo, Editora B rasílien se, 1973, p. 76. December 1982 74 C EPA L REVIEW No. 18 / whole. The activities of the financial sector tended to establish their base of operations in physical proximity to the main mass of the na­ tional production apparatus, since it was there that it found the economic basis necessary for the development of its activities, and this fact too contributed significantly to the strengthen­ ing o f the tendencies towards spatial concen­ tration. This is clearly illustrated by the empir­ ical evidence available, which indicates that the financial sector has reached indexes of spatial concentration even higher than those corresponding to other sectors of activity, both as regards the location of the fixed assets of the sector and the movements of its financial flows. To this should be added, as a feature of fundamental importance regarding this sector, its marked centralization as regards decision­ making; in this respect, Lambert and Martin have even gone so far as to say that this primacy is based essentially on the centraliza­ tion of the financial circuits and the organi­ zation of bank circuits”.^ Thus, even though in the most recent and advanced stages of devel­ opment of some countries of the region a cer­ tain degree of territorial redeployment of in­ dustry has begun to be glimpsed, it can never­ theless be asserted that this in no way changes the spatial centralization of the financial ma­ chinery at the management level, which takes place as a function of the dominant interests in the central subsystem. As a result of the processes described above, it may be asserted that the central sub­ system becomes on the one hand the main area o f accumulation of installed technology and, on the other, the rallying place and centre of operations of the entities responsible for the effective management of the financing of the process of accumulation; it therefore seems justified to claim that from the spatial point of view each central subsystem constitutes the main centre o f accumulation o f the system. Other aspects which help to show more clearly how the process of accumulation of capital has been becoming more spatially centralized and concentrated will be analysed later. ^^D-C. Lam bert and J-M . Martin, op. cit., p. 193. 3. S trengthening o f territorial concentration through the action o f the State Special consideration must be given to the action of the State, which has played a funda­ mental role in generating conditions for the strengthening and expansion of the main cen­ tres of accumulation of each national space. In discussing this aspect it seems desirable to bear in mind from the very beginning David Dunham’s warning that much of the litera­ ture on ‘regional development’ and ‘regional planning’ seems to have been written on the implicit assumption that the State acts as the guardian of ‘the public interest’ rather than as the representative of the most powerful inter­ ests in the national society (including its own)”.^ I f it is accepted that the State cannot be considered as a neutral entity in the inter­ play of the various social forces, then in the particular case under consideration it will be important to try to outline the origin of the dominant pressures during the period studied. In this respect, the most important feature is the emergence onto the political scehe of the urban social groups, resulting from the advance in the processes of urbanization and industrial­ ization, These groups gradually acquired in­ creasing weight in the alliances sustaining many of the political projects promoted by nation-States, especially during the period of substitutive industrialization.^ This presence o f the urban social forces in political life has had a clear incidence through the fact that many of the policies adopted have led explic­ itly or implicitly to the strengthening of the main centres of accumulation and their trans­ formation into the veritable motive forces of the economic functioning of each national system. Although the socio-political analysis of these processes is beyond the scope of the present article, it does seem important at least to make a brief reference to the main reasons why the action of the State has tended up to now to support the growth of spatial concentra­ tion in the Latin American countries. In brief. 24D avid Dunham, op. cit., p. 227. this respect, see in particular Fernando H enrique Cardoso and Enzo Faletto, Dependencia y desarrollo en América Latina, M exico City, Siglo X X I Editores, 1969. T H E L IM IT S O F TH E P O SSIBLE IN REGIONAL PLANNING /Carlos A. d e Mottos the position maintained here is that the action of the State has effectively responded to con­ crete political pressures exercised on behalf of the central subsystems. There are various rea­ sons for this behaviour: to begin with, the most powerful national and international economic groups —which have mostly had their principal base o f operations in the central subsystems— have exercised persistent pressure to ensure that the actions of the State favours the devel­ opment of the activities located there, which, as from a certain period in the development of each country, have become the fundamental activities of the process of accumulation. Fur­ thermore, the central subsystems are the place o f residence of the largest relative concentra­ tions of population, to whose political weight the State has not of coürse remained indifferent; these concentrations, too, have exercised per­ sistent pressure for an increase in the public expending and investment needed to improve or maintain the functioning of the environment in which they live and carry on their activities, so that this has continued to be an attractive place to locate new activities. Finally, consid­ erable weight has been exerted also by the fact that the central subsystems are the location of the greatest volume of the most directly or indirectly dynamic activities of each national system, whose growth the State seeks to main­ tain, and in order to be able to preserve the high levels of efficiency of these activities —which also means maintaining the growth rate of the system as whole— it has constantly been neces­ sary to make additional investments in infra­ structure and services. In these conditions, the action of the State has constantly tended to favour this part of the system to the detriment of the remaining parts; this has mainly been achieved through the al­ location of a high percentage of State resources to cover current expenditure and investments favouring the centres of accumulation, either in order to generate additional infrastructure, to absorb diseconomies of agglomeration, or to cover high maintenance and operating costs. The persistence of this process of spatial concentration of the most important activities o f the financial accumulation, industrial and services sectors in the central subsystems ne­ cessarily led to an increase in the political 75 power of the social groups connected with these, and this meant an increase in the polit­ ical power of the subsystems, resulting in the fact that a good proportion of the most impor­ tant policy decisions have tended to streng­ then, either directly or indirectly, the power structure located there, to the detriment of ac­ tivities located in other parts of the territory. This increase in the political weight of the cen­ tral subsystems forms the foundation of many of the theses of internal colonialism,^ At the same time, the most backward re­ gions, which are characterized by having a weak economic structure, have been the loca­ tion of economically weak sectors and hence of social forces with little political power, so that their bargaining capacity has also been very limited. Consequently, public actions have very rarely been really designed to favour these regions, and it is hard to believe that the mere play of the market forces can bring them out of their depressed situation. The problems brought about by excessive concentration have led some Latin American governments to take measures designed, at least apparently, to modify the pattern of spatial operation of the system. Such measures have generally been designed, however, to achieve a greater interiorization of the production pro­ cess (this is what was sought, for example, through the construction of Brasilia and Ciudad Guayana), or else greater national integration (through ambitious programmes of construc­ tion of transport infrastructure), so that the results do not so far seem to have succeeded in bringing about any significant changes in the model of spatial operations; indeed, many of these actions seem to have led rather to its strengthening and expansion. Nor have at­ tempts to achieve other objectives, such as in­ dustrial déconcentration through the establish­ ment of industrial parks or new poles of growth, registered any results which point to signifi­ cant changes in the dominant features of the model. Even so, because of the growing acuteness internal colonialism , with special reference to the case o f Brazil, see in particular Yves Chalout, Estado, acumulagao e colonialismo interno, Petropolis, Editora Vozes, 1978. CKPAL REVIEW No. 18 /December 1982 76 o f the contradictions and problems caused by excessive spatial concentration,^'^ there can be no doubt that in the next few years many gov­ ernments are bound to intensify their policies aimed at stimulating spatial déconcentration, and some concrete results may possibly be achieved in this direction. 4, C on vergence in the spatial shifts o f the lab ou r fo r c e The process of expansion and consolidation of the national system, which implies the prop­ agation of capitalist social relations of produc­ tion to the rural environment, has meant the introduction of new forms of social organiza­ tion of labour in agricultural activities, and one o f the most outstanding effects of this process has been the expulsion of substantial contin­ gents of rural labour to urban areas, giving rise to an explosive intensification in the internal migration observed in recent decades. The expulsion of rural workers is essential­ ly in response to two kinds of causes.^ (a) Firstly, the incorporation of extensive areas of the rural environment into the new forms of social organization of labour and pro­ duction, which has had at least two important effects: on the one hand it has meant the intro­ duction of changes in production techniques, making them more capital-intensive, so that there has been a gradual reduction in the num­ ber of rural wage-earners required for each unit of production; and on the other hand, it has brought about an increase in the size of the properties of capitalist enterprises, with con­ sequent displacement of the former producers and peasants to other activities. (b) Secondly, peasant agriculture, which is predominantly for subsistence purposes and has its own specific forms of social organiza­ tion, with little or no generation of economic surplus,^® has been unable —because it lacks th e problem s caused by processes of spatial con­ centration, see Carlos A. de Mattos, “Crecim iento y con­ cen tración espacial en América Latina: algunas consecuen­ cia s” , in R e v is ta In te r a m e r ic a n a d e P la n ifica ció n , Mexico C ity, Voi. X V , No. 57. March 1981. 28S e e Paul Singer, op . cit., p. 31 et seq . 29A lexander Schejtm an, "T h e peasant economy: inter­ nal logic, articulation and persistence”, in C EPA L R eview , Santiago, C h ile, No. 11, August 1980. the conditions for raising its productivity— to retain the whole of the population increase generated there. The population contingent expelled from rural areas has gone mainly to the cities^ and especially to the central subsystems, which for a long time past have exerted a much greater attraction than the small or medium-sized ci­ ties, As a result of these population movements, the subsystems have had at their disposal large contingents of labour which, as they exceed the demand for workers by urban activities, have led to a persistent increase in structural unem­ ployment and underemployment, and this im­ balance in the labour market has made it pos­ sible to perpetuate a situation of low wage lev­ els in the main centres of accumulation. Both the abundant availability of labour and the maintenance of low wages have become addi­ tional factors helping to ensure the continuity of the process of location of new activities in the central subsystems. When we consider that one of the factors which has had the greatest influence at the international level in promoting the redeploy­ ment of industry from the centre to the periph­ ery has been the possibility of reducing pro­ duction costs through the existence in the pe­ riphery of abundant labour available at low wages, it may be asserted that in the present circumstances it is difficult to see how any ten­ dency towards territorial dispersion within the Latin American countries could be brought about by the factors in question. The fact that a certain amount of territorial redeployment of industry may be taking place in some countries —especially those of largest geographical size— would seem to be connected mainly with the rise of markets of some importance in certain peripheral areas of those countries. 5. T erritorial d ifferen ces in productivity, efficien cy an d profitability The continual increase in the population and production activities of the main urban centres and the subsystems which have grown up around them have had as their consequence a steady expansion of their markets, which has in turn created favourable conditions for the ex­ pansion of the scales of production of the activ­ Carlos A. de Mattos T H E U M IT S O F TH E PO SSIBLE IN REGIONAL PLANNING / ities localted there, and this, in turn, has brought about an uninterrupted process of in­ corporation of technical progress. As a result of this, the largest centres have been character­ ized by their possession of plants of larger scale and by their incorporation of technical progress in a manner which has no parallel in the indus­ tries located in smaller centres; moreover, they enjoy a greater availability of infrastructure, energy, skilled labour, etc. All this has estab­ lished favourable conditions for a higher level of development of the forces of production in the central subsystems than in the peripheral areas. Consequently, the activities located in the central subsystems have been character­ ized by a higher productivity of labour than the smaller centres, ^oall of which has resulted in a higher degree of efficiency of their respective production processes. Various empirical studies available for dif­ ferent countries of the region give grounds for asserting that the form of behaviour sketched above is generally valid for those countries whose industrial sector has grown to relatively substantial dimensions. This is clearly shown, in particular, by the indexes of labour produc­ tivity and industrial efficiency calculated for urban centres of different sizes. For the specific case of efficiency, for example, an important study by E. Hernández Laos on Mexico which is based on a calculation of indexes of industrial efficiency for the various federal States of that country showed that “... the indexes of efficien­ cy are systematically correlated in almost all industries with the differences which exist in the conditions of infrastructure, education and training of labour, degree of industrial diversi­ fication, size of markets, and availability of credit and e n e r g y T a k i n g into account the fact that it is the central regions which are best endowed in this respect, the author arrived at the following significant conclusion: “...the fi- 30For a study on the differences in productivity in centres o f different sizes, with reference to the case of B razil, see Hamilton C. Tolosa, “ Macroeconomia da urbanizagáo brasileira”, in Pesquisa e Planejamento Económi­ co^ R io de Janeiro, Voi, 3, No. 3, O ctober 1973. siE n riq u e Hernández Laos, “Economías externas y el p roceso de concentración regional de la industria en M éxico ” , in El Trimestre Económico, M exico City, Voi. X L V II (1), No. 185, January-M arch 1980, p. 129. 77 nal result is that these regions enjoy ‘locational advantages of efficiency’ which favour the ex­ pansion of the firms already located there and the attraction of new ones”.® ^ In general terms, the force of the factors mentioned above (scales of production, incor­ poration of technical progress, external econo­ mies of agglomeration, productivity of labour, economic efficiency) mean that the central subsystems are perceived by the agents who take decisions on the utilization of the eco­ nomic surplus as the places in the national space which offer the prospect of the greatest profitability in the medium and long term. This fact —in a type of economic system where the spatial and sectoral utilization of the surplus is governed basically by the laws of the market— has become one of the most vital points in the system, because, as Singer notes: “...since the capitalist enterprise is a free agent as regards decisions on location, it takes these as a func­ tion of the market stimuli and the subjective preferences of its managers. Both circum­ stances lead to the concentration of activities in metropolitan areas”,^ ^ The perception which private entrepre­ neurs have of the differences in profitability between different parts of the territory is accen­ tuated by the fact that the negative effects and costs deriving from the congestion in the large urban concentrations are not transferred direct­ ly to the enterprises, but are absorbed by the economy as a whole: that is to say, the private costs are different from the social costs. In the above-mentioned study on the process of spa­ tial concentration in Mexico, E. Hernández Laos comes to the following important conclu­ sion in this respect: “...if the private gains de­ rived from economies of scale and external economies are greater than the negative effects directly caused to the firms by external diseco­ nomies, the process o f industrial expansion of the industrialized regions will tend to be ac­ cumulative and expansive, as seems to be the case in Mexican manufacturing”?^ Ultimately, these factors lead to a dif^^Enrique Hernández Laos, op. cit., pp. 133-134, Paul Singer, op. cit., p. 74. 34Enrique Hernández Laos, op. cit., pp. 135-136 (au­ thor's italics). December 1982 C EPA L R EV IEW No. 18 / 78 ferentiated form of behaviour as regards the territorial use of the surplus, and it is in this differentiated behaviour that we may find the origin of the acute regional inequalities which have characterized the process of spatial forma­ tion in the Latin American countries. In this respect, Doreen Massey notes that the inequal­ ities stem essentially from a particular area’s “degree of attractiveness to, and suitability for economic activity. At any point in time, in other words, there is a given unequal geographical distribution of the conditions necessary for pro­ fitable, and competitive, production”.^ It is ® this unequal geographical distribution of the degree of attractiveness to and suitability for the dominant economic activity which has es­ sentially led to the fact that the new activities generated by private enterprises have tended to continue to be located in the central subsys­ tems, thus bringing about the sequences of an accumulative nature which have given rise to the formation of the great concentrations now characterizing the spatial structure of most of the Latin American countries. 6. Predom inant use o f the surplus f o r the b en efit o f the central subsystem s Another of the fundamental features of the pre­ dominant model of spatial operation is its ten­ dency towards the territorial concentration of the process of capital accumulation in the cen­ tral subsystems; essentially, this represents a process of appropriation of the surplus gener­ ated in the peripheral regions and its use in accordance with the dominant interests of the central subsystems.^ 35Doreen M assey, op. cit., p, 234, analysing this process we have deliberately re­ frained from dealing with the aspects relating to the trans­ fer to the exterior o f the surplus generated in peripheral econ om ies, although it is o f course recognized that this is o n e o f tlie most important phenom ena affecting the growth o f th e latter. Although in the present article it has been b o rn e in mind that the growth model adopted by each country has b ee n conditioned by the specific form o f articu­ lation o f the national econom y with the dominant centre at th e international level, the analysis has been centered ex­ clu siv ely on the effects which this had on the internal spatial Opération o f each national system. Consequently, the statem ents made here apply essentially to the process o f generation, appropriation and territorial utilization of that part o f the surplus w hich is retained within the respec­ tive national econom y. Within each national economy, the extrac­ tion of the surplus takes place through various mechanisms, among which it is worth singling out on the one hand those which permit its direct extraction and, on the other hand, those which operate through trade exchanges. In turn, as regards the direct extraction of the sur­ plus a distinction should be drawn between that which takes place through private sector mechanisms and that carried out in the sphere of the State. As regards the mechanisms operating within the private sector, special mention may be made of those which operate on the basis of the differences in profitability enjoyed by the agents between the central regions and the pe­ ripheral regions, that is to say, the differences in terms of the “conditions for profitable and competitive production” referred to by Doreen Massey. This situation has led to a constant transfer of the economic surplus to the central subsystem, fundamentally through bank cir­ cuits and other financial sector mechanisms, which have steadily expanded and become more perfected for the proper fulfilment of this function. All this has given rise to a greater accumulation of capital in the central subsys­ tem than in any other region of the national space. Although that part of the surplus extracted from the peripheral regions which remains in the country is mostly used in the central sub­ system, there always remains another part which is directed towards certain high-profit activities in other subsystems, whose growth helps to speed up the process of accumulation of the economy as a whole, with the ultimate result, through the operation of the mech­ anisms already described, that this works in favour of the expansion of the central subsys­ tem. In a study on the regional processes in Brazil, Paulo Haddad gives the following anal­ ysis which exemplifies and corroborates the foregoing assertion in this respect; “...the dom­ inant centre —-through investments in the transport and communications of the periph­ ery— builds up relations of domination which are characteristic of internal colonialism. In areas endowed with abundant natural re­ sources, big agroindustrial and mining projects are set up, financed and controlled by the pri­ T H E L IM IT S O F TH E PO SSIBLE IN BEGIONAL PLANNING /C arlos A. d e M aitos vate capital of companies located in the centre, with the objective of generating at low cost an exportable surplus of raw materials and food­ stuffs needed to sustain the industrialization process in other regions of the country or solve acute balance-of- payments problems”?^ The State, for its part, also appropriates part of the surplus generated in the various areas of the country, but —under the influence of pressure from the factors already analysed earlier— this is used above all in the central region itself: obviously, some of the surplus appropriated by the State is also used in periph­ eral regions, but even in this case it tends to benefit the dominant groups of the central sub­ systems rather than the peripheral regions themselves. This is so, for example, in the case of investments in infrastructure which are os­ tensibly carried out with the aim of achieving greater national integration but which, in gen­ eral, primarily make possible an expansion of the market for manufactures coming from the central subsystem. Furthermore, this expansion acts to the detriment of the local manufactures o f the other regions, since because they work at lower productivity, and hence with higher pro­ duction costs than the companies in the central region, they cannot continue competing with their products. In addition, it must be borne in mind that the factors inducing the transfer of the surplus from the peripheral subsystems to the centre also influence the selection of the predominant place of use of the surplus generated in the central subsystem itself. In this respect, it may b e noted that while in their initial stages the central subsystems needed the surplus of the primary export sector in order to establish and consolidate themselves, in more advanced stages a broad and diversified production struc­ ture grew up in them which came to contribute an increasingly large part of the total surplus of the country, and the part of this which is re­ tained by the national system has tended to be oriented largely towards the activities of the central subsystems themselves, in the light of 37Paulo Roberto Haddad, “Brasil: la eficiencia econó­ mica y la desintegración de las regiones periféricas”, in Sergio Boisier e t al., (eds.), op. cit., p. 372. 79 the territorial differences in profitability al­ ready referred to. At the same time, the increase in produc­ tion of the centre has given rise to another mech­ anism for appropriating the surplus generated in the peripheral regions: as the productive activities of the central subsystem were ex­ panding, diversifying and increasing their pro­ ductivity, interregional trade was also growing, with the simultaneous decline in the manufac­ turing activities of the peripheral regions al­ ready referred to. In view of the differences in productivity between the activities of the cen­ tral subsystems and those of the other subsys­ tems, this trade between regions has formed the basis for a transfer of the surplus to the central subsystem. A good example in this res­ pect is that of Brazil, where a recent study on the case of Sao Paulo notes: “The fact that Sâo Paulo is the leading centre of the process of accumulation in Brazil leads to the relative im­ poverishment of other regions of the country. In addition to the direct transfer of resources or investment, another source of concentration is provided by the privileged position of the Sâo Paulo economy in the regional division of la­ bour. As the most advanced sectors of industrial and agricultural production are concentrated in the Sâo Paulo area, the productivity of its en­ terprises is also greater, giving it an advantage in trade relations with other regions”.^ » It we accept Laclau^s assertion that “...eco­ nomic dependence means the permanent ab­ sorption of the economic surplus of another region”, t h e n in the conceptual framework just set forth it would be possible to speak of dependent regions and dominant regions, while at the same time it would be necessary to accept that the relations linking the elements of the system have the character of domination and dependence, respectively. This is the fun­ damental significance of the concepts of dom­ inant regions and dependent regions.^ 3®Candido P. Ferreira de Camargo et al,, Sao Paulo 1975. C rescim en to e p obreza, Sao Paulo, Edi?6es Loyola, 1976, p. 16. 39Emesto Laclau, op. cit., pp. 138-139. ^OObviously, this does not mean to say that one region as such dominates another region, but that particular social groups residing in a region of greater capitalist develop­ ment appropriate a significant part of the surplus generated in regions of less advanced'capitalist development. 80 The above aspects form the essence of the mechanisms which have served so far to bring about the self-perpetuation of the processes of spatial concentration and unequal growth which have predominated in most of the Latin American countries; fundamentally, these are phenomena with similar characteristics to what Myrdah* describes as cumulative processes of circular causation. While these processes have been generat­ ing contradictions, it should be observed that so far these contradictions have not reached the point of cancelling out the advantages of spatial concentration, and that moreover the system as a whole seems to have found mechanisms which have enabled it to overcome such con­ tradictions. This is so, for example, in the case of the problem raised by the reversal of sign of the advantages of agglomeration as a result of the incessant growth of some great metropol­ itan centres; in most of these cases, the solution has been sought through increasing the re­ sources assigned by the State to these centres so as to keep them operating, even though this has to be done to the detriment to the needs of the peripheral subsystems. On the basis of the evidence provided by the features of the model sketched earlier, we can now, by way of summing up, try to com­ plem ent what has been said on the aspects which permit us to define the central subsys­ tems as principal centres of accumulation with­ in each national space. These aspects are summed up by the fact that each central system develops into: (i) the place where the qualitatively and quantitatively most important part of the stock of productive capital of the system —that is to say, the greatest volume of installed technol­ ogy— is located; (ii) the place where gradually increasing volumes of the national economic surplus are generated; (iii) the place where substantial volumes of the surplus generated in the other subsys­ tems are appropriated; in this respect, it could be said that they constitute the greatest centres “ iiGutmar Myrdal, E con om ic T heory and U nder-devel­ o p e d R egions, London, Duckworth, 1957. C EPA L REVIEW No. 18 /D ecem ber 1982 of supply of financing for productive accumula­ tion; (iv) the place where most of the agents who take decisions on the use of the surplus available in each national space live, and hence, the place where such a national space is operated and ‘manipulated'. 7. Persisten ce o f unequal spatial grow th It may be inferred from the foregoing that the dynamic peculiar to this model of spatial oper­ ation has led to the shaping of a structure char­ acterized by an extremely unequal territorial distribution of productive forces and an equally uneven development of them in the various areas of each country, while these features have also become factors which ensure the repro­ duction of this same structure and hence the persistence of the process of unequal growth. In their most concrete expression, these disparities are manifested in the substantive differences in living conditions which affect the inhabitants of the different regions. Many investigations made in respect of various Latin American countries show that as the process of concentration has advanced, the inequality in the territorial distribution of both wealth and poverty has steadily become more acute. This is so because on the one hand the richest strata have tended to become concentrated primarily in the central subsystem, while on the other hand the highest percentages of poverty affect the regions or areas of the periphery; further­ more, there is evidence which gives grounds for asserting that the poor in the poor regions are generally poorer than their opposite num­ bers in the central subsystems. As regards the territorial distribution of poverty, we may take as an example the case of Peru, where the results of a survey carried out in 1971-1972 show that whereas in Metropol­ itan Lima the families in a situation of extreme poverty amounted to 6.3% of the total number of families in the area, in the rest of the urban centres the respective proportion came to 24.5%, while in rural areas it was 50%.^^ Like^^Alberto Couriel, E stado. E strategias de desarrollo y sa tisfa cció n d e n ecesid ad es básicas: el caso de Perú, San­ tiago, Chile, IL P E S, 1978 (mímeo). T H E L IM IT S O F TH E PO SSIBLE IN REGIONAL PLANNING /Carlos A. d e Mattos wise, an investigation on regional disparities being carried out by ILPES has revealed a sim­ ilar situation in Panama and Venezuela.^^ The conclusions of the research on urban poverty carried out in respect of Brazil by Ha­ milton Tolosa must be interpreted in the same way: this author found that “...the cities can be clearly grouped according to a regional criteri­ on. Thus, at one extreme are the poorest cities, headed by Juazeiro do Norte, Pamaiba and Mossor6, followed by other highly concen­ trated centres in the Northeast. At the other extreme are the cities in central Sao Paulo and the metropolitan areas of the southern re­ gion” .'*^ These results show that regional in­ equalities persist even when only the urban population is considered. All this indicates that the conditions of w ell-being and survival prevailing in the cen­ tral subsystems are superior to those of most of the peripheral regions. Furthermore, from the aspects considered in the preceding pages it may be inferred that as long as this model of spatial operation continues in force, there are no solid grounds for expecting any significant reduction in the regional disparities now exist­ ing, regardless of the growth rate which may be reached by the economy as a whole. It should be noted in this respect that some cases of modest reductions in regional dispar­ ities claimed to be revealed by measurements carried out in certain countries of the region do not seem to be attributable to greater relative growth of the income of the peripheral regions so much as to a short-term reduction in the growth rate of income in the central regions. In a study on the recent evolution of the dispar­ ities in regional income in Brazil, Redwood puts forward the following hypothesis to ex­ plain the reductions in such disparities obser­ ved in that country in the period after I960: ^Arturo León, D im ensión territorial de las disparida­ d es sociales. E l caso d e Panam á, Santiago, Chile, ILPES, 1982 (mimeo). ^^Hamilton C. Tolosa, “Dimensóes e causas da pobre­ za urbana”, in W emer Baer et al, (eds.), D im ensóes do desen v olv im en to brasileiro, Rio de Janeiro, Editora Cam­ pus, 1978, p. 159. 81 “the evolution in regional inequalities, and more specifically, in the relation between the levels of the product in Sao Paulo and in the Northeast, is largely due to economic phenom­ ena which affected the growth rate of the prod­ uct in the higher-income State rather than the spread of growth to the poorer areas on the periphery”.^ To this must be added the impor­ ® tant warning given by Gilbert and Goodman that “...the regional convergence in income may be associated with very small improve­ ments (or even a decline) in the incomes of the poorest groups in society and a deterioration in income distribution in the poorest regions“.^ Indeed, the model characterized through some of its most outstanding features earlier in this article is based on a scheme of territorial division of labour in which each territorial unit, within certain limits, has been assigned a spe­ cific function and, ultimately, its own particular model of accumulation, growth and distribu­ tion, In this context, as Melchior pointed out, “...the problems characterizing the underde­ velopment of a subspace must be considered... as functional to the operating requirements of the system as a whole”.^ '^ I f this is so, then any attempt at action from the top down or from the bottom up must neces­ sarily take into account the specific and con­ crete restrictions imposed by the prevailing model of spatial operation; if it is desired to make changes in the accumulation model of a particular subnational unit but these are not compatible with the spatial dynamics of the system, it can easily be foreseen that it is highly improbable that such changes can really be put into effect. ^ Jo h n Redwood III, “Evolugao recente das disparida­ des de renda regional no Brasil”, in Pesquisa e Planejamento E c o n i^ ic o , Rio de Janeiro, Vol. 7, No. 3, December 1977, p. 526. ^®Alan G. Gilbert and david E. Goodman, “Desigual­ dades regionales de ingreso y desarrollo económico: un enfoque crítico”, ín EURE, Santiago, Chile, Vol. V, No. 13, June 1976, p. 98. ^'i^Enrique Melchior, Notas sobre la p lan ificación a n ivel su bn acion al en el m arco de la p lan ificación nacional, Santiago, Chile, IL PE S, 1980, p. 3 (mimeo). 82 C EPA L REVIEW No. 18 /Decem ber 1982 IV The area of the possible in regional planning 1. T he conditions an d restrictions affectin g regional action On the basis of the evidence considered so far, a more detailed analysis can be attempted of the consequences which these aspects could have for regional planning in both its inter- and intra-regional aspects. In this respect, we could begin by asserting that essentially every defi­ nite action aimed at bringing about certain de­ sired changes in the spatial structure of a partic­ ular system must necessarily come within a specific a rea o f viability whose limits are de­ fined by the conditions and restrictions im­ posed firstly by the dominant rationale of the national system in question, and secondly by the model of spatial operation deriving fi-om the prevailing political project. The first-mentioned aspect refers to the fact that the rule deriving from the dominant rationale of the system delimit the nature, con­ tent and possible scope of social action, so that they act as concrete conditions and restrictions with respect to planning; this is the same as saying that they establish the most rigid and general limits defining the area of the possible in terms of planning. It is easy to understand why this is so, be­ cause in fact these rules constitute the ele­ ments which define the type of system in which one is operating and therefore form a datum for the problem of planning: that is to say, when planning in a capitalist economy, the elements inherent in this type of system cannot be changed in essence through planning. A similar analogy can also be made when considering the prob­ lems of planning in a socialist economy, whose specific dominant rationale defines the limits for action. Although this type of assertion may seem obvious, this has not always been under­ stood in the field of planning, where proposals have often been made for changes in the pre­ vailing rules which ultimately involve flying in the face of the indications dictated by the ra­ tionale of the system. T he second aspect referred to is founded on the basic assumption that when the agents controlling the decision-making process adopt and decide to implement a particular political project, the accumulation model inherent in this involves a particular mode of spatial oper­ ation. When tackling a process of regional plan­ ning, regardless of whether this is undertaken from above or from below, it must be borne in mind that each of the parts of the national sysercentage fell to 54%, coinciding with the big increase in urban i>overty. Table 3 clearly shows that the economic growth process, in view of its present characte­ ristics, will be incapable in itself of producing an overall improvement in employment condi­ tions. In order to bring the rate of total under­ utilization o f labour down from 20% in 1980 to 6.5% in the year 2000, an annual growth rate of 8.3% would be required for Latin America as a ^O scar Altímir, op. cit., and Sebastián Pinera, “¿Se b en e fícia n los pobres del crecim iento económ ico?’', E/CEPAL/PROY. 1/2, Santiago, 1979. ®See the article by Norberto E . García, “Growing la­ bour absorption with persistent under-employment”, in this p resen t issue o f CEPAL Review. 91 Table 3 LATIN AMERICA; GROWTH RATES REQUIRED FOR A SUBSTANTIAL DECLINE IN THE TOTAL UNDER-UTILIZATION OFTHE LABOUR FORCE Total rate of under­ Annual utilization growth (percentages) rate of GDP Countries 1980 Goal for required« year 2000 (percentages) Argentina 2.0 4.0 5.7 Bolivia 41.5 10.0 13.4 Brazil 5.0 8.3 19.9 Chile 5.0 6.5 18.7 Colombia 5.0 7.7 28.0 Costa Rica 2.0 6.8 13.2 Ecuador 10.0 12.1 34.1 El Salvador 10.0 8.8 33.6 Guatemala 7.0 10.0 23.6 8.8 Mexico 10.0 17.0 3.0 6.5 Panama 25.8 10.0 10.5 Peru 36.3 4.2 Uruguay 2.0 12.6 2.0 Venezuela 8.6 12.2 Latin America (14 countries) 19.9 6.5 8.3 Sou rce: P R E A L C , Dinámica del subempleo en América Latina^ Estudios e Informes de la C E P A L Series N ® 10, Santiago, C h ile, 1981. “C alcu lated on the basis o f figures expressed in thousands o f U S dollars at 1970 prices. whole over the next 20 years. Such a rate is of course beyond the real possibilities of growth. The case of the three countries with the highest rates of under-utilization of labour (Ecuador, Peru and Bolivia) is especially severe, since they would need annual growth rates of be­ tween 10% and 13% in order to reduce the under-utilization of their labour to 10%. 2. Som e conclusions o f the diagnostic analysis T h e rapid econom ic growth rate of Latin America during past decades has not had a proportionate effect in terms of the reduction of absolute poverty in the region or a decrease in under-employment. This fact leads to the con­ clusion that economic growth is a necessary but not in itself sufficient factor for overcoming po­ verty. The projections based on historical data 92 CEPAL REVIEW No. 18 /D ecem ber 1982 indicate that if the existing style of develop­ ment is maintained during this and the next decade, the incidence of poverty will decline only very gradually, while the number of poor people will actually rise in absolute terms. Although it is true that economic growth does not resolve situations of extreme inequal­ ity, it is no less true that the degree of develop­ ment reached in a number of countries of the region is such that it can be said that the prob­ lem of overcoming poverty is more closely re­ lated to the distribution of growth among the different social strata than to any limitation on resources. Thus, economic growth has made it more feasible to overcome poverty from the point of view of the resources available. The free play of the economic forces on the market does not make it possible to correct the inequalities in income distribution or to direct the allocation of resources towards the produc­ tion o f the goods and services needed to satisfy the basic needs of the poorest groups of the Latin American population. Consequently, State intervention is required if, either through the market or outside it, the present distribu­ tion of property and income which determines the structure of production and consumption is to be modified. Structural transformations and changes in the operation of the economic system will make it possible, in the medium or long term, to re­ move the obstacles now impeding the spread of economic progress to the poorest groups of the population. At all events, however, such trans­ formations will have to be accompanied in the short term by redistributive measures to re­ lieve the state of poverty in which a large pro­ portion of the Latin American population lives. Redistributive action by the State in Latin America has been inadequate because it has not succeeded in reaching the poorest sectors to any substantial extent, nor has it placed the burden of its financing on the richest sectors of the population. In view of the present magnitude of pov­ erty and the likelihood that its decline will be very slow —^ say mothing of the moral, eco­ to nomic and political significance of this situa­ tion— the development strategies of the Latin American countries must give very high prior­ ity to the surmounting of absolute poverty. The fulfilment of this objective calls for the alloca­ tion of greater material and human resources, as well as a greater effort to promote the organi­ zation of the most under-privileged groups and to fit the administrative apparatus to cope with the requirements which must be met if the ba­ sic needs of the whole population are to be satisfied. II Analysis of policies for overcoming poverty There is no theory of poverty, and some people tend to seek an explanation for it in the theory of development itself. Massive poverty is un­ doubtedly a symptom of under-development, and its roots lie in the factors determing the latter phenomenon. Nevertheless, it is possible to identify structural and operational factors of the economy which, although they do not claim to cover the global phenomenon of under-de­ velopment, make it possible on the one hand to explain the inequalities in income distribution and on the other to design more effective poli­ cies aimed at improving the conditions in which the target groups it is desired to benefit live. As we understand it, absolute poverty is a particular situation within the broader case of income distribution, and neither of them is in­ dependent of the prevailing political, social and economic structure. We do not believe that the currents of theo­ retical thought now prevailing contain a satis­ factory explanation as to why income in the Latin American countries is distributed in a certain way. The assumptions of neoclassical theory PO VERTY! D ESC R IPTIO N AND ANALYSIS O F P O U C IE S FO R OVERCOMING IT /Sergio Molina are more valid for the developed countries, but they lose their validity when they come up against the reality of under-development, where the keynote is economic, social and po­ litical heterogeneity. Post-Keynesian theory loses its value as a means of explaining income distribution when the assumption of stability, both in capital/production relations and in the propensity to save of capitalists and workers, is applied to situations marked by institutional and political discontinuity (uncertainty) and high rates of unemployment. Nor does Marksist thought provide a satisfactory explanation for the extreme inequalities in income distribu­ tion, maintaining as it does, in its more tradi­ tional form, that the basic problem lies in the antagonism between two social classes —capi­ talists and workers— from which it deduces production relations which concentrate the surplus value of labour in the hands of the owners of capital. Moreover, general theories refer in parti­ cular to the functional distribution of income in which its family distribution is more important for the purpose which concerns us here, which is the surmounting of absolute poverty. We agree with a statement made in a publi­ cation on income distribution, to the effect that what is needed for a better understanding of the distributive process in our countries is a more disaggregated analysis: “the division into two factors (capital and labour) or two sectors (investment goods and consumer goods) or two social classes (exploiters and exploited) is not enough”.® In order to carry out our intention of pro­ viding some guidelines for the design of poli­ cies aimed at overcoming poverty, we have chosen a less ambitious approach than that of formulating explanatory hypotheses based on some general theory. It seemed more useful to us, from the point of view of those responsible for policy formulation, first of all to set our­ selves a central objective, then to determine the factors on which the fulfilment of the objective depends and, finally, to identify the priority areas for intervention, in some cases indicating the most appropriate policy instruments. It is of ® S e e Alejandro Foxley (ed.), Distribución del ingreso, M exico City, Fondo de Cultura Económ ica, 1974. 93 course true that the choice of instruments has a strong political connotation and that a particu­ lar instrument cannot be recommended with­ out reference to a specific case. As already noted in one of the conclusions of the diagnostic analysis, the surmounting of absolute poverty calls for substantial and sys­ tematic action on the part of the State. There­ fore, what is subject to discussion is the form of this intervention, and not the need for it. The final objective pursued in making the intervention is to ensure that the permanent real income (monetary and non-monetary) of each family is at least equivalent to what is required to meet its basic needs as determined in conformity with certain socially predeter­ mined normative criteria. The fulfilment of that objective depends on the employment opportunities available to the target groups, the remuneration associated with that employment, the quality of the man­ power available, the capital endowment and productivity of the assets possessed by the poor and, finally, the transfers they receive from other agents. The intervention which the State can make in order to create suitable conditions for over­ coming poverty may be classified in many ways. In order to simplify fiieir presentation, we have placed them into two broad categories. The first category comprises interventions or policies of a distributive nature, i.e., those which affect the primary distribution of the in­ come resulting from the structure of ownership and the way in which the economic system operates. This kind of intervention is normally linked to the quantity and quality of the jobs which the economy generates, the productive factors available to the poor groups, the pro­ ductivity of those factors, and the prices which the operation of the economic system assigns to them. Such intervention is in the final analysis aimed at increasing the income-generating ca­ pacity of the poor groups. The second category comprises interven­ tions or policies of a redistributive nature, which, instead of affecting the primary distri­ bution of income, correct it by transferring in­ come and goods and services between the dif­ ferent population groups. This kind of inter­ vention is basically related to the way in which December 1982 CEPAL REVIEW No. 18 / 94 the State obtains the public resources (the inci­ dence of taxation) and the way in which it spends them (the incidence of public expendi­ ture and investment, particularly social expen­ diture for the direct, free or subsidized provi­ sion of goods and services which are consid­ ered to be basic). There can be no doubt that much public action or policy comprises both a distributive and a redistributive component. The longer the period whose effects are taken into considera­ tion is, the truer this is likely to be. This charac­ teristic of duality necessarily makes any at­ tempt at classification in accordance with the two categories referred to somewhat arbitrary. From the point of view of resources, in­ terventions of these two types are reciprocal, in the sense that an increase in the expenditure on one of them will, other things being equal, im­ ply a decrease in the expenditure of the other. From the point of view of their results, how­ ever, the two types are complementary, 'for at least three reasons: first, because failure to sa­ tisfy basic needs is in itself a major cause of the low income generating capacity of the poor groups. Second, because if consideration is gi­ ven to the consumption habits of these groups and to the availability of some basic goods and services, it will be seen that increases in real income do not guarantee that their basic needs will.be met. Finally, because there is no doubt that, for some groups, distributive action is either not viable or involves long lead times which are incompatible with tiie urgency of the situation to be resolved. In these cases, action o f a redistributive nature seems to be absolute­ ly indispensable.^ In short, the development strategy of each country should seek the optimum combination of distributive and redistributive action, bear­ ing in mind the individual characteristics of each case and considering any contradictions which might arise between the different objec­ tives. I. In teroen tion o f a distributive nature The main feature of distributive policies is 7See Ernesto Tironi, E/CEPAL/PROY.1/11, Santiago, 1979. eo lítica s gubernam entales con­ tra la p o b re z a ; e l a cceso a b ien es y servicios básicos, that they increase the primary income of the people they are intended to benefit A variety of policies may be included un­ der the category of intervention of a distribu­ tive nature, but they can be divided, in turn, into two groups: those intended to increase, together or separately, the amount and produc­ tivity of the employment generated by the eco­ nomy, and those which are aimed at increasing, together or separately, the amount and produc­ tivity o f the assets possessed by poor groups.® T he policies in the first category will increase the job remunerations of the target groups, while those in the second will increase the income of those with insufficient or low-pro­ ductivity assets. The main areas of intervention are indi­ cated below, with attention being drawn to some specific policies and instruments; this is intended to provide a frame of reference for the design of specific policies which are as compat­ ible with each other as possible. (a) Policies aim ed at increasing the am ount an d productivity o f the assets p ossessed by p o o r groups. It would be beyond the scope of this study to suggest specific policies to achieve a more equitable distribution of land ownership and physical capital and bring about a significant reduction in the differences of productivity of the assets possessed by the different social groups. Nevertheless, in view of the impor­ tance of measures designed to increase the amount and productivity of the assets in the hands of poor groups, we shall attempt to set forth a few general criteria on which these ac­ tions may be based, bearing in mind that they will be applied in specific situations which are very diverse. The amount of assets possessed by poor groups may be increased by redistributing the existing assets in such a way as to favour those groups or by redistributing ftiture increases in assets by redirecting new investment to favour 8Some of the goods and services which can be pro­ vided by the State, such as food, education and health, contain a distributive component, but as they also contain a consumption component they have been included in the redistributive category. PO V ERTY: D ESC R IPTIO N AND ANALYSIS OF P O U C IE S FO R OVERCOMING IT /Sergio Molina these groups. This kind of action is justified because, among other reasons, it has a perma­ nent effect on the income-generating capacity of the groups benefited. Those who are opposed to this kind of in­ tervention argue that in general it is contrary to the objective of growth and in the last analysis is harmful rather than beneficial to the groups which are supposed to be favoured. In order to prevent this happening (from a purely econom­ ic point of view) it is necessary on the one hand to select or identify the sectors whose produc­ tivity is least likely to be negatively affected by the transfer of ownership and, on the other hand, to ensure that die rate of return on the investment projects chosen to benefit the poor groups is not lower than the opportunity cost of the capital. It is likely that in decisions taken in this connection, the economic criterion will be only one o f the elements taken into consideration, and that sometimes it will not be the most im­ portant elem ent, but at all events it is advisable to know the economic cost of any political deci­ sion. It is also possible that consideration will be given to the time factor, since a measure involv­ ing changes in the structure of ownership may not immediately meet the economic needs, al­ though the situation may in time change for the good. (i) R edistribu tion o f existing assets The redistribution of existing assets is the most direct way of increasing the assets of the poor, but it is also the most conflictive. This type of redistribution may be carried out in two ways —^by transferring assets directly to poor families, or by socializing them by transferring them to the State or to a workers' collective. In general, in the industrial sector the re­ distribution of assets through direct transfers to poor families presents serious difficulties ow­ ing to the indivisible nature of the capital in this sector. Thus, one of the mechanisms most frequently employed for the redistribution of ownership in the urban sector is the nationali­ zation o f industrial enterprises by transferring them to the public sector or the creation or 95 workers' enterprises with collection ownership of capital. The nationalization of enterprises in the industrial sector or the creation of workers' en­ terprises does not necessarily result in redis­ tribution which favours the poor groups, since this depends on the amount of the indemnization paid to the former owners, on the efficien­ cy o f the way in which the nationalized or work­ ers' enterprises are managed, which will natu­ rally affect the size of the surplus they generate, and on the use made by the State or the workers of the surplus generated. In the case of nationalized enterprises, the magnitude of the net transfer at the time of nationalization depends on the valuation of the assets transferred (commercial value, book va­ lue, eto.), on the amount of indemnization in respect of that value, and the conditions on which that indemnization is paid (including payment dates, interest, rates, etc,). O f course, the decision to pay indemnization as well as die amount and terms on which it is paid depend on considerations which are basically political. The determination of the levels of efficien­ cy o f the management of nationalized enterpri­ ses and o f the real magnitude of the surplus they generate is a matter of heated debate ow­ ing both to the value content of these determi­ nations and to the lack of sufficient empirical data. For a number of reasons, the efficiency of public enterprises, measured in traditional fi­ nancial terms, may not reflect their true level of efficiency. The reason for this is closely related to the redistributive effect of the nationalized enterprises. In other words, the fact that ac­ cording to empirical studies many State enter­ prises in developing countries tend to operate at a deficit^ or to produce an insufficient surplus does not mean that they are inefficient. The deficit or low surplus may be partially or totally due to die fact that public enterprises carry out activities which are not performed by the pri­ vate sector because they are not very profitable but which, in any case, fulfil an important social function which is not reflected in the monetary ^ S e e for example A. Gantt and G. Dutto, “Financial Perform ance o f G overnm ent O wned Corporations in Less D ev elop ed Countries” , in IMF StaffFapers, Vol. XV, 1968. 96 income of the enterprise.^® The deficit or low surplus may also be partially or totally due to the fact that public enterprises subsidize the purchasers of their goods or the users of their services, by selling them at prices which are lower than the cost of producing them or by paying those who sell them their inputs more than the going rate. In such cases, the nationalit zation of enterprises involves income redistri­ bution benefiting the buyers or users of the goods and services which those enterprises produce or those providing them with inputs. Finally, the deficit Or reduced surplus may also be totally or partially due to the fact that nationalized enterprises i)ay their workers higher wages than the going rate or hire more workers than the number considered optimum from the point of view of maximizing the sur­ plus. In such cases, the nationalization of en­ terprises involves redistribution benefiting the unemployed, own-account workers, or workers in less privileged sectors who join the nationa­ lized enterprises, because the latter make more use o f the labour factor. None of the aforementioned redistributive mechanisms employed by nationalized enter­ prises necessarily involve redistribution bene­ fiting the poorest groups, however. In view of the nature of the goods and services such en­ terprises produce, and taking their job struc­ ture into account, it is likely that it is the middleincome groups which benefit most from these redistributive mechanisms. Finally, the redistributive effect of the na­ tionalization of enterprises also depends on the use made of the surpluses and on the way in which the deficits they generate are financed. I f there are suipluses, these do not all con­ stitute additional resources. In the first place, the enterprises in question paid taxes before they were nationalized, so that the increase in resources available to the State actually equals the profits made by the enterprises, less the compensation or indemnization paid and the taxes previously collected. In addition, the pol­ icy of nationalizing enterprises may have re- December 1982 CEPAL REVIEW No. 18 / percussions on the behaviour of the private sec­ tor as regards levels of production, investment, etc., thereby also affecting the tax receipts of the fiscal authorities. I f there is a deficit, the redistributive effect of nationalization will also depend on the size of the taxes (including infla­ tion viewed as a tax) needed to finance that deficit.“ In short, if nationalization is to be used as a means o f improving the lot ofthe poor groups, it is necessary on the one hand that nationalized enterprises should generate surpluses and, on the other, that the State should appropriate these surpluses and allocate them directly to the benefit of the poorest groups. In the rural sector, agrarian reform is die main mechanism by which assets are redistri­ buted. Indeed, in view of the high concentra­ tion of the structure of land ownership in Latin America^ and the emphasis which any strategy for overcoming poverty must place on rural de­ velopment, in many countries changes in the structure of land ownership are indispensable if the benefits of rural development policies are to reach the mass of poor rural dwellers and not just the present owners of land. There are various options as regards agra­ rian reform, depending on the approach adop­ ted for allotting the land transferred.^® Thus, the land transferred may be alloca­ ted to the favoured frunilies as private property; it may be transferred to the State or to a wor­ kers’ collective or both these approaches may b e combined by allocating it as collective prop­ erty during a transitional period and later on allocating it as private property;“ or, finally. UFor details of the effects of nationalization pirocesses in Chile and Peru, see the empirical studies by A. Foxley, E. Aninat and J. Arellano. “Redistribución del patrimonio y erradicación de la pobreza”, in E stu dios CIEPLAN, No. 3, Santiago, Chile, 1976, and A. Figueroa, "El impacto de las reformas actuales sobre la distribución de los ingresos en el Perú”, in A. Foxley (ed.). D istribución d el ingreso, op. cit. i^See in this respect S. Eckstein, G. Donmd, D. Horton and T. Carrol, “Land Reform in Latín America; Bolivia, Chile, Mexico, Peru and Venezuela”, World Bank Staff Working Paper No. 275,1978, and S. Huntington, Political O rd er in Changing S ocieties, Yale University Press, 1968. See M. Lipton, “Towards a Hieory of Land Reform”, lOSee in this respect L. Whitehead, “Public Sector in D. Lehman (ed.). A grarian R eform a n d A grarian R e­ Activities”, in K. Griffin (ed.). Financing D evelopm ent in fo r m ism , j^ndon, Faber and Faber, 1974. t^The ‘settlements’created under the Chilean agrarian L atin A m erica, Macmillan, 1971, and A. Nove, E fficien cy reform process are an example of this mixed approach. See C riteria f o r N ation alized Industries, Allen and Unwing, in this respect A. Foxley, E. Aninat and J. Arellano, op. cit. 1973. Sergio Molina PO V ER TY: D ESCRIPTIO N AND ANALYSIS O F P O U C IE S FO R OVERCOMING IT / family farms and collective feums may exist side by side. There are many different factors to be tak­ en into consideration in deciding on the best approach to agrarian reform. In this connection mention should be made of the ideological and political factors related to the structure which already exists or is proposed by the government for the other sectors of the economy. Moreover, this decision will also depend on the characte­ ristics o f the sector earmarked for reform, the kind of landholding system under which the peasants who are to be benefited have been working, and the levels of skill they have reached. T he experience of countries like Mexico and Bolivia indicates that when the reformed sector is made up initially of large estates using traditional technology requiring a great deal of labour, involving sharecroppers, tenant far­ mers and smallholders familiar with the vari­ ous aspects o f farm work, tiie subdivision of the land into small lots and its subsequent assign­ ment as individual holdings has made it possi­ b le not ontly to increase the income of the &milies thus hivoured but also to raise agricultural production. However, this kind of reform means that a large sector of the rural population is excluded from enjoying the direct benefits of the process, so that the way in which this kind o f reform affects the peasants who are still left without land is uncertain, depending primarily on the effect produced on the demand for la­ bour. I f this effect is negative, it is possible that this kind of reform will make the income dis­ tribution of the agricultural sector worse in­ stead of better. In general, experience shows that small farms absorb more laboiur and have a higher yield per unit of land than large holdings.^^ Consequently, the subdivision of the land in­ creases the demand for labour, altiiough ffie ftrst to benefit from the generation of more jobs l^See in this respect A. Berry, "Land Reform and Ag­ ricultural Income Distribution’', in Pakistan Development Review 11, No, 1,1971. i®See in this respect P. Domer, Land Reform and Eco­ nomic Development, Penguin Books, 1972, and W. Cline, Economic Consequences o f a Land Reform in Brazil, Nordi Holland Publishing Company, 1970. 97 are the families which receive the land, with the landless peasants coming in second place. The situation is different when ffie sector in which the reform is being attempted is made up of large agricultural, forest or fishery enter­ prises with modern technology, high capital density and big economies of scale. The sub­ division of this kind of enterprise into small units may have a significant negative impact on the sector's production and on the distribution of income. In such cases, agrarian reform should be aimed at the formation of production co-operatives or workers' enterprises in which the land is held collectively, laffier than at the subdivision of the large agricultural enter­ prises and their subsequent allocation to frivoured individual families, and in the workers' enterprises each worker should receive wages and participate in the surplus. In this way, it would be possible to continue taking advan­ tage of the economies of scale, qualified high level personnel would be retained, and better marketing and credit access conditions would be obtained.^^ In order to prevent agrarian reform —par­ ticularly the subdivision of the land and its allocation on an individual basis— firom affect­ ing agricultural production, it is important that the State should, at least as a temporary mea­ sure, either directly or indirectly promote train­ ing and technical advisory services, improve the marketing of inputs and products, and faci­ litate the access of the new landowners to cre­ dit.^® (ii) R eorien tation o f investm ent Another way of achieving the dynamic dis­ tribution of assets is to reorient public invest­ ment, using it as a means of increasing the amount and productivity of the assets held by poor groups. As in the case of the redistribution of existing assets, and with the same advan­ tages and limitations, public investment may be used as an instrument of gradual socializa­ tion, increasing the amount of property held by iTIn tiiis respect, see S. Barraclough, "Alternative Land Tenure System Resulting from Agrarian Reform in Latin America” , in Land Economics, Vol. XLVI, 1970. ^ ^ S ee C . B e l l a n d J . D u lo y , " R u r a l T a r g e t G r o u p s ” , in Redistribution with Growth, Oxford University Press, 1974. 98 the State or by a workers’ collective, or it can also serve as an instrument for directly increas* ing the amount and productivity of the assets of the poor. In the latter case, it will be necessary to identify investment projects which are pro­ fitable and at the same time concentrate their benefits on the poor groups, keeping the amount which filters down to the rest of the community to a minimum. In urban areas, public investment may be used to provide own-account workers and small entrepreneus either free or subsidized working tools, technical and commercial advi­ sory services, credit, etc. This may be done on an individual or collective basis through exist­ ing producers’ co-operatives or workers’ enter­ prises, or through the creation by the State of what are known as industrial workshops. In rural areas, investment may be devoted to the construction or improvement of infra­ structure works, such as roads and irrigation fa­ cilities, the provision of firee or subsidized farm tools, machinery and inputs, and the improve­ ment of marketing channels and the access to credit, etc. The effect of this kind of investment on poverty will depend on the returns it is able to yield and on the percentage of the rural poor who have land. Bodi the widely scattered geo­ graphical distribution of poor rural families and the fact that landless families represent over two-thirds of the total number of rural poor families in Latin America severely limit the effectiveness of this instrument. These two fac­ tors also make it clear that, in order to reorient investment so as to help a broad sector of the rural poor, in many of these countries this mea­ sure must be complemented with land redis­ tribution. (b) P olicies f o r increasing the amount and produ ctivity o f em ploym ent T he income of poor groups is derived pri­ marily and nearly exclusively firom their own labour. Even in the case of those with some productive assets, incorporated labour is the main generator of income. Thus, the demand for labour has a decisive impact on the well­ being of the groups with the fewest resources. In addition, the well-being which comes firom having a job is not only economic but also psy­ December 1982 CEPAL REVIEW No. 18 / chological, and is reflected in greater family stability. It is not only the number of jobs generated by the economy which influences the well­ being of the poorest people but also the type of jobs available. Experience shows that flie mod­ em sector has not grown enough to create suffi­ cient jobs to make it possible to provide em­ ployment for the population contingent joining the labour force each year, while at the same time transferring those now in very low-pro­ ductivity employment to more productive jobs. Some of the reasons why economic growth has not had the hoped-for impact in terms of alleviating the under-utilization of manpower have already been explained above. There are, however, also other reasons which are con­ nected with the ways in which the Latin Amer­ ican economies operate and result both from structural causes and from distortions created by the application of erroneous policies or the use of inadequate instruments either to maxi­ mize economic growth or to generate more jobs. The challenge consists in identifying poli­ cies and instmmens which can achieve the re­ sults sought in the field of employment and redistribution without affecting growth or with only minimal negative consequences for it. The growth experience of the Latin Ameri­ can countries has given rise to doubts as to whether the best possible advantage has been taken of the countries’ production potential and whether the combination of factors (capital-la­ bour ratio) has been the most appropriate in view o f their relative degrees of scarcity. These doubts arise because it is noted that in some countries the sectors which make intensive use of capital and foreign modem technology are of disproportionate size and hence have only a limited capacity for absorbing manpower, es­ pecially less skilled manpower. Such sectors use up a high proportion of the capital, yet provide employment for only a small propor­ tion of the labour force.^® The other sectors, for their psurt, have seen their growth possibilities adversely affected, have received a scanty part S e e A n íb a l P in to , “ S ty le s o f d e v e lo p m e n t in L a tin A m e r ic a ” , in C E P A L R ev ie w N o . 1, S a n tia g o , fir s t h a lf o f 1976. Sergio Molina PO V ER TY: D ESC R IPTIO N AND ANALYSIS OF P O U C IE S FO R OVERCOMING IT / o f the investment resources, yet have had to absorb a large part of the increase in the labour force at low levels of productivity. This hetero­ geneity in respect of technology, employment and production has tended to increase wifh tim e, placing increasingly severe limits on the region’s capacity to generate sufficient em­ ployment.^ (i) T he p rodu ctive structure and the use o f la b o u r It is a well-known fact that the economic growth of the majority of the countries of the region, especially in the case of the industrial manufacturing sector, has been decisively in­ fluenced by import substitution, which has been deliberately fostered by policies protect­ ing some sectors from external competition. In many cases this development strategy had its roots in the depression of the 1930s and was further accentuated after the Second World War. As time went on, some of the original characteristics changed, but the import substi­ tution process continued unabated to such a point that it probably prejudiced the growth possibilities of those countries which did not adapt their development strategies to the new conditions. The policy instrument most frequently used to stimulate the substitution process has been tariffs, which have protected in particular the production of national manufacturing in­ dustries. The question of whether Latin America should or should not become industrialized or whether the allocation of resources should be left solely to the market is not of course under discussion here. In a mixed economy, the selective incentivation of certain sectors of production by the State, either directly or indirectly, is not only one of the main tasks of economic planning but also its main justification. 2 0 S e e R a ú l P r e b is c h , C hange an d D evelopm ent, C E P A L d o c u m e n t E / C N .12 / 8 9 1 ; O A S , “ G u id e lin e s for A c h i e v i n g M a x im u m E m p lo y m e n t a n d G r o w th in L a t in A m e r ic a ” , 1 9 7 3 ; a n d C E P A L , Long-term trends and pros­ p ec ts o f the d ev elop m en t o f L atin A m erica, C E P A L d o c u ­ m en t E/C E PA L /1076. 99 The observations on the process of import substitution are directed on the one hand at the effects of the decision to protect certain sectors and to take away protection from others, espe­ cially when the latter have technological char­ acteristics which make them appropriate to the existing resource endowment, and, on the other, towards the effectiveness of the instrument used, namely, tariff protection. State intervention should tend to stimulate those sectors where the social benefits exceed the private benefits, regardless of whether they belong to the industrial, agricultural, mining or services area or of the internal or external des­ tination of the product. More specifically, with regard to the utilization of factors in the light of their relative scarcity, the action of the State should aim to eliminate the differences favour­ ing the sectors or subsectors which make the most intensive use of capital, thus putting an end to the discrimination usually suffered by the agricultural sector and other sectors which make intensive use of the labour factor. These critical reflections on protectionist policies, which have normally been accom­ panied by exchange policies which have kept national currencies overvalued, would tend to orient countries’ trade policy towards greater openness to the exterior. Although we believe that this is a correct decision as regards the achievement of better allocation of resources, increased growth rates, and the creation of more jobs, this in no way means any renuncia­ tion of the active promotion and conduct of the development process by the State. The existence of goods, sectors or regions of a strategic nature; the detection of rigidities, distortions and ‘externalities’ which involve divergences between private and social values, and the recognition of dynamic components as regards the achievement of competitive advan­ tages are among the reasons which justify in­ tervention at the discretion of the State in order to stimulate or discourage certain activities. As it is not only trade policies which have affected the production structure of the coun­ tries of the region, it is worth drawing attention also to price and investment policies. With regard to the first of these, it is neces­ sary to make a review in order to identify and eliminate the frequent cases of discrimination 100 December 1982 CEPAL REVIEW No. 18 / against the agricultural sector and in favour of rates have been negative, thus provoking a the industrial sector contained in the price pol­ strong demand for credit. It is well known that icies applied by many countries of the region. most bank credit goes to big firms, either be­ T hese cases of discrimination have assumed cause they form part of a conglomerate con­ many forms, among which mention may be trolled by the banks, or because they provide made of the fixing of prices for agricultural better guarantees and hence represent less risk products, prohibitions, quotas or taxes on their for the lender. export, subsidies and preferential treatment for The existence of undervalued exchange imports of agricultural commodities, etc. The rates, the frequent exemptions from import ultimate objective of all these measures has duties on machinery and equipment, and nega­ been to keep down the price of food both for tive interest rates encourage the use of capital, reasons of income distribution (in view of the which is the scarcest factor. high percentage of the total consumption) by In addition, the cost of hiring labour is in­ poor people represented by this item) and be­ creased in many cases by factors such as the fact cause of its importance in determining the cost that the burden of financing the social security of living of urban sectors. The review of these system falls on the payroll; in some countries, policies should take into account not only their this additional cost comes to over 20% of direct direct repercussions, but also their effect on the wage costs. O f course it is not suggested that productive structure, the generation of employ­ the social security benefits should be reduced, ment, and the agricultural/non-agricultural dis­ but rather that the system of financing should tribution of income. To the extent that controls be changed, in order to make it more progres­ on agricultural prices are justified for redistrib­ sive and avoid increasing the cost of hiring utive and nutritional reasons, it appears desir­ labour, so as to improve the price relationship able to replace generalized price controls, between the labour and capital factors. which affect not only demand but also supply, I f the distortions which stimulate the use by selective measures to subsidize certain of capital were corrected and the utilization of types of foods for certain groups of persons. labour were encouraged, it would be reason­ With regard to public investment policy, in able to expect an increase in the demand for this field the lines of action should be directed labour. Furthermore, a higher growth rate towards a rigorous appraisal of public projects could be achieved if measures were taken to on the basis of social criteria, so as to reverse permit a change in the structure of production the tendency or bias of governments towards aimed at securing greater development of the the concentration of public investment re­ sectors where advantage can be taken of natural sources on urban and industrial infrastructure and adquired comparative advantages and and in sectors of great capital density. This has where the level of intensity of capital use is meant neglecting the rest of the sectors of the lower. This type of economic growth would economy, especially those of traditional agri­ have a greater effect on the demand for labour culture and small-scale enterprises, which are than in the past, provided that the distortions the sectors making the most intensive use of caused by the application of certain policies labour. which have previously limited such a positive effect on the demand for labour were elimi­ nated. (ii) R elativ e cost o f ca p ita l and labou r In addition to the above-mentioned distor­ tions generated by trade, price and investment policies, there are others due to the increase in the relative cost of labour above the level cor­ responding to it as a function of its relative abundance in the economy. In this respect, it has frequently happened, especially in coun­ tries with persistent inflation, that real interest 2. M easures o f a redistributive nature The nature of the problem of poverty calls for fundamental solutions which change the functioning of the economic system so as to bring about a permanent alteration in the pri­ mary distribution of income, increasing the Sergio Molina PO V ER TY: D ESCRIPTIO N AND ANALYSIS O F P O U C IE S FO R OVERCOMING IT / 101 income of the poor groups to levels compatible with the satisfaction of their basic needs. Some of these fundamental solutions are those which we classified as distributive in the foregoing section, and consist essentially of the generation of more and better employment and more and better productive assets for the poor groups. These types of changes would not bring about their effects in the short term, however, so that the lamentable situations of poverty now existing would continue. Consequently, while recognizing that the permanent solution of the problem of poverty will come from the application of distributive measures, it is necessary to relieve the precar­ ious situation of many families without delay. For this purpose, it will be necessary to make use of what we have called redistributive mea­ sures, that is to say, those aimed at correcting the primary distribution of income in order to relieve the situation of the poorest groups through monetary or non-monetary transfers betw een the different social groups. Redistributive measures are therefore gen­ erally aimed at benefiting a particular target group by providing it with certain goods and services free of charge or at prices below those of the market, or by transferring to it monetary resources which do not correspond to payment for the work of its members or the capital they possess. As already noted, the market does not offer the necessary solutions for overcoming pover­ ty, Resources can only be reoriented in favour of the poor by an external agent acting through the market but modifying the latter's results, or else operating completely outside it, and in view of the complexity and magnitude of this task, it can only be carried out by the State. Some of the factors determining or condi­ tioning the magnitude and nature of the redis­ tributive action of the State are analysed below. this has been and may continue to be one of the main obstacles standing in the way of the achievement of this objective. There are many causes which can explain this situation. Chief among them is the fact that as the redistributive action of the State affects the present of future income of the groups which are not poor, these will have to give up part of their income for the benefit of the poorer sec­ tors. The institutional organization and func­ tioning of the power system, however, are strongly oriented in favour of the group of owners, professionals, bureaucrats and orga­ nized workers, and are oriented against the groups of low productivity and low level of organization, which include a very substantial proportion of agricultural workers, ownaccount workers and employees of the ‘under­ privileged' sectors To sum up, the groups which would have to give up part of their share are precisely those with the highest levels of organzation and capacity for exerting pressure and influence on governments to check the re­ distributive action, whereas the groups which should benefit from such action lack effective organization and capacity for exerting pressure to promote it.^ Another factor which has influenced the lack of political will or capacity has been the b elie f that economic growth and the elimina­ tion of poverty are two mutually incompatible objectives. The result of this has been a ten­ dency to give the problem of poverty lower priority and to emphasize instead the objective of growth. A second class of factors conditioning the magnitude and nature of the redistributive ac­ tion of the State is connected with the size of the public sectorj its bureaucratic and admin­ istrative structure; the lack of sufficient knowl­ edge of the main characteristics of poor house­ holds and their members; and the determina- (a) F a cto rs conditioning the redistributive a ctio n o f the State S e e A . P in to a n d A. D i F ilip p o , “ N o tas s o b re la t e g ia d e la d is t r ib u c ió n y r e d is tr ib u c ió n d e l in g r e s o e n A m é r ic a L a t i n a ” ; R , F f r e n c h - D a v is , “ M e c a n is m o s y o b je ti­ v o s d e la d is t r ib u c ió n d e l in g r e s o ” , a n d J . G r a c ia r e n a , “ E s ­ tr u c tu r a d e p o d e r y d is tr ib u c ió n d e l in g re s o e n A m é r ic a L a t i n a ” , a ll in A . F o x l e y (e d .), D istrib u ció n d e l in g reso, op. First of all, reference must be made to the need for governments to have the political will and capacity for tackling the task of overcoming or relieving poverty. Lack of real will to achieve cit. 2 2 T h is h ig h lig h ts t h e im p o r ta n c e o f t h e o rg a n iz a tio n o f p o o r g r o u p s a s p a rt o f a s tra te g y fo r c o m b a tin g p o v e rty . 102 tion both of the areas where it is necessary to intervene and of the policies and instruments needed in order to carry out redistribution ef­ fectively. T he size of the public sector —not neces­ sarily as regards ownership of factors or levels o f intervention, but rather as regards its capaci­ ty for mobilizing resources— is a fundamental conditioning factor. As regards taxation, which is the main source of financing for expenditure, it may be noted that the empirical studies made on the incidence of the taxation system in Latin Amer­ ica indicate that, except in a few cases,^^ in­ direct taxes predominate over direct taxes; there is little or no taxation on property and capital gains; there is ample scope for tax eva­ sion, and there are many cases of preferential tax regulations and exemptions.^ Studies on the incidence of public expen­ diture, for their part, reveal an even more con­ fused picture.25 Some studies suggest that public expenditure has some incidence in redistribution, whereas others suggest that such redistribution really only transfers in­ come horn the top groups to the upper middle groups, without effectively reaching the poor groups. This situation would appear to be due to the feet the latter groups are not incorporated in the mechanisms and channels through which the benefits of public expenditure are distributed. The administrative structure of the State is another conditioning factor of vital importance. As far as the redistribution of income is con- 25 S e e R . B i r d a n d L . D e W u lf, “ T a x a tio n a n d In c o m e D is t r i b u t i o n in L a t in A m e r ic a : A C r it ic a l R e v ie w o f E m p ir ­ i c a l S t u d i e s ” , in IM F S ta ff Papers, W a sh in g to n , D .C ., V o l, X X , N o. 3 ,1 9 7 3 . 2 ^ S e e R J . C h e l l i a h a n d o th e r s , “ T a x R a tio s a n d T a x E f f o r t in D e v e lo p in g C o u n t r ie s , 1 9 6 9 - 1 9 7 1 ” , in IMF S ta ff P apers, V o l. X X I I , N o . 1 ,1 9 7 5 . 2 5 S e e , fo r e x a m p le , R . B ir d a n d L . D e W u lf, op. cit., L . D e W u lf , “ F i s c a l I n c i d e n c e S tu d ie s in D e v e lo p in g C o u n ­ t r i e s : S u r v e y a n d C r it i q u e ” , W a s h in g to n , D .C ., I n t e r n a ­ t io n a l M o n e ta r y F u n d , 1 9 7 4 ; J . M e e r m a n , " F i s c a l I n c i ­ d e n c e in E m p i r i c a l S t u d ie s o f I n c o m e D is tr ib u tio n in B o o r C o u n t r i e s ” , W a s h in g to n , D .C ., A I D D is c u s s io n P a p e rs, 1 9 7 2 ; A . F o x l e y , E . A n in a t a n d J . A r e lla n o , L as desigu alda­ d es econ ó m ica s y la a cción d el E stado, M e x ic o C ity , F o n d o d e C u lt u r a E c o n ó m i c a , 1 9 8 0 ; a n d M r U rr u tia a n d C . d e S a n d o v a l, “ P o l í t i c a f is c a l y d is tr ib u c ió n d e l in g re s o e n C o ­ l o m b i a ” , in A . F o x l e y (e d .). D istribución d el ingreso, op. cit.. December 1982 CEP AL REVIEW No. 18 / cem ed, the administrative machinery of most of the countries of the region is more suited to benefiting the middle and upper income groups, particularly in the urban sector, than the lower income groups of society. This admin­ istrative structure is to some extent the result of deliberate action, for the reasons already re­ ferred to. This is also due, however, partly to a certain degree of ignorance not only of the main characteristics of poor households and their members but also, as already noted, to the fact that the areas of action and the most effective policies and instruments for overcoming or re­ lieving poverty have not been properly iden­ tified. (b) R edistribu tive p olicies: th eir econ om ic an d adm inistrative fea sib ility From the economic point of view, the redis­ tributive action carried out by the State through public expenditure encounters two main obsta­ cles: its negative effect on the growth rate, and the difficulties of financing it. From the admin­ istrative point of view, for its part, the main difficulties lie in the identification of the target group and in avoiding the unwanted spread of benefits to other social groups. Arguments such as those which hold that it is necessary to grow first and redistribute after­ wards, that it is not possible to redistribute pov­ erty, etc., have been used to justify the feeble­ ness of redistributive policies. There are few economists now, however, who persist in be­ lieving that redistributive action would seri­ ously prejudice growth. In reality, it may be said that the choice between redistribution and growth does not involve a very serious dilem­ ma, except in the case of those countries suffer­ ing from generalized structural poverty, where the task of overcoming poverty is beyond the present and potential economic capacity of the country, at least within a reasonable time hori­ zon.26 Some studies carried out for countries of medium development (semi-industrialized countries) in Latin America show that it is feasi- 2® See H . C h e n e r y , M . A h lu w a lia , C .L . B e l l , J . D e e lo y a n d R . J o l l y , R edistribu tion w ith G row th, L o n d o n , O x fo rd U n iv e r s ity P r e s s , 1 9 7 4 . Sergio Molina PO V EBTY : D ESC R IPTIO N AND ANALYSIS O F P O U C IE S FO R OVERCOMING IT / 103 ble to increase transfers of a redistributive na­ ture without this having an excessively adverse effect on economic growth. Even on the basis of pessimistic economic assumptions, that is to say, assuming that the financing of the transfers would reduce the amount of saving destined for investment and that the expenditure which those benefiting from such transfers would make would have zero productivity, it has been concluded that the trade-off between redistribution and growth would have a ratio often to one. In other words, transfers amounting to the equivalent of 5% of the product destined for consumption would reduce the growth rate by only half a percent­ age point. 2 "? We agree with the author of the abovementioned study that negative effects on the growth rate may be aggravated if the transfer policies or the set of distributive and redistrib­ utive measures cause uncertainty among inves­ tors. I f tax reform is carried out which mainly or exclusively affects the persons with the highest incomes (the richest 10% of the population, for example), but at the same time changes are also made in the previously established regulations affecting such important variables as owner­ ship, freedom of operation of some markets, free disposability of savings or profits, or others which investors may consider fundamental for taking their decisions in investment matters, it could no longer be said that it is the tax reform which is responsible for the drop in invest­ ments, but rather that it is the whole set of measures which provokes direct or indirect ef­ fects deriving from the reigning uncertainty. While it is already difficult in normal con­ ditions to make predictions regarding the be­ haviour of economic agents, in a process of pro­ found and rapid change such predictions be­ come completely impossible. At all events it is very likely that insofar as large or small inves­ tors see radical changes in the rules of the game as being permanent, this will have a negative effect on their decisions regarding whether to invest or n o t The second point which must be mention­ ed, as already noted, is that regarding the feasi­ bility of governments applying redistributive measures on the necessary scale in view of the available resources. As may be seen from table 2, the poverty gap, as a percentage of the gross domestic prod­ uct in Latin America (sample of 10 countries), is rather more than 4%. Only in the case of Hon­ duras does there seem to be no possibility whatever of achieving the necessary effort by means of transfers, since the gap amounts to 22% of the gross domestic product. It is well known that the ratio between the poverty gap and the gross domestic product may give a misleading picture of the feasibility of this objective, from the point of view of the capacity of governments. It therefore seems to be better to compare the poverty gap with the tax revenue in order to gain a more accurate idea of the effort required if a government is to cover this gap. Table 4 therefore shows the poverty gap as a percentage of tax revenue. In the light of the average rate of taxation in the region and the imperfections in the tax sys­ tems (evasion and legal exemption), it does not 2'^ See M a r c e l o S e lo w s k y , “ I n c o m e D is tr ib u tio n , B a s ic N e e d s , a n d T r a d e O ffs w ith G r o w th ; T h e C a s e o f S e m iin d u s t r i a l i z e d L a t in A m e r ic a n C o u n t r ie s ” , in W orld B an k R e p r in t S er ies , N o . 1 7 6 . S o u r c e : P r e p a r e d o n th e b a s is o f ta b le 2 a n d p r o je c tio n s o f Table 4 LA TIN AM ERICA; T H E POVERTY GAP AS A P E R C EN TA G E O F TAX R EV EN U E 2000« Countries 1970 1981 Low High growth growth Total ta x r e v e n u e . a S e e n o te in t a b l e 1. 5 34 7 78 24 216 29 38 87 20 4 19 6 46 17 155 17 27 68 13 3 6 3 23 8 127 7 12 49 11 3 8 4 29 10 151 9 16 57 12 31 Argentina Brazil C h ile Colom bia Costa Rica Honduras M exico Panama Peru V enezuela 19 8 11 104 seem an impossible task to achieve an increase of between 15 and 20% in taxation, which would permit a substantial increase in social expendi­ ture, I f this greater expenditure could be chan­ neled exclusively to the poorest groups, it would be possible to satisfy some of their es­ sential needs. Consequently, in order for social expendi­ ture to be efficient from the point of view of relieving poverty, it is necessary to make an accurate identification of the target groups, but this is no easy task either, in view of the variety of situations through which poverty manifests itself and the geographical dispersion of the poor. Moreover, it is also a complex matter to administer these policies in such a way that the benefits reach only those whom it is desired to benefit and avoid incurring excessive expendi­ ture through ‘leaks’ to other sectors. The poli­ cies must comply with the criteria of exhaustivity and exclusivity, that is to say, they must manage to completely cover the universe iden­ tified as the target group and only that universe. As may be gathered, it is first of all essen­ tial to get over the difficulty of identifying the members of the target group or groups, after which it is necessary to select the most effec­ tive instrument for ensuring that the transfers reach only them and the largest possible num­ ber of them. Considerable efforts have been made in some countries of the region in recent years in this respect, through! the preparation of maps of poverty. Unfortunately, these efforts are still insufficient, thus making the application of re­ distributive policies difficult. At all events, there can be no question'of waiting until opti­ mum information is available before starting the urgently needed attack on absolute pover­ ty. It is therefore necessary to use the best means available, within the present limita­ tions, in order to set in motion policies aimed at improving the degree of satisfaction of the basic needs of the population. To sum up, an effort must be made to select redistributive policies which have the least possible negative effect on economic growth and most efficiently reach the target group. All this, of course, is on the assumption that there are the political will and capacity needed to overcome the obstacles which will arise among December 1982 CEPAL REVIEW No. 18 / the groups which feel that their well-being is affected, either by the higher taxes they will have to pay or through the reduction of the benefits they were obtaining from public ex penditure. (c) Som e fo r m s o f redistributive policies In general, redistributive policies can be classified in two groups. The first of these con­ sists of policies designed to achieve the direct provision of goods and services to satisfy basic needs, while the second group consists of poli­ cies designed to transfer income to the poor. Each of these two groups tackles a particular aspect of poverty, and they form the two sides of a single problem. Thus, both aspects must be tackled simultaneously, since concentrating on only one of them while neglecting or completely abandoning the other would make it impossi­ ble to carry out successfully the task of eradica­ ting the manifestations of poverty. The policies in the second group, that is to say, those aimed at guaranteeing a certain mini­ mum level of income for the poor, take the form of monetary transfers. In general, experiences with this type of policy in Latin America have been limited, and in some cases they have been very costly because of the difficulty of reaching only the target groups. This is so, for example, in the case of transfers made to manual and non-manual workers on the basis of the number of dependents of the head of household. Be­ cause of the difficulty of discriminating be­ tween households, this allowance is paid re­ gardless of their income, since all wage earners with dependents who satisfy the conditions laid down in the law granting the benefit are given the right to receive it. It must also be borne in mind that a considerable proportion of the poor are not wage-earners. As will be noted, this is a case where neither the criterion of exclusivity nor that of exhaustivity is fulfilled. Another form of monetary transfer which satisfies the basic objective only in a very par­ tial manner is that of granting unemployment allowances. While this measure may represent important, albeit transitory, relief for painful situations due to unemployment, the available information indicates that open unemployment has been relatively low in the region, and it is PO V ER TY: D ESCRIPTIO N AND ANALYSIS O F P O U C IE S FO R OVERCOMING IT /Sergio much more frequent for the heads of poor households to be under-employed. Conse­ quently, the unemployment allowance would reach only a very small proportion of the target group and would thus not fulfil the criterion of exhaustivity either.^® Whatever the form of monetary transfer adopted, it will have some similar economic effects. It may be assumed, for example, that it will have similar negative effects on growth, due to the reduction of saving and investment by the groups which will have to finance the cost of the transfers. Likewise, it will have a similar effect on the increase in the consump­ tion of certain goods on the part of those re­ ceiving the transfers. Finally, it will be noted that both types of transfers respect the so-called ‘freedom to choose’ of the consumer in seeking a solution to the problem of poverty. Policies designed to increase the level of monetary income of the poor are complementa­ ry to those aimed at increasing the availability of essential goods and services and the access of poor groups to these. Since the market will not automatically supply the goods and services needed to satisfy basic needs, the mere fact of increasing the income of the poor will not be sufficient to bring about the shifting of national production resources to produce them. This makes neces­ sary direct public intervention, which should consist o f deliberate action aimed at correcting deficiencies in the consumption of given basic goods or services. Such action is designed to offer poor families these goods or services either free of charge or at a lower price than that prevailing on the market. This State action is mainly carried out through public social expenditure on educa­ tion, health, housing, etc., but as already noted this action has been insufficient and ineffi­ cient. The inefficiency has been due, among other reasons, to the lack of co-ordination in the formulation and execution of social program­ mes; that is to say, the policies in the different social areas tend to be isolated or, to put it I t m a y b e a d d e d th a t in a d d itio n th e s e b e n e fit s h a v e u n d o u b t e d o v e r to n e s o f p a t e r n a lis tic g ra tu ity w h ic h w o u ld a p p e a r to ju s t i f y th e m o n ly a t tim e s o f e m e r g e n c y a n d fo r a l i m i t e d p e r io d . Molina 105 another way, it may be said that they are formu­ lated separately as a function of sectoral objec­ tives, with the result that the resources are allocated in accordance with the traditional division of the administrative machinery and the relative weight these divisions have in the government. The formulation of policies in an isolated manner leads to significant waste of resources, since it does not take account of the important positive ‘externalities’ in the satisfation of basic needs, both at the level of inputs and of results. The types of deprivation suffered by poor families are numerous, and the resources of the State are not sufficient to satisfy all of them at the same time ; a way must therefore be found to obtain the maximum yield from the State re­ sources assigned for this purpose. The State redistributive action must be aimed at simultaneously satisfying more than one type of deprivation. As we have already noted, however, these cannot all be attacked at the same time, so that the problem consists of finding an essential nucleus of basic needs which can be solved simultaneously. In order to do this, it is necessary to select those needs which are of most significance in satisfying the total set of basic needs. For this purpose it will be essential to formulate a guiding criterion which will permit this basic nucleus to be iden­ tified through the determination of the needs whose solution would have the greatest posi­ tive effect on the satisfaction of other basic needs. (d) A criterion f o r setting priorities One possible criterion for identifying the essential nucleus of basic needs which are to be satisfied through redistributive policies would be to determine what problems a poor person encounters in the course of his life. In order to facilitate the identification of these problems the population may be divided up by age groups such as 0-6 years (infancy); 7-20 years (child­ hood and youth); 21-65 years (adults), and over 65 years (old age). In the first age group (infancy, 0-6 years) the problems take three main forms: the high degree of morbidity and mortality, malnutri­ tion, and ‘socio-cultural’ mental backwardness. 106 In spite of the progress made, infantile mortality in the countries of the region con­ tinues to be high. To take an extreme case, for example, the rate of infantile mortality in El Salvador in 1975 was nearly seven times great­ er than that of Sweden. The main illnesses af­ fecting children in this age group are epidemic diseases, respiratory problems and diarrhea. Their exposure to these begins while they are still in their mother's wombs and subsequently continues as a consequence of malnutrition and poor health conditions. Finally, mental back­ wardness among poor children, which is quite widespread in its slight and moderate forms, is due to malnutrition and lack of stimulation, and is manifested later on in learning difficulties, deficient schoold performance, and low levels o f attention to lessons in school. It will be seen from the foregoing that priority must be given firstly to policies aimed at promoting the education and nutrition of mothers before, during and after pregnancy and delivery; secondly, to a policy to improve the nutrition of young children, and finally, to centres providing integral attention to chil­ dren, with stress on health care and early stim­ ulation. It should be stressed that, because of its high incidence on the future development of human beings, the priority State action should be concentrated on this age group. 2 9 W ith r e g a r d to th e s itu a tio n o f c h ild r e n u n d e r six y e a r s o f a g e in t h e r e g io n a n d p o lic ie s a n d p ro g ra m m es a i m e d a t b e n e f i t in g th e m , s e e U N I C E F , D im ensiones de la p o b r e z a en A m érica L atin a y el C aribe, S a n tia g o , C h ile , 1 9 8 2 ; F . G a l o f f é ( c o m p ile r ), P obreza crítica en la niñez, C E P A L - U N I C E F , S a n tia g o , C h ile , 1 9 8 1 ; E . P o llitt , Pover­ ty an d M alnutrition in L atin Am erica. E arly C hildhood In terven tion Program s, N e w Y o rk , P r a e g e r P r e s s , 1 9 8 0 ; U N I C E F - C E P A L , In d icad ores sobre la situación d e la i r l a n d a en A m érica L atin a y el C aribe, S a n tia g o , C h ile , 1 9 7 9 ; J . P . T e r r a (o o -o r d in a to r), Situación d e la in fan cia en A m érica L atin a y el C arib e, U N I C E F , 1 9 7 9 ; M . M a u rá s, J . F i l p . C . L . L a t o r r e , L a aten ción a l p reescolar en A m érica L atin a y e l C arib e, U N I C E F , 1 9 7 9 ; S . B r á lic a n d o th e r s . E stim u la ció n tem pran a. Im portan cia d el am bien te para el d es a rro llo d e l niño, S a n tia g o , C h i le , U N I C E F - C E D E P , 1 9 7 8 ; L . M a ta , T he C hildren o f Santa M aría C uaqué: A P rosp ectiv e F ie ld Study o f H ealth an d G row th , M I T P r e s s , C a m b r i d g e , M a s s ., 1 9 7 8 ; L . B r a v o a n d H . M o n te n e g r o , Dos estra teg ia s p a ra el d esarrollo d e niños d e extrem a pobreza, S a n t ia g o , C h i l e , U N I C E F , E d i c i o n e s N u e v a U n iv e r s id a d , 1 9 7 7 , a n d F . G a l o f f é , “ F o r m u la c ió n d e p o lític a s d e in fa n c ia y ju v e n t u d e n fa m ilia s p o b r e s ” , E / C E P A L / P R O Y .1 / R .4 6 , S a n tia g o , C h ile , 1 9 8 1 . December 1982 CEPAL REVIEW No. 18 / The second stage in question is that of childhood and youth (7-20 years of age). As the rate of physical growth of the children slows down, the problems which previously affected them so seriously declined in importance; the degree of malnutrition goes down, and this reduces the levels of morbidity and mortality. T he most significant problem during this stage is that of education, since it is at this time that individuals must prepare themselves for ap­ propriately assuming the responsibilities they will have when they are adults. Education is the way in which the human potential of each individual is developed; con­ sequently, the policy to be followed in this case consists of ensuring the participation and con­ tinued presence of children in the educational process, and it will be necessary to identify the most effective instruments for this purpose. Furthermore, it has been shown that education brings clear social and economic benefits. Thus, according to World Bank studies,^ the social yield of investments in primary educa­ tion in developing countries is 24%, i.e., higher than the yield of many alternative projects. For secondary and higher education, the social yields are 15% and 12%, respectively. Finally, towards the end of the age period in questions the problems which affect young people begin to appear, especially those due to the idleness resulting from failure at school and the lack of work opportunities. Since this sub­ je ct could easily provide material for several articles the size of the present one,^^ we shall merely limit ourselves to drawing attention to its existence here. In the adult period (21-65 years of age), the main problem encountered is lack of a stable job with a sufficiently high level of wages to satisfy the person's basic needs. Distributive policies aimed at generating employment through changes in the structure and operation ^ S e e W orld D evelopm ent D .C . W o r ld B a n k , 1 9 8 0 . R eport 1980, W a s h in g to n , ^^See H . K ir s c h , “ T h e p a r tic ip a tio n o f y o u th in th e d e v e l o p m e n t p r o c e s s o f L a t in A m e r ic a ; P r o b le m s a n d p o li­ c i e s r e g a r d in g la b o u r fo r c e in s e r tio n , e d u c a tio n a n d e m ­ p l o y m e n t o p o r t u n itie s ” in th is n u m b e r o f CEPAL R eview , O E C D , E ntry o f Young P eople into W orking L ife, P a ris , 1 9 7 7 ; O E C D , Y o u th U nem ploym ent, P a r is , 1 9 7 8 ; A d o lfo G u r r ie r i e t a l .. E s t u d i o s so b re la ju ven tu d m arginal latino­ am erica n a , M e x ic o C ity , S ig lo X X I E d it o r e s , 1 9 7 1 . Sergio Molina PO V ERTY: D ESCRIPTIO N AND ANALYSIS O F P O U C IE S FOR OVERCOMING IT / o f the economy should be complemented with others aimed at generating additional jobs. To this end, a programme could be worked out which on the one hand creates jobs in the pub­ lic sector and, on the other, grants subsidies for the hiring of labour in the private sector.^^This type of programme could be of a similar nature to monetary transfer programmes, and could probably advantageously take the place of some o f them, since this type of monetary transfer would be carried out through the provision of employment, which is an objective in itself and may be considered as a basic need of the family. In this respect, there is experience available in a number of countries; the target groups are self-determining, and this experience could be put into practice quickly. In the case of poor persons over 65 years of age, they should be covered by some system of old age pensions and disablement and sickness insurance. A target group which may exist in any of the age groups is that of the handicapped. Both persons who have had to stop working and those whose working life has been limited by sick­ ness or accidents should be the concern of so­ ciety as a whole and should not be a burden only on their immediate family. To sum up, the State should tackle the problem of poverty through the redistributive measures outlined in this section, that is to say, by generating additional jobs and reformula­ ting social policy in order to expand its results and make it more efficient. It may be objected, among other things, that a programme of this nature is too costly to be tackled by fiscal means; that it is difficult to administer; that in the case of the generation of employment there is a lack of projects which are sufficiently pro­ ductive or of social interest; and moreover that this type of palliative action tends to divert attention from fundeunental changes and helps to put off the political decisions which would provide a permanent solution to the problem of poverty. T he question which arises in the light of E n r i q u e d e la P ie d r a , “ G e n e r a c ió n d e in g re s o s p a r a g r u p o s p o b r e s : A n á lis is d e d o s in s tru m e n to s d e c r e a ­ c i ó n d e e m p l e o s a d i c i o n a l e s ” , B o letín d e P la n ific a c ió n d e l I L P E S ,N o . 1 5 , 1 9 8 2 . 107 this latter objection is whether it is admissible from an ethical point of view to wait for struc­ tural changes to take place without previously taking appropriate measures to at least relieve the situations of absolute poverty, especially as it is well known that the structural changes must be accompanied by high growth rates for a long period if the most dramatic expressions of poverty are to be overcome, and that it is highly improbable that both circumstances will exist at the same time. In our view it is therefore a moral obligation to make use of all possible means to overcome or relieve poverty as soon as possible. Accepting this assumption, the question arises of whether a massive programme of de­ velopment of employment and reorganization of social policy is viable from the point of view of its financing. The situation varies from one country to another, but it may be held that, except in the least developed countries of the region, the programme is economically viable. The reorganization of social policy, for its part, will call basically for the redeployment of avail­ able resources rather than an increase in them. As regards the cost of a programme for the mas­ sive creation of additional jobs, an illustrative calculation using data representative of the Latin America countries of medium develop­ ment comes to the conclusion that if a country assigns 3% of its gross domestic product to a job creation programme, about 15% of the labour force would be benefited by that programme. According to these representative data, the taxation in the country should not increase by more than 15%. This percentage will be lower if it is possible to transfer to this program­ me resources currently being used in a less efficient manner (such as certain subsidies) or other current and capital expenditure (defence, luxury investmens, university education, etc.) which is of lower priority from a social point of view and whose reduction would not have neg­ ative effects on economic growth or distrib­ utive equity. As regards administrative aspects, the es­ tablishment of a fund to combat poverty could help to give greater prestige to the programme for generating additional jobs in the eyes of the public; to give a better political image; to en­ sure efficient investment of resources; and to December 1982 CEPAL REVIEW No. 18 / 108 identify economically or socially profitable projects. Such a fund could have a ‘representa­ tive' governing council at the national level and subsidiary bodies at the regional level; its tech­ nical and administrative staff could be small in number and its main function could be to pro­ mote the formulation of projects in close collab­ oration with the authorities responsible for so­ cial policy and subsequently evaluate them in order to set priorities. The financing for this fund would come mainly from the reallocation of budgetary expenditure, from economies achieved through the reduction of inefficient subsidies, from increased taxation, and from external credits obtained for the purpose of im­ proving the income of the poorest sectors. It would obviously be highly desirable to provide extensive information on the use made of the fund at the national and regional level in order to endow its administration with the greatest respect and credibility in the eyes of the public. None of the above observations seek to minimize the effort needed in order to put a redistributive programme such as that de­ scribed in this section into practice, or to belit­ tle the importance of the political, economic and administrative obstacles which will have to be faced. We wish to stress, however, that coun­ tries which have achieved, among other condi­ tions, a certain level of development, which have relatively plentiful technical teams, which have a relatively long-standing public administration tradition and have achieved some degree of decentralization would be well fitted to carry out the necessary changes in public expenditure and allocate additional re­ sources to satisfy the basic needs of a large part of their population without significantly af­ fecting economic growth or political stability. It will be understood that this is only a broad and incomplete outline of a subject which is both very complex and of enormous impor­ tance. Although each topic can only be dealt with specifically in the light of actual national situations and by persons who are familiar with these in detail, however, we are sure that the general guidelines given in this section could be of use to these persons in orienting their work. Ill Priority areas of action The material set forth in this study, together with the many existing studies of a general or methodological nature (many of them referred to specifically above), as well as the various case studies, allows certain conclusions to be reached on the policies to be followed. This task is made more difficult, however, by the wide range of different situations presented by the individual countries, beginning with the demographic characteristics and the propor­ tion of the population living in urban and rural areas, the differing economic conditions, and different forms of social organization and of the structure of political power. Although we are well aware of the difficul­ ties raised by the heterogeneity of Latin Ame­ rica when putting forward a policy proposal, we feel that is it possible to set forth some priority guidelines for the context of a mixed economy where public and private ownership of the means of production exist side by side. 1. Absolute poverty will not be eradicated until the structural factors which cause under­ development are changed. These factors are related, in ter alia, with; the way in which the Latin American economies are fitted into the international context, which has negative ef­ fects in the form of inequitable trade relation­ ships, the adoption of types of technology which are not appropriate to the relative avail­ ability of factors of production, the copying of patterns of consumption which do not fit in with our capacity for saving, etc.; inequitable distribution of wealth and income, which leads to the concentrated accumulation of surpluses that are not always converted into savings and Sergio Molina PO V ER TY; D ESC R IPTIO N AND ANALYSIS O F P O U C IE S FO R OVERCOMING IT / investment; the level and sectoral and regional composition of investment; intense urbaniza­ tion, with the existence of numerous lowproductivity production units which have no access to credit, technical assistance or market­ ing channels; differences in level of organiza­ tion between the different social groups, which makes possible the predominance of the inter­ ests of organized groups over those which have not yet satisfied their basic needs; and the structure of political power, which is reflected in the allocation of private and public resources and tends to perpetuate existing inequalities. We are aware that removing these structur­ al obstacles is a long-term task and involves the execution of profound changes. At the same time, however, we are convinced that it is ab­ solutely essential to face up to this challenge if it is really aimed to reach a situation where the whole population can satisfy its basic needs. 2. In addition to the structural factors ferred to above, which are the determinants of the prevailing development style, policies have been applied which have limited the posi­ tive effects that economic growth could have had for the poorest groups of the population. T hese policies can be corrected, however, with favourable effects in the short term. Among these policies are, in particular, those designed to correct distortions in the prices of goods and factors of prodution; those which influence the allocation of resources and the production structure; those concerning public investment; those modifying the structure of ownership; those promoting social organization, etc. While it is not possible to make specific recommendations regarding these policies, some general guidelines can be given. In the first place incentives should be given to the sectors or subsectors which make intensive use of the labour factor. For this purpose, it is necessary to start by eliminating the difl'erences which currently favour certain activities making more intensive use of capital, such as tariff and tax exemptions, preferential interest rates, negative interest rates caused by inflation, excessive and persistent tariff protec­ tion, undervalued exchange rates, etc. In addi­ tion, measures should be taken to eliminate distortions in relative prices which act to the detriment of labour and principally arise when 109 the cost of hiring labour is increased for reasons other than its direct wage cost (for example, charges made for the purpose of financing social security). Secondly, in the rural area —where the greatest proportion of absolute poverty exists— measures should be taken to increase the rela­ tive share of this sector in income, although at the same time it will be necessary to change the factors currently responsible for its faulty dis­ tribution. In order to achieve this double objec­ tive it will be necessary, on the one hand, to expand the ownership of land, which is at pre­ sent excessively concentrated; to provide tech­ nical assistance, credit and marketing channels for small agricultural propietors in order to in­ crease their productivity and income; and to promote the development of peasant trade unions in order to improve their negotiating capacity and, as a result, increase the income of re­ landless workers. On the other hand, it will be necessary to eliminate the discriminatory fixing of prices and modify both the subsidies and preferential treatment given to imports of agricultural products and such measures as ex­ port prohibitions, quotas or taxes, which nega­ tively affect the development of the agricultur­ al sector. Policies designed to stimulate the devel­ opment of the agricultural sector are justified from the distributive point of view only if they simultaneously fulfill the conditions already referred to as regards the déconcentration of land ownership, improvement of the condi­ tions of small agricultural proprietors, and de­ velopment of peasant unions. If this is not done, the larger income of the rural sector will benefit only or mainly those at present owing land. Thirdly, as regards the non-wage-eaming marginal urban sectors, it is necessary to identi­ fy the activities which are really viable and whose present low productivity is due mainly to their low capital endowment and their lack of access to credit and technical assistance. In this way it will be possible to concentrate on them the efforts to promote their organization into co-operatives or other forms of associations and to provide them with the technical and admin­ istrative facilities and conditions which they need in order to increase their productivity and 110 December 1982 CEPAL REVIEW No. 18 / future development. Those members of this young persons accepted for the employment group who cannot become own-account work­ programme those suitable for training and for ers could become beneficiaries of the program­ subsequently seeking jobs in regular produc­ tion activities. Moreover, the registration of me of additional jobs referred to earlier, poor families and of their needs and character­ 3. The slowness of the structural changes and the inadequacy of the changes in policies istics would make it possible to direct more designed to divert more of the benefits of eco­ effectively the programmes aimed at favouring nomic growth to poor groups make it essential the children of poor families. Outstanding for the State to take urgent action to provide among these programmes, on account of their direct relief for the most dramatic poverty importance, are those for providing attention to situations. pregnant women, nutrition programmes, and This action consists of transferring mone­ pre-school education programmes. Their ap­ tary resources and free or subsidized goods and plication, as well as being essential for over­ services to those it is desired to benefit. The coming the vital problems affecting children of application of this type of policy, however, runs early age, would enable such children to em­ into practical obstacles which are difficult to bark on their basic education without suffering overcome, among which special mention may the serious disadvantages affecting them at be made of the difficulty both of identifying the present. Thus, the continued attendance of groups which it is desired to benefit and of children at school would depend mainly on establishing effective mechanisms for reaching their capacity or on economic factors. In the latter case, it is the obligation of society, them. In our opinion, the resources obtained through the State, to solve these problems in from the expansion and reformulation of the order partly to make good the injustice deriving existing transfer programmes should go to two from the unequal opportunities due exclusive­ priority destinations; the execution of a pro­ ly to the different economic situations of fam­ gramme of additional jobs designed to give a ilies. 4. We wish to repeat that the eradication of minimum monetary income to workless heads of households and young persons, and the ap­ absolute poverty calls for profound changes in plication of a plan aimed at overcoming the the present economic, political and social structure of the countries which have not yet problems of infants and children, since these succeeded in overcoming it, but at the same problems form the first link in the vicious circle time we are convinced that while waiting for o f poverty. The programme of additional jobs would such changes to take place it is both urgent and b e the means of guaranteeing a minimum possible to undertake significant action to monetary income, while at the same time it benefit Latin American families which are at would make it possible to identify the target present not in a position to satisfy their basic needs and whose personal, family and social groups, since those applying for such benefits would by definition be poor, in view of the type development are'thus severely limited. Today it is more urgent than ever to tackle of jobs and the level of remunerations that such a programme could offer. This would make it the serious problem of absolute poverty, since possible to concentrate the provision of direct the economic situation through which the Latin services on poor families; it would permit the American countries are passing is very unfa­ correction of the inefficient features of the vourable compared with that of past decades. labour market as regards matching those seek­ Unless there is a change of attitude to combat­ ing and offering work; it would facilitate the ing poverty, this will increase in the region, and placing of workers from the special programme this is morally unacceptable, highly dangerous in regular jobs by subsidizing private hiring, from the point of view of social peace, and eco­ and it would make it possible to select from the nomically avoidable. C E P A L R E V IE W D e c e m b e r 1982 T h e participation o f youth in the developm ent process o f Latin A m erica Problems and policies regarding labour force insertion, education and employment opportunities Henry Kirsch* After a period of relative neglect the issue of the specific problems of'youth' is gaining preeminence again in both developed and developing nations. In the closing years of the 1970s this concern was par­ ticularly evident in the industrialized North. Experts have produced a significant body of literature, pol­ icy-makers have given the theme considerable re­ valuation and international organizations have reg­ ularly incorporated it into the body of resolutions adopted at their major assemblies. This resurgence o f interest in the problems of youth has spread most recently to Latin America as a consequence of the alarm at the exceptionally high rates of unemploy­ ment among youth, extensive school desertion, in­ creased delinquency and increasing rejection of the existing social order by young people in the sec­ ondary and higher levels of education in certain countries o f the region. On the basis of the few em­ pirical studies carried out in Latin America on this subject, the present article examines the situation and needs of youth in Latin America from three van­ tage points; youth as a category of analysis and object o f policy and planning; the insertion of youth into the labour force, and the interaction between edu­ cation and employment possibilities. * S t a f f m e m b e r o f th e S o c ia l D e v e lo p m e n t D iv isio n o f CEPAL. I Youth as a category of social analysis and object of policy and planning For analytical purposes the question of the problems facing the full participation of youth in the development process of Latin America^ still encounters a major conceptual hurdle to be overcome. This consists in the selection of an adequate definition of youth. Does the conven­ tional approach of considering those between the ages of 15 and 24 years of age to be in the ‘youth' category represent a satisfactory solu­ tion? O f course, for some kinds of analysis and for statistical purposes it is useful; but for a study directed at the implications for social policy formulation, how adequate is such a con­ cept? On the whole, in the developed nations ‘youth' as a concept has pretty much been taken for granted. Although most sociologists recog­ nize that youth is a variable and multidimen­ sional phenomenon, studies have tended not to pursue the question of the variability of this concept.^ I f the definition by age is rejected on the grounds that youth as thus defined does not constitute a real social group, then how can diis category be described? There is a vast array of possible criteria and combinations of criteria for defining youth, ranging from certain bio­ logical changes to considerations of the aims and values of the political system. Though ob­ vious, this is often forgotten and is worth men­ tioning here. The problem is complicated still further by the fact that the various criteria overlap and are only partly distinguishable I As already noted, this subject is gaining in impor­ tance. After the discussion of policies and programmes relating to youth at several sessions of the United Nations General Assembly, International Youth Year has been an­ nounced for 1985. The O ECD H held h i ^ level confer­ as ences on youth unemployment and programmes related to education, training and employment of young people have been implemented in Australia, Canada, Japan, the United States and most European countries. See Organization for Economic Co-operation and Development (OECD), Entry o f Young FeopU into Working Life (Paris, 1977) and Youth Unemployment (Paris, 1978); Council of Ewrope, Youth and Employment in Europe (Strasbourg, 1979), and Eli Grinberg, “Youth Unemployment”, in Scientific Amer­ ican, 242;5, May 1980. ^Leopold Rosenmayr and Klaus Allerbeck, “Youth and Society” , in Current Sociology, 27,*2/3,1979, p. 9. December 1982 112 from each other. The psychological and social changes that may be used to define youth are to a certain extent related to biological changes, while the latter too may be influenced by the social environment. In this context it is impor­ tant to look upon youth from a sociological rather than biological perspective. This ap­ proach views youth as covering two main phases —adolescence and young adulthood— defined by attitudinal systems and behaviour patterns related to a particular position in soci­ ety. All special population groups linked to age status, particularly childhood, youth and old age, relate to biological facts yet are structured by social forces.^ Consequently, there is some advantage in accepting the set of criteria con­ tained in Carlota Bubler’s definition of youth as an intermediate period which begins with the acquisition of physiological maturity and ends with that of social maturity; in other words the assumption of the sexual, economic, legal and social rights and responsibilities of the adult This working definition indicates that the start and the length of the period of youth varies considerably. The duration, position or quality of youth (adolescence and young adulthood) depends upon the systems of production, the technological and economic tasks involved, and the training and education needed to per­ form these tasks. Youth is further determined by the ideologies, the aims and values of the political system and by access to these con­ ceptual and interpretative structures through education. It is a product of societal repro­ duction as well as a force in social change or social transformation. The degree to which young people cleave to reproductive chan­ nels or pursue paths of transformation depends on the particular historical constellation, on the ^Given the increasing attention of the United Nations to age-related special population groups, e.g,, childhood, youth and the aged, Leopold Rosenmayr's basis for a con­ ceptualization of age which combines sociology, social his­ tory and depth psychology in one interdisciplinary network is relevant: *‘Age is a socially and individually produced artefact, interacting with biological premises, and corres­ ponding to the differentiated forces of society which ex­ press themselves through forms of production and the division o f labour and through informative cultural trans­ mission, communicative processes and political power, which thus act as a definite normative challenge to the individual”, /bid., p. 37. CEPAL REVIEW No. 18 / class structure, and on the degree of freedom they are able to obtain and handle within a given social system.^ The period of youth is affected by the level of national development and differs widely from one social group to another. It is very long among the middle and upper strata (especially in highly-developed societies), shorter among workers, much cur­ tailed among marginal urban groups, and often considered to be practically non-existent among peasants. The question has been posed whether young members of some groups of the urban and rural lower strata constitute a generational group with its own identifiable problems and attitudes, because their transition from child­ hood to full adult responsibilities is so brief and early? Nonetheless, it must also be remem­ bered that very large proportions of the young people from rural-agricultural families in Latin America continue to migrate to urban settings and that many who stay in the countryside, because of the combined rural processes of modernization, salarization and marginaliza­ tion, no longer follow the traditional early transition to adult labour and family formation.® For policy-making purposes the different subsets of youth —adolescence and young adulthood— represent groups in themselves with different environments and needs. But it is just as important to recognize that, particular­ ly in Latin America, policy-oriented analysis and planning for youth must derive from due consideration of the fact that the conditions and issues concerning this group do not constitute a problem pertaining exclusively to it, but reflect the problems of the societies in which it is inserted. Accordingly, these conditions must be analysed in the framework of the overall process of economic development and social and political change in the region, with particu­ lar reference to the social, economic, cultural, ^lbid.,p. 17, ^See Adolfo Gurrieri et al., Estudios sobre la juventud marginal latinoamericana (Mexico City, Editorial Siglo X X I, 1971). A deteiled description of an extreme urban situation o f street children and adolescents (known as “gamins”) in Colombia is to be found in Virginia Gutiérrez de Pineda et al.. El Gamin; su albergue social y su familia (Bogotá, U N IC EF, 1978). ®See Luis Jünemann, Eocpectativas migratorias de la juventud campesina (Santiago, PREALC, 1979), Henry Kirsch T H E PARTICIPATION O F YOUTH IN TH E DEVELOPMENT PROCESS OF LATIN AMERICA / linguistic and ethnic characteristics which to­ gether form the basis for identification of con­ crete, meaningful social groups existing under the catch-all umbrella of the general popula­ tion category referred to as ‘youth’. Although the problems, specifically gener­ ation gap differences, are relevant, youth is by no means a monolithic group. Although it is true that for certain purposes generalizations on given issues which are valid for Latin Amer­ ica as a whole may be made, the concept of a Latin American youth has limited applicabili­ ty. This is also pertinent within countries but may occasionally be lost sight of in the conven­ tional listing by international organizations of priorities for programmes of measures and ac­ tivities for youth.'^ Although in principle anoth­ er reality may be recognized, in practice the actual formulation of guidelines for national and international action adheres to the more expedient approach of a common perception of the interests and needs which bind youth to­ gether. It is probable, moreover, that as Inter­ national Youth Year approaches and the issue of youth receives worldwide attention as an­ other major problem of development, small but articulate, vociferous and relatively well-con­ tacted groups claiming to represent their gen­ eration will bring to the forefront of national attention the demands of their specific social strata, paying only lip service and obtaining only piecemeal or mere showcase solutions for the weak and, in conventional social terms, disorganized youth of the marginal segments of society. It is likely to become increasingly clear that not only is the objective situation of the indigenous youth of the Andean Highlands dif­ ferent from that of young people in the metro­ politan centres of Colombia, Peru and Vene­ zuela, but also the extent of common bonds betw een them is questionable, as is the degree of shared perception of interests and needs be­ tween rural youth in Mexico and Brazil and young people in Mexico City, Sao Paulo and Rio de Janeiro, or the depth of solidarity exist­ ing between the young people of the poorest and marginal areas of cities and their middle 113 and upper strata counterparts who actively participate in official youth organizations. Both in terms of establishing policy-ori­ ented analytical constructs of youth and in the identification of those who occupy the various youth roles it is important not to overlook the role of the State. Age-groups and their position in society depend on the overall governmental system of social distribution, that is to say, on whether and in which way public funds are spent, and on the priorities defined concern­ ing schools, universities, youth centres, youth movements, youth-oriented employment poli­ cy, social security schemes, etc... Roles are influenced to a significant extent by socio-po­ litical decisions. In this regard the French sociologist Nicole Abboud, who has studied the importance of the role of the State in the segregation of young people before the ap­ pearance of rebellion and revolt in the late 1960s in France, made the following observa­ tion; the greater the State’s ability to bring about a political consensus in society, the less advanced is the politization of social practice in various institutions, and the less can ‘youth’ be said to exist as an active social category in the overall context of the political organization of society and also as an ideological theme.^ Ab­ boud sustains that an example of such a situa­ tion is provided by France between the two world wars. Young people did not exist as a separate social factor. The political organiza­ tions and religious groups all had their ‘youth’ movements, and the more the State endeav­ oured to “organize political and cultural life around it”, the more youth was reduced to a mere ‘age group’. According to Abboud this is the origin of the real ‘alienation of youth’. She contends that in the technocratic-neocapitalist system prevailing in France up to 1967 young workers were placed in a category of youfii which was viewed in completely abstract and empty terms and had no practical political rel­ evance; in this way an attempt was made to consolidate a “felse consciousness of belong­ ing to a single ‘age group’”. This mises the question of the appropriate mode of State ac­ tion in the process of providing social services « See United Nations International Youth Year: Par­ ticipation, Development, Peace, Report of the SecretaryGeneral iA/36/215), 19 June 1981. SRosenmayr and Allerbeck, “Youth and Society", op. cit, p. 39. C E P A L R E V IE W No. 18 /D ecem ber 1982 114 and the difficulties encountered in the defini­ tion and implementation of bureaucratic organ­ ization in die field of youth and participating models of action. While this brief critique of past ‘conven­ tional wisdom" has some validity for examining the precise role of the State as an organizing force ois-d-ois the realities of the stratification of youth and the requirements^ potentialities and limitations of effective participation in the case of Latin America, it is just as essential not to uncritically adopt the analytical categories employed by the developed nations nor the policy measures adopted by them to confiont the problems of youth. Undoubtedly, dieir ex­ perience and the concepts diey have devel­ oped can serve as useful points of reference and perhaps even as models fer given problems of youth from a specific socio-cultural strata in certain countries, but in odier cases the situa­ tion will be entirely different. Moreover, the well-known structural heterogeneity prevail­ ing in Latin American societies magnifies the gap between the different situations among youth stemming firom stratificational, cultural, linguistic and ethnic diversity. It is thus not a matter of simply adopting the typology of youth with special needs and problems often used in contemporary developed market societies, where they are divided into hard­ core unemployed, underprivileged young workers and rebellious alienated students in institutions of higher education. In filis context, it is worth while recalling the observations of José Medina Echavarria, who said that while there can be no doubt that some of the questions examined and points dis­ cussed in relation to the industrialized socie­ ties may be valid and may be accepted wifiiout more ado for some of the countries of Latin America, the situation of young people in other countries which are still fer removed from this state of afBEiirs may be completely different The study of Latin American youth, he said, provides a visible and dramatic illustration of what also applies in respect of ofiier problems; the need to go beyong commonplaces and de­ vote ourselves fully to the search for reality: a reality whose very special complexion gives grounds for believing that it cannot be ade­ quately covered by handed-down categories or categories token over unchanged from ofiier environments which are more advanced or —much worse— still more backward.® II Insertion of youth into the labour force: present situation and future trends One of the striking features of the Latin Ameri­ can labour force is the high proportion of youth in it (figure 1). In 1970 one-third of the eco­ nomically active population consisted of young people between 10 and 24 years of age (table 1). This situation is in strong contrast to the situa­ tion in developed parts of the world and is even more accentuated in rural areas. Youth eco­ nomic activity is highest in the female labour force, and the importance of the participation of young women becomes even more apparent as future trends by country are examined accord­ ing to adolescent (ages 15-19) or young adult (ages ^0-24) economic activity. At the national level, the rates of economic participation for adolescents between 15 and 19 years of age will continue to decline until the end of the century, as they have during the past decade (table 2). This process is a natural concomitant of urbanization and of the vast ex­ pansion of secondary and higher education which has occurred since the 1960s. In every country of the region, however, economic ac­ tivity rates will increase over the next twenty years for young people between 20 and 24 years of age (table 3). For the region as a whole this group will continue to expand its participa­ tion at a rate slightly above that proiected for ®José Medina Echavarria, Filosofía, educación y des­ arrollo, Textos del ILPES, Mexico City, Ed. Siglo XXI (sec­ ond edition), 1970, p. 248. T H E P A R T IC IP A T IO N O F YO U TH IN T H E D E V E L O P M E N T P R O C ESS O F LATIN AM ERICA /Henry Kirsch Figure 1 L A H N AM ERICA: STR U C TU R E OF THE ECONOM ICALLY A C TIV E POPULATION, 197 0 Women: 4 850 373 (13.9%) Source: UNESCO/CEPAL/UNDP, project on Development and Education in Latin America and the Caribbean, “La educación y los problemas del empleo”. Informes Finales No. 3, October 1981, table 18, p. 78. 115 C E P A L R E V IE W No. 18 /D ecem ber 1982 116 Table 1 LATIN AMERICA: LABOUR FORCE COMPOSITION BY BROAD AGE GROUPS ACCORDING TO AREA AND SEX 1970 Table 2 RATES OF ECONOMIC PARTICIPATION FOR ADOLESCENTS BETWEEN 15 AND 19 YEARS OF AGE. 1970-2000 (Percentages) 10 to 24 years Total both sexes Total men Total women Urban both sexes Urban men Urban women Rural both sexes Rural men Rural women 25 years and over 33.1 30.8 41.6 29.2 25.8 38.3 38.8 36.8 50.9 50.8 52.0 46.1 55.3 57.2 50,1 44.3 45.9 34.9 S ou rce: UNESCO/CEPAL/UNDP, project on Develop­ ment and Education in Latin America and the Ca­ ribbean, L a edu cación y los problem as d el em pleo. Informes Finales N.®3, table 18. the entire labour force, i.e., just under 3% an^ nually. Perhaps the most significant increase to be observed at the national level is that of the participation of young women. Indeed, the fu­ ture expansion of economic activity among youth 20-24 years of age derives altnost exclu­ sively from the rise in the economic participa­ tion rates of females {table 4). Activity rates for young men experience some decline in all countries of the region. This is again related to the expansion of higher education and merely reflects a delayed entrance due to continued schooling. Projections for women 20-24 years of age show participation rates increasing substantial­ ly in all but one country in Latin America. Since young women are commonly the segment of the labour force most affected by unemploy­ ment, the problem of making possible an increase of 35% in these rates for the region between 1980 and 2000 under conditions of extensive overall unemployment and under­ employment is undoubtedly one of the major challenges that will be facing Latin America in the present decade. In the case of some coun­ tries such as Brazil and Mexico, where these participation rates are expected to rise almost Country 1970 1980 1990 2000 15-19 15-19 15-19 15-19 Argentina Bolivia Brazil Chile Colombia Costa Rica Cuba Dominican Rep. Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Panama Paraguay Peru Uruguay Venezuela Caribbean Barbados Guyana Jamaica Trinidad and Tobago 46.3 44.8 43.2 29.1 38.6 45.7 34.0 37.1 46.2 45.7 45.4 65.6 49.8 41.9 45.4 46.0 51.0 31.0 45.2 35.7 45.6 38.3 40.3 38.0 L atin Am erica 41.5 42.1 41.4 39.8 26.6 33.8 41,4 30.9 34.0 42.4 42.3 42.0 61.1 46.8 38.3 41.8 39.9 47.3 28.7 41.1 32.6 41.9 34.3 36.1 34.7 37.8 38.6 39.7 36.6 24.5 29.9 37.6 28.3 30.6 38.5 38.9 38.2 56.0 43.2 35.0 38.1 34,8 43.3 26.6 37.5 30,0 38.4 31.1 32.8 31.7 34.7 35.3 34.6 34,1 22.5 27.3 34.4 26.0 27.0 35.0 35.6 34.2 50,4 39.5 32.2 34.4 31.3 39.5 24.9 34.2 27.6 35.0 28.4 30.5 28.7 32.0 S ou rce: ILO, L a b o u r fo r c e estim ates an d projections 1950-2000, Geneva, 2nd. ed., 1977. by half, the implications for employment policy are even more far-reaching. Another policy-related issue which imme­ diately catches one’s attention after even a cursory examination of the composition of the labour force is the participation of young people below 14 years of age. Insertion into the labour force for pre- and early adolescents 1014 years of age is almost insignificant in urban areas (see figure 1), where, as will be seen later, it is largely restricted to marginal groups. Yet in the rural areas of Latin America, almost half of the young people of that age group are econom­ ically active. This is related to the very low educational coverage which still persists in cer- T H E P A R T IC IP A T IO N O F YO UTH IN T H E D E V E L O P M E N T PR O C ESS O F LATIN AM ERICA /Henry K irsch 117 Table 3 RATES OF ECONOMIC PARTICIPATION FOR YOUNG PEOPLE BETWEEN 20 AND 24 YEARS OF AGE, 1970-2000 Country 1970 20-24 1980 20-24 1990 20-24 2000 20-24 Argentina Bolivia Brazil Chile Colombia Costa Rica Cuba Dominican Republic Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Panama Paraguay Peru Uruguay Venezuela C aribbean Barbados Guyana Jamaica Trinidad and Tobago 65.3 59.6 58.4 57.4 58.8 59.6 55.8 53.5 60.3 59.5 54.3 82.0 57.6 58.3 59.2 68.0 62.3 54.6 67.1 56.3 74.4 62.6 75.0 65,9 59.2 66.1 60.2 60.0 59.6 58.5 61.3 57.2 53.2 61.4 60.0 54.6 80.3 57.1 59.7 60,1 66.5 63.7 55.9 67.8 58.2 75.6 63.7 76.4 67.0 60,3 66.5 61.8 62.6 61.9 58.6 63.7 59.4 53.3 63.3 61.2 54.9 78.2 57.4 61.5 61.8 66.1 65.9 58.2 68,3 60.3 76.7 64.7 78.0 67.4 6J.S 66.6 64.4 66.1 63.6 59.5 67.0 61.3 53.8 66.3 63.5 55.7 75.6 58.1 64.3 64.5 66.8 69.3 61.3 68.3 62.0 76.9 65.2 80.4 67.6 L a tin A m erica 64.2 Source; ILO, Labourforce estimates and projections 1930-2000, op. cit. tain countries of the region, as well as to the fact that labour force activity of this age group is greatest where the household head is a peasant or independent subsistence farmer. According­ ly, it appears that the structure of production prevailing in household enterprises is one of the fundamental factors explaining why young people under 14 years old work.^® Differences exist among countries, but in the smaller na­ tions and those with a large rural population this phenomenon is quite widespread. Such early entry into the labour force is also marked among indigenous groups in traditional agri­ cultural communities, urban marginal sectors, or rural tribal communities, with entry age commonly as low as 4-6 years in the first case.^^ lOMarta Tienda, “Economic Activity of Children in Peru: Labour Force Behaviour in Rural and Urban Con­ texts” in Rural Sociology, East Lansing, Michigan, 44 (2), 1979, p. 388. ttjuan Pablo Terra, Situación de la infancia en Améri­ ca Latina y el Caribe, Santiago, UNICEF, 1979, pp. 258269. Elias Mendelievich (editor), Children at Work, Geneva, ILO, 1979. 118 C EPA L B E V IE W No, 18 /D ecem ber 1982 Table 4 RATES OF ECONOMIC PARTICIPATION OF YOUNG PEOPLE BETWEEN 20 AND 24 YEARS OF AGE, BY SEX, 1970-2000 Country Argentina Bolivia Brazil Chile Colombia Costa Rica Cuba Dominican Rep. Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Panama Paraguay Peru Uruguay Venezuela C aribbean Barbados Guyana Jamaica Trinidad and Tobago L a tin A m erica 1970 Men Women 1980 Men Women 1990 Men Women 2000 Men Women 86.4 91.0 88.6 82.9 84.2 91.0 85.8 93.1 93.0 92.1 92.2 89.7 94.8 92.1 92.2 92.6 93.3 82.2 61.8 43.5 26.9 28,5 31.9 33.9 27.9 25.1 12.9 27.0 26.1 16.0 75.4 19.2 24.3 26.0 41.9 31.3 26.2 28.1 90.8 92.4 88.8 90.8 57.5 34.1 62.8 42.1 84.4 88.9 86.3 80.8 82.0 88.6 83.6 91.1 90.7 90.0 90.2 88.5 93.1 89.7 90.0 90.2 91.3 80.1 88.6 81.1 88.6 90.1 86.4 88.6 82.7 86.6 84.1 79.1 79.9 86.3 81.7 88.9 88.3 87.8 88.0 87.2 91.2 87.4 87.7 87.8 88.8 78.0 86.8 79.3 86.8 88.1 84.3 86.8 81.2 84.3 82.1 77.6 78.1 84.3 80.1 86,5 86.0 85.4 85.7 85,6 89.0 85.3 85.3 85.7 86.4 76,2 85.3 77.9 85.3 86.5 82.6 85.3 88.3 30.2 47.1 30.8 33.8 38.3 34.5 33.1 30.3 14.5 31.3 29.5 18.0 72.2 21.0 28.7 29.9 41.7 35.9 31.2 46.4 34.8 62.2 36.9 65.4 45.5 86.2 33.9 84.1 50.0 36.3 41.1 41.5 36.7 40.3 36.4 16.8 37,5 34.4 20.8 68.8 22.3 34.9 35.5 43.3 42.5 37.9 49,2 40.9 66.0 40.4 71.0 48.0 39.J 82.3 51.6 44.0 50.1 49.5 40.4 49.0 41.8 20.1 45.9 41.3 24.8 65.3 27.1 42.6 43.2 47.0 51.7 46.1 50.8 45.7 68.1 43.1 77.9 49.6 45.7 Source: ILO, Labourforce estímates and projections, 1950-2000, op, cit. Ill Unemployment and underemployment among youth Employment problems are the most critical and immediate issues for Latin American youth. Open unemployment is particularly acute among yc^uth in urban areas and rates of 15% or more artí common (table 5). In Venezue­ la (1958), 58% of all unemployed were between the ages of 15 and 24, while in major urban areas such as Bogotá and Mexico City from twothirds to three-quarters of the unemployed are young people. The situation is not primarily one of adolescent unemployment since, de­ pending on the country, almost half of unem­ ployed young people are in the 20-24 years age group. Available data indicate a varying pattern among the countries according to sex, with some countries registering a much higher inci­ dence of unemployment among young women. The fact that youth unemployment is the highest (usually two to three times as high as the average for all age groups) is observed T H E P A R T IC IP A T IO N O F YO UTH IN T H E D E V E L O P M E N T PR O C ESS O F LATIN AM ERICA /Henry K irsch 119 Tables LATIN AMERICA: OPEN UNEMPLOYMENT AMONG YOUTH AS A PERCENTAGE OF TOTAL UNEMPLOYMENT, BY SEXES Unemployment rate Country Colombia (1978) seven cities Bogotá (1978) Mexico (1979) metropolitan area Paraguay (1976) Asunción and surrounding area Uruguay (1978) D e p t of Montevideo Venezuela (1978) Venezuela (1980) Urban areas Jamaica (1975) Barbados (1970) Age Both sexes Men Women 15-29 15-19 20-29 15-29 15-19 20-29 12-24 12-19 20-24 12-24 12-19 20-24 14-24 14-19 20-24 15-24 15-19 20-24 15-24 15-19 20-24 14-24 14-24 15.3 23.0 12.5 14.0 23.0 11.0 13.5 17.7 10.1 11.8 12.8 10.8 20.0 29.5 13.7 9.9 11.8 8.5 13.6 17.1 11.5 38.0 30.0 13.7 21.7 10.9 12.2 21.6 9.4 13.3 17.8 9.9 12.6 14.7 10.2 15.0 25.2 7.9 10.6 12.3 9.2 17.2 24.5 14.4 16.1 24.4 13.1 13.8 17.6 10.4 11.0 10.6 11.4 26.5 35.9 21.0 8.1 10.3 6.9 _ — - - 25.3 22.0 52.2 40.0 % of total unemployment by sex Men Women Both sexes 76.6 30.7 45.7 76.7 31.5 45.2 66.0 39.0 27.0 60.6 34.2 26.4 48.1 28.0 20.1 58.1 29.1 29.0 58.0 27.3 30.7 — — 73.1 29.9 43.2 71.8 29.6 42.2 65.4 37.8 27.6 56.8 34.1 22.7 51.7 35.8 15.9 56.5 29.2 27.3 - - - — 80.3 31.8 48.5 81.9 33.4 48.5 66,2 40.8 25.4 70.4 34.5 35.9 46.0 23.0 23.0 63.5 28.8 34.7 — - — — Source: National household and employment surveys of the respective countries. in both developing and developed countries alike. But the significance in the case of Latin America is different, since these unemployed young people are very seldom students seeking part-time or vacation employment. Nor does the existence of minimum wage laws seem to be a decisive factor in the high rates of youth unemployment, as is suggested in the case of Venezuela, where after the introduction of a minimum wage in 1974 no significant change in youth unemployment occurred.Two other 12 IBRD, Current Economic Position and Prospects o f Venezuela, Washington, D.C., Vol. HI, 15 March 1977, p. 54. findings with policy implications emerge from empirical research on Latin American patterns of youth unemployment: (a) a great deal of the present high youth unemployment is related to very high turnover rates among young people who are able to find only precarious or casual jobs and (b) the burden of youth unemploy­ ment is also unevenly distributed across young people, falling heaviest on those from the low socio-economic urban strata, who experience serious and prolonged difficulties in the labour market (table 6).^^ i^In the case of youth 15-18 years of age in a lowincome area of Santiago, Chile, the unemployment rate in 120 C E P A L R E V IE W No. 18 /D ecem ber 1982 Table 6 YOUTH UNEMPLOYMENT ACCORDING TO CONDITION OF POVERTY: SELECTED COUNTRIES (Percentages) Buenos Aires (1970) Critically poor Age 15-19 Total Men Women 20-24 Total Men Women Not critically poor 18.3 11.8 27.3 21.6 25.0 16.0 Urban areas of Colombia (1975) Not Critically critically poor poor 13.5 7.8 21.7 7.3 6.1 8.7 21.3 21.1 21.6 15.1 15.9 13.8 8.2 13.4 5.3 6,3 7.7 5.2 Urban areas of Venezuela ( 1971) Not Critically critically poor poor 9.7 14.3 1.7 16.6 20.4 9.8 12.6 16.8 6.2 12.6 14,3 8.6 Source; Fernando Galofir6, Perftles de infancia yjuventud en Argentina, Colombia, Costa Rica y Venezuela, CEPAL, August 1981. Tables E-14. Note: The critical poverty line for urban areas is defined here as twice the indigency line, which in turn applies to those low-income urban families who spend half or more of their total income on fo ^ . Because of its highly visible nature, open unemployment is the indicator most often re­ ferred to in discussions of youth employment problems. It is by no means the most significant issue in Latin America, however, where con­ ditions of underemployment comprise the greatest part of the employment problem. En­ trance of youth into ‘dead-end’ jobs and the plight of young people who are not active in the labour force but are not attending school either help to extend critical poverty to future genera­ tions. In this context, dead-end jobs are not exclusively low-wage positions, since these can also be transitional jobs. Their distinguish­ ing characteristic is that most often they offer precarious occasional employment with little prospect either of a stable career pattern or useful training and experience. It is this factor, 1975 was 34%; of those without jobs, 56% had held pre­ vious jobs. See Margarita Gili and Marta Illanes, El empleo juvenil en una comuna del Gran Santiago. Un estudio de caso, Chile, Ministerio del Trabajo y Previsión Social, Ins­ tituto Laboral y de Desarrollo Social, pp. 56-57. coupled with the fact that the young people employed in them have little or no skills or education, which distinguishes them from jobs that may offer low wages to youth initially but compensate by increasing their skills. Marginal youth and those from low income strata are commonly to be found in these cir­ cumstances, Data on youth employment in a marginal area of Santiago, Chile, for 1975 show that among young people in the 15-18 year age group who were employed, 43% were either in casual jobs or ones with fluctuating income (table 7). Another 14% worked as domestic ser­ vants and 12% in the government Minimum Employment Plan. Only 25% had regular jobs with steady incomes, and of these half worked as messenger boys or maintenance workers. Of those who were reported as not in the labour force, 15% had no activity at all. An analysis of results from the year-end 1979 First Com­ munity Census of Uruguay is indicative of the particularly critical situation of urban marginal youth. Of the non-employed youth of both sexes from marginal areas of Montevideo, 100% had either dropped out of school or were more T H E P A R T IC IP A T IO N O F YO U TH IN T H E D E V E L O P M E N T PR O C ESS O F LATIN AM ERICA /Henry Kirsch than four years behind in their studies by the age of seventeen.^^ The scarce prospects of upward mobility for rural and marginal urban youth are also exemplified in the Brazilian case, where it has been estimated that less than 2% of young people whose fathers are rural labourers can expect to reach higher occupational or income levels. Almost 90% of the children of manual urban workers and 60% of the children of nonmanual urban workers occupy positions similar to those of their fathers. Even in the case of slightly better-off families, only 20% of stu­ dents enrolled in the secondary ‘gimnasio’ level come from families whose parents hold manual jobs (including those in manual super­ visory positions).^® Young women among the lowest strata face even more obstacles to intergenerational oc­ cupational mobility. If only men are considTable 7 PERCENTAGE DISTRIBUTION OF YOUTH 15-18 YEARS OF AGE ACCORDING TO TYPE OF EMPLOYMENT SITUATION, LA GRANJA, SANTIAGO (CHILE) Employment situation Fixed wage employment Fluctuating income employment Domestic service Non-paid family workers Occasional workers Minimum Employment Plan Total Percentage 25.0 11.8 14.5 5.3 31.6 11.8 100.0 Source: Gili and Illanes, El empleo juvenil, op. cit., table 19. i^Emesto Schiefelbein and Reynaldo Franco, Elemen­ tos para la definición de una politica social y educativa para comunidades marginadas, Santiago, Centro Inter­ americano de Enseñanza de Estadística, 19^1. l®Victor Tokman, Dinàmica de los mercados de traba­ jo y distribución del ingreso en América Latina, Santiago, Programa Regional del Empleo para América Latina y el Caribe (PREALC), 1979; David L. Wiñar,£ducaci(ín técni­ ca y estructura social en América Latina, Buenos Aires, UNESCO/CEPAL/UNDP project on Development and Education in Latin America and the Caribbean, 1981. 121 ered it may be seen that a somewhat greater degree of mobility exists than indicated by the global data for Brazil just referred to, and that mobility is mainly to be found at both extremes of the scales of income distribution and social stratification. The upward mobility for lowstrata young men indicated here is primarily related to rural-urban migration, which at least provides access to manual jobs in the secondary and service sectors for those coming from the countryside. In spite of the somewhat greater degree of mobility which may be discerned from a more detailed analysis of the data, the vicious circle affecting low-strata youth remains strong. For these young people the possibilities of upward occupational mobility are still quite limited. Findings from the analysis of Brazil indicate much higher levels of insertion at an early age into the labour force in the case of young people from the poorest families. Eighty-two percent of the children from these families begin working before 14 years of age and 95% are in the labour force before 17 years of age. This contrasts with children from other income categories, of whom 45% had labour force ex­ perience before age 17 and only a small minori­ ty before 14 years of age.^® The Santiago, Chile, data show that the participation rate for youth in the 15-18 years group from the same low-income area referred to above was over 80% more than for the same age group in the entire metropolitan area, and the participation rate of young people from families whose total income was less than the legal minimum wage was 45.6% —almost two and a half times that of young people in the same area whose families earned the minimum wage or above.^'^ From the preceding information it is clear that family income is a highly influential variable in determining the age of incorporai^Tokman, op. cit, p. 17. and Illanes, op. cit. Other data from Chile show that only 3% of those children whose parents are illiterate finish secondary education, 10% reach eighth grade; 43% of children whose parents have a primary education finish elementary education and 12% secondary education. See Ernesto Schiefelbein and Marfa Grossi, Antecedentes para un análisis de la educación media en Chile, Santiago, 1981, Corporación de Promoción Universitaria. 122 tion into the labour force. Recent studies have concluded that it fs also a determining factor regarding the conditions of incorporation, par­ ticularly with respect to hours worked and con­ tinuation of school attendance. In this context a strong contrast has been found between the characteristics of young workers 15-19 years of age in Latin America and their counterparts in developed countries. In the latter countries there are indications of an increasing blurring of the distinction between being in school or in the labour markets as young people search for part-time work, especially in the secondary labour market, while remaining in school.^® Nevertheless, youth who choose such a school/ work option —which, given the structure and functioning of labour markets in developed economies, probably eases their transition into working life— exercise a primary role as stu­ dents. In Latin American countries such as Brazil and Chile the reverse has been found to be the case; in terms of the hours and condi­ tions of each of these activities such young people are primarily Workers who study, usual­ ly part-time in evening programmes designed for adult and not youth education needs, Family income level and unemployment of the head of the family are not the only vari­ ables affecting a young person’s choice be­ tween continuing regular daytime schooling or entering the labour market. Studies for Latin American countries have shown a broad set of other variables to be operating. From the per­ spective of policy foundation it is also signifi­ cant that the relative influence of all variables changes according to the age of the young per­ son, rural or urban residence and sex. Among the most significant of the other variables are; family structure, including size of the domestic group and the type of headship; social back­ ground (particularly the educational level of parents and existence of household enter180ECD, Youth U nem ploym ent - T he C auses and C on sequ en ces, Paris, 1980. José Paulo Zeetano Chahad, P arttcipaçào d o sjov en s na fo r ç a d e tra b a lh o d e Sao Paulo, Master’s Thesis, Faculty of Economics and Administration, University of Sao Paulo, 1975. In Santiago, Chile, 62% of the students attending adult evening education classes are under 26 years of age, 23% are under 16 years and only 30% have a stable job. E l M ercurio, Santiago, 23 June 1980. C E P A L R E V IE W No. 18 /D ecem ber 1982 prise); prevalent attitudes of parents and the different incentives received by the young per­ son derived from his relation with them; cul­ tural and institutional restrictions; labour mar­ ket conditions, and degrees of information as to jobs available.^® In urban areas family income levels, family social background, social values and legal re­ strictions are determining factors for those ap­ proximately in the 10-14 years age group. The implications with regard to public policy are that the primary focus is probably best placed on labour markets and on improving the in­ comes of household heads or principal earners. From these perspectives, policies concen­ trating on reducing underemployment would seem to be more effective than providing more job opportunities, particularly for those fami­ lies that consist largely of children and have little or no unemployed adult labour potential. Such households could also be helped directly by policies aimed at improving children’s wel­ fare For the 15-19 years age group, the attitudes and the differences in the incentive relation­ ship existing between the young person and his mother or father and the specific characteristics of the educational system take on much greater importance, together with family income level. In the case of young people 20-24 years old labour market conditions, salary levels, per­ ceived opportunity costs, and social and oc­ cupational expectations weigh more heavily in their choice between post-secondary schooling and entrance into the labour market. This last 20Zeetano, ibid., pp. 12-18; Gilí, ibid., pp. 34-51; Henry Kitsch, “Employment and the utilization of human resources in Latin America”, E con om ic Bulletin f o r Latin A m erica, Voi. XVIII, No. 1 and 2, pp. 56-57; John Paul Walker, The E conom ics o f L abou r F orce Participa­ tion o f Urban Slum -Barrio Youth in C ali, C olom bia: A C ase Study, Ph.D. dissertation, University of Notre Dame, 1970; Marte Tienda, “Economic Activity of Children in Peru”, op. cit., pp. 379-391. 2iPhilip Musgrove, “Household Size and Composi­ tion, Employment and Poverty in Urban Latin America”;in E co n o m ic D evelopm en t an d Cultural C hange; Fernando Galofré, F orm u lación de p olíticas d e infancia y juventud en fa m ilia s p obres, paper presented to the CEPAL seminar on policies to achieve a minimum welfare level, 2-6 No­ vember 1981; Schiefelbein and Franco, E lem entos para la d efin ició n d e una p olítica social y edu cativa para com uni­ d a d e s m argin ales, op. cit. T H E P A R T IC IP A T IO N O F YO U TH IN T H E D E V E L O P M E N T P R O C ESS O F LATIN AM ERICA /Henry Kirsch point raises the question of the relation be­ tween education and employment for youth in a region characterized by long-standing seg­ mentation, social differentiation and rigidity in its social systems. Whatever mobility has exis­ ted, it has not been equal for all groups. The access channels have changed and are narrow­ ing in given national situations. Not even post-primary technical schools give the assurance of higher occupational levels and social mobility for the lower strata that was expected of them. Although technical education has permitted some mobility, the characteristics of the occupational structure maintain a low and relatively unyielding ceil­ ing over youth from low urban strata who have completed these courses of study. Post-primary technical schools may even receive a signifi­ cant enrollment of middle, and in cases upperstrata youth, as has been discovered in studies for Argentina and Brazil. Conversely the chil­ dren of skilled manual workers have been found to be under-represented in total secon­ dary education and a very limited proportion of young people from unskilled manual labour families are found in technical schools. In Co­ lombia students with only primary education were differentiated from those with post-sec­ ondary technical training or secondary educa­ tion on the basis of the socio-economic level of the parents, and the data suggest that post-sec­ ondary education was associated with the con­ dition of parental modem sector employment.^^ What becomes apparent when dealing 123 with the problems of youth in Latin America is the need for an integrated long-range strategy that focusses on global structural aspects of youth from the perspective of interaction with the family and on the changing importance of the various intervening variables according to social strata and the age of the young person. More immediately, it would also appear that such typically short-mn measures as low­ ering the minimum wage for youth, as has been recommended or applied recently in some countries of the region which have applied stabilization measures with concurrent in­ creased open unemployment, are unsatisfacto­ ry policy responses. Policy measures must go beyond the mere creation of more employment possibilities, many of which, especially in the case of Latin America, may be expected to be ‘dead-end' jobs in the informal sector. In any event, in addition to relative wage costs, non­ wage labour costs especially relevant for the formal sector, such as payroll taxes for unem­ ployment insurance, health and other social security benefits, pension contributions, train­ ing costs, fringe benefits such as holiday pay, etc., must be considered. If enough empirical evidence can be mustered to show that trends in the relative real cost of youth labour account for part of the present youth employment prob­ lem, any desired reduction could be achieved by direct wage subsidies tied to the employ­ ment of youth, the payment of apprenticeship allowances, or by negative subsidies such as lowering or abolishing payroll taxes on youth. IV Education and the range of employment opportunities for youth One of the thorniest problems now under in­ tense debate in Latin America is the adequacy of existing educational systems and structures as a meaningful vehicle for preparing youth to participate fully in the development process of 22 D. Wiñar, Educación técnicay op. cit., pp. 19,39,44, 55. the region.^^ Such participation must be under­ stood in a total sense, first in terms of the intel­ lectual growth per se of the individual, then from the perspective of its effects on societal 23CEPAL, together with UNESCO and UNDP, has sponsored a project on Development and Education in Latin America which, up to its conclusion in November 124 relations, and finally as a preparation for liveli­ hood. Here only the third will be discussed. The vigorous expansion of education in Latin America since the 1960s is certainly one of the most striking social changes that has oc­ curred in the region. Previous CEPAL studies have indicated that for the State the concentra­ tion of this expansion in secondary and higher education seemed to be the least expensive and least conflictive means of responding to social pressures and postponing decisions over the redistribution of power and wealth, while at the same time generating developmental divi­ dends in terms of improved employment op­ portunities and labour force productivity. A glance at the present situations in most of Latin America, however, demonstrates that the changes in the region’s labour markets stem­ ming from the structurally heterogeneous style of development prevalent until now have had effects on the role of education that raise for­ midable questions concerning the future via­ bility of its evolution along the lines hitherto pursued.^ Education must be considered within the context of the social and economic processes which have conditioned its develop­ ment in the region. Moreover, education should not be criticized for not having singlehandedly solved problems of unemployment and underemployment which require broadbased structural changes. At one extreme, the expansion of higher education has gone far beyond the correction of a situation of inequitable and self-perpetuating distribution of opportunities to acquire the qualifications needed and rewarded by the prevailing style of development, and has led to an entrenchment of spurious education leading to deteriorating levels of entry into the labour market. At the other extreme, primary educa­ tion of such poor quality as to be equally spuri1981, has published over fifty studies. For the 1980s UNESCO is launching a major effort in this problem area in the form of a principal project on education in Latin Ameri­ ca. 2<;;EPAL, Structure andD ynam ics o f D evelopm ent in L atin A m erica an d T h eir Im plication s f o r Education^ doc­ ument presented at the Regional Conference of Ministers of Education and those Responsible for Economic Plan­ ning of Member States in Latin America and the Carib­ bean, Mexico City, 4-13 December 1979. C E P A L R E V IE W No. 18 /D ecem ber 1982 ous confirms the marginalization of much of the population from a style of development that in any case has little need for them.^^ As regards the problem of open unemploy­ ment among youth, comparative data which in­ clude detailed age groupings and schooling levels are available only from the 1970 census round. These data indicate that the situation varied from country to country (table 8). Gener­ ally, however, it appears that the expected posi­ tive relation between higher educational levels and lower rates of unemployment is found to exist. This trend is clearly confirmed at the level of capital city and other urban areas (table 9). Since open unemployment is predominant­ ly an urban phenomenon and not very common in the rural areas, the lack of a stronger associa­ tion at the national level between low educa­ tional levels and high unemployment is not surprising. Once again, at all educational levels, open unemployment for the 20-24 years age group is much higher than for those 25-29 years of age. A certain stepwise pattern seems to emerge in urban areas (table 9). For men, open unem­ ployment declines gradually with increased elementary schooling. Completed basic educa­ tion appears to represent a plateau. Those who leave school with incomplete secondary educa­ tion have somewhat increased difficulties and considerably less unemployment is registered at completed secondary levels. For young women, however, completed secondary educa­ tion is associated with very high levels of un­ employment. The relatively lower unemploy­ ment rates among illiterate and poorly educated women probably reflect their high degree of participation in domestic service jobs, cottage industry and other informal sector oc­ cupations where education is not a decisive factor. Such jobs are more available in the metropolitan areas and this probably explains the overall high unemployment among women in other urban areas. Educated young women with secondary or higher education encounter more difficulty than their male counterparts in 25Marshall Wolfe, Styles o f D evelopm ent and E duca­ tion : A S tocktakin g o f Myths, Prescriptions an d Potentiali­ ties, UNESCO/CEPAL/UNDP project on Development, and Education in Latin America and the Caribbean, Sep­ tember 1980, p. 3. T H E P A R T IC IP A T IO N O F YO UTH IN T H E D E V E L O P M E N T PR O C ESS O F LATIN AM ERICA /Henry Kirsch 125 T ables LATIN AMERICAN: OPEN UNEMPLOYMENT AMONG YOUTH, ACCORDING TO EDUCATIONAL LEVEL, FOR SEVEN COUNTRIES OF THE REGION CIRCA 1970 (Percentages) Country Years of study Argentina 00-03 04-06 07-12 13 + 00-03 04-06 07-12 13 + 00-03 04-06 07-12 13 + 00-03 04-06 07-12 13 + 00-03 04-06 07-12 13 + 00-03 04-06 07-12 13 + 00-03 04-06 07-12 13 + Chile Colombia Costa Rica El Salvador Honduras Mexico Source: 20 to 24 years Unemployed Distribution over labour of foree of total number of same educational level unemployed 3.05 2.53 3.44 2.33 5.43 6.04 7.83 7.27 1.71 0.36 4.33 6.22 6.52 5.25 5.11 4.17 18.31 19.74 20.66 8.33 1.45 3.65 7.07 3.88 3.90 4.82 4.13 7.97 13.36 12.85 68.45 5.34 14.28 35.40 46.08 4.24 23.46 35.58 35.86 5.10 25.48 45.72 25.48 3.:?2 54.97 30.69 14.02 0.32 28.15 40.17 30.50 1.17 39.01 39.35 14.80 6.84 25 to 29 years Unemployed Distribution over labour of force of total same educanumber of unemployed tional level 1.51 1.86 1.55 1.26 4.28 4.24 3.25 2.45 1,58 2.58 2.57 3.80 4.77 3.56 2.18 1.18 13,09 12.47 9.74 10.62 0.80 1.86 1.93 3.61 3.42 1.81 2.11 14.44 20.22 57.51 7.83 22.58 40.30 32.27 4.85 30.79 33.06 26.58 9.56 38.83 41.76 17.58 1.83 62.09 26.26 9.78 1.87 39.82 38.05 22.12 57.01 33.09 6.29 3.60 UNESCO/CEPAL/UNDP project on Development and Education in Latin America and die Caribbean, educación y los problemas del empleo, Infbnnes Finales N.^ 3, October 1981, teble 47. keeping out of the ranks of the unemployment. For countries such as El Salvador, Hondu­ ras, Colombia and Costa Rica, the concenttation of unemployed youth among the unskilled La and poorly educated has policy implications for setting priorities which coincide with those of the last section in terms of the need for more schooling. In countries with wider middle and C E P A L R E V IE W No. 18 /D ecem ber 1982 126 Table 9 LATIN AMERICA: OPEN UNEMPLOYMENT RATES AMONG YOUTH 20-29 YEARS OF AGE. BY SEX AND AREA, ACCORDING TO EDUCATIONAL LEVEL (Percentages) Educational level B oth sexes No educatiorf 1 to 3 yearsi* 4 to 6 years® 7 to 9 year^ 10 to Í2 year^ 13 and ovei** M en No education? 1 to 3 years® 4 to 6 years* 7 to 9 years’* 10 to 12 yearsb 13 and over*» W om en No education? 1 to 3 years® 4 to 6 years® 7 to 9 years’* 10 to 12 years’* 13 and oved* Other Total country Capital urban Rural 5.7 5.8 6.9 5.6 7.3 5.9 9.7 8.4 8.1 5.3 6.9 5.8 8.9 7.8 7,6 6.2 6.4 6.3 5.0 4.5 5.3 3.5 2.7 6.9 4.9 4.9 6.3 5.9 9.2 5.1 13.5 10.0 8.4 5,8 7.9 4.8 8.9 7,7 7.2 6.6 7.8 5.7 3,7 3.3 4.2 3.2 3.9 4.7 8.1 8.8 8.8 4.9 4.5 7.3 6.3 6.3 7.6 4.3 5.3 7.5 8.5 8.0 8.6 5,5 4.6 7.3 8.4 10.2 10.3 4.6 4.7 9,5 Source: OMUECE 1970, Programa Uniforme, table 20. UNESCO/CEPAL/UNDP project on Develop­ ment and Education in Latin America and the Caribbean, La educación y los problemas del em­ pleo, Informes Finales N.° 3, October 1981, ta­ ble 29. “Average of 15 countries: Bolivia, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guate­ mala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru and Venezuela. Average of 6 countries; Argentina, Colombia, Costa Rica, E l Salvador, Honduras and Paraguay. higher educational coverage, such as Argentina and to a lesser extent Chile, the unemployed with some or even complete secondary educa­ tion account for a high percentage of all the unemployed in the 20-24 years age group. The vastly expanded supply of people with higher education in such countries has set in motion pressures for ‘acceptable' jobs for which high school graduates and dropouts are in respectively worse positions to compete. The possibilities of upward mobility for secon­ dary graduates have become curtailed with the rising importance of the large private and State enterprises. Varying combinations of capital intensity and technological and administrative complexity limit their possibilities of gaining employment with such employers, who prefer university graduates. On the other hand the substantial increase in the supply of universityeducated young people has led them to com­ pete in segments of the labour market tradi­ tionally reserved for graduates of secondary education.^ In the case of women it is by now a well-known fact that in the region, as else­ where a higher educational background is usually demanded of them than of men. Also, the general academic curriculum often im­ parted to lower-middle and middle-middle strata girls provides them with no marketable skills in a labour market which, in any case, has a narrow range of job opportunities open to them. In summary, for many countries open un­ employment among educated youth did not seem to be the most important aspect of the youth unemployment problem at the begin­ ning of the last decade. It is also important to recall that for some cities of Latin America at the end of the 1960s empirical studies have shown education to be a highly significant dis­ criminatory variable, particularly at the level of completed primary education in relation to poverty Already by the beginning of the last decade those between the ages of 20 and 29 who had less than three years of elementary schooling were practically excluded from jobs in the modem tertiary sector. They had great difficulty in obtaining jobs as drivers and in­ dustrial workers, and for the most part are only to be found in agriculture and in the urban informal sector.^ 26\Viftar, op. cit., pp. 34 and 55. 2'?Philip Musgrove and Robert Ferber, “Identifying the Urban Poor; Characteristics of Poverty Households in Bogotá, Medellin, and Lima”, in Latin American Research Review, Vol. XIV, No. 2,1979. 28Juan Pablo Terra, Alfabetismo y escolarizacidn bási­ ca de los jóvenes en América Latina, UNESCO/CEPAL /UNDP project on Development and Education in Latin America and the Caribbean, 1980, tables 42,43 and 44, T H E P A R T IC IP A T IO N O F YO U TH IN T H E D E V E L O P M E N T PR O C ESS O F LATIN AM ERICA /Henry K irsch In terms of reducing poverty and improv­ ing human welfare, eradication of illiteracy among youth and the expansion of primary school coverage, particularly to young people in rural areas, could hardly fail to be the subject of immediate priority attention by govern­ ments. As has already been seen, such mea­ sures would have to be placed within a broad range of policies designed to improve family income levels and the welfare of children if more than piecemeal or mere showcase effects are to be achieved. On the other hand, at the beginning of the 1980s as the rural-urban shift continues, young people with a secondary education are no longer only a small percentage of their age group in many countries of the region.® Enrollments in higher education have increased rapidly in the region, and the term ‘massification’ has been applied to this process in many countries, where over 10% of the 20-24 years age group are enrolled in university.^ Youth are now con­ fronted by increasing tension of maladjustment between higher educational credentials and inadequate availability of middle and upperstrata employment opportunities. Although the current recessionary economic climate certain­ ly does not help to reduce the problem, the basic reasons are more structural in nature, as better-educated young people for some years now have been finding that their credentials do not earn the privileges, social mobility or in­ come levels anticipated. At the same time that a greater portion of 20-24 year-old young people in middle-strata occupations and above have higher education, relatively fewer of the better29ln Ecuador in 1965-1966, only 13% of the 15-19 years age group were enrolled in secondary education, but in 1977 over 30% attended secondary school, while university en­ rollment had grown from 3% of the 20-24 years age group to 12% in 1975, See Gladys Pozo de Ruiz and Ernesto Schiefelbein, “Los problemas de la expansión acelerada; el caso del desarrollo del sistema educacional del Ecuador”, in Estudios Sociales (Santiago, Chile), No. 26, fourth quarter of 1980, table 5. ®In 1978 the group included Argentina, Bolivia, Bra­ zil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Pana­ ma, Jamaica, Uruguay and Venezuela. See UNESCO, Sta­ tistical Yearbook, 2980. Also see Jaime Rodriguez, El con­ cepto de masificación, UNESCO/CEPAL/UNDP project on Development and Education in Latin America and the Caribbean, Fichas No. 4,1978. 127 educated youth have been able to gain em­ ployment at these levels (table 10).^^ In the modem or growth sector numerous changes of both a social and economic nature have conditioned the educational require­ ments for entry into such jobs. Education now tends to act as a proxy variable for the social and behavioural traits which indicate the adaptabil­ ity, learning potential and discipline required in modem, hierarchical and bureaucratic enter­ prises. The presence of a rapidly expanding educated labour force has produced a situation in which the demands for more years of educa­ tion are outpacing the rate at which the real cognitive requirements for accomplishing for­ mal sector jobs are expanding. In the industrial sector, recmitment criteria have undergone substantial modifications and the mere number of years of schooling appears increasingly im­ portant. Although in some cases of technical advance jobs have become more complex and require higher scientific-technical skills, in others the tasks have been simplified, are merely repetitive, and require primarily the ability to accomodate oneself to the work rhythm imposed by the machine. Furthermore, the assumption that formal education is the instmment which eftectively provides the nec­ essary skills for satisfiictory performance in the new jobs created through technological devel­ opment has been seriously questioned. In the case of Argentina, for example, it has been shown that in the industrial sector the same kind of jobs are carried out by individuals with the most diverse educational levels. On the other hand, a given type of education (in this case, technical) qualifies a person for access to a wide variety ofjobs, the majority of which have no relation to ftie formal training received.^^ As a result of the poor interaction between educational output by type of skills and the real See also Carlos Filgueiraand Carlo Geneletti,Esfrd- tificación ocupacional, modernización social y desarrollo económico en América Latina, CEPAL, Social Devel­ opment Division, November 1978, pp. 163-175. 32Juan Carlos Tedesco, “Algunas características de educación e industrialización en América Latina”, paper presented to the first seminar of the UNESCO/CEPAL/ UNDP project on Envelopment and Education in Latin America and the Caribbean, Quito, 13-17 September 1977; Wiñar, Educación técnica, op. cit. 128 C E P A L B E V IE W No. 18 /D ecem ber 1982 Table 10 CHANGES IN THE INSERTION OF YOUTH 20-24 YEARS OF AGE WITH 13 YEARS AND MORE OF EDUCATION INTO MIDDLE AND UPPER STRATA OCCUPATIONS, 1960-1970 (Percentages) 1960 Countries % of middle/ upper strata 20-24 year old jobholders with 13+ years of education Argentina Chile Colombia Costa Rica Mexico 12.6 7.1 3.7 16.2 2.4 1970 % of20-24 % of middle/ upper strata 20-24 year old jobholders with 13+ years of education % of 20-24 years old group with 13+ years of education in middle/upper strata jobs 76.4 93.1 92.4 92.2 82.5 19.7 12.1 7.9 14.8 10.8 76.7 83.8 84.6 89.9 69.0 year old group with 13+ years of education in middle/ upper strata jobs S ou rce: OMUECE 1970, Special Programme, table 4; OMUECE 1960, Special Programme, tables 2 and 3. technical needs of the economies, formal edu­ cational requirements unrelated to substantive work requirements are used as screening de­ vices, thus reserving the more desirable jobs for the social strata whose children are able to ac­ quire these credentials. It is not yet entirely clear how schooling differentiates labour. Number of years of education is certainly a prime consideration but the relationship is not one-dimensional and linear. A diploma of com­ pleted secondary school education, for exam­ ple, opens the door to non-manual occupations; achievement of literacy brings obvious advan­ tages to many informal sector workers and minifundistas, and graduation from a prestigious university is of prime importance in those countries where the number of institutions of higher education has mushroomed in the last two decades. But to the extent that middle and higher education expand more rapidly than the supply of appropriate jobs, higher educational barriers are continually applied in respect of lower-status clerical jobs and even manual oc­ cupations. The relative ‘over-expansion' of middle and higher education has been accom­ panied by cosmetic changes in the names and legal status of occupations, reflected in a dif­ ferential growth of urban middle and upper occupational strata whose real meaning in terms of improved employment levels and pro­ ductivity is thereby obscured.^ ‘Workers' are reclassified as ‘employees' or ‘technicians’; sub-professional specializations receive pro­ fessional titles. This trend, together with the fact that educational supply creates its own demand, has already had significant conse­ quences for the expansion of public bureau­ cracies whose contribution to the development process has been questioned. For example, it has been estimated that in Brazil the public sector has been absorbing almost 50% of total ‘white-collar’ employment in the non-agricultural sectors, while between 1970 and 1975 public sector employment in Argentina ex^ CEPAL, D esarrollo hum ano y cam bio social y cre­ cim ien to en A m érica Latina, C uadernos d e la CEPAL Se­ ries No. 3, Santiago, 1975, pp. 31-36 and 46-48. T H E P A R T IC IP A T IO N O F YO UTH IN T H E D E V E L O P M E N T PR O C ESS O F LATIN AM ERICA /Henry K irsck panded at an annual rate of 5.6% compared with 0.9% in the period 1960-1970.^ Yet another problem is that the rapidity of growth in the number and enrollments of mid­ dle and higher institutions often results in a general deterioration of the quality of instruc­ tion, with a wide gap between the quality or prestige of the titles issued by different institu­ tions. To the extent that formal educational qualifications for employment become divorced from work needs, there is no external check on the dilution of quality. Likewise, to the extent that employers seek real technical qualifica­ tions, they give credit to the diplomas of only a few elite institutions, and increasingly support 34Paulo Renato Souza, L a segm entación d el m ercado d e tr a b a jo u rban o y las d isp arid ad es de salarios en econ o­ m ías su bd esarrollad as, Santiago, PREALC, 1977, p. 32; Juan José Ilach, “Estructura ocupacional y dinámica del empleo en la Argentina; sus peculiaridades 1947-1970”, in D esárrollo E con óm ico, 17:68, Buenos Aires, January-Maích 1978. 129 prívate institutions so as to obtain a dependable supply. Consequently, an increasing proportion of better-educated young people in Latin Ameri­ ca are finding themselves barred from entering jobs of the social prestige and income level that they had expected. Meanwhile, the possibili­ ties for the absorption of the output of higher education graduates into bureaucratic jobs which provide some degree of status, even if not satisfying salary aspirations, may be reaching their limit. Various governments have begun to react by restricting university enrollments, while at the same time anti-bureaucracy cam­ paigns have made inroads on this sector of the labour market. The foregoing elements form the basis of yet another source of future social ten­ sion as a higher proportion of educated youth, continually increasing through demographic growth and the momentum of middle-strata ex­ pansion, confronts the mismateh between their expectations and fiie level of occupations open to them. C E P A L R E V IE W D e c em b er 1982 Energy demand in Chilean Manufacturing Larry Willmore* The Chilean experience following the 1973 increase in world energy prices is marked by wide inter-in­ dustry differences in changes in the energy intensity of production. Some industries, such as wood and furniture, appear to have adjusted quickly to relative price changes by decreasing their consumption of energy per unit of output, whereas others, such as industrial chemicals and non-electrical machinery, were more energy-intensive in 1977 than in 1967, The purpose of this paper is to employ regression analysis to explain this inter-industry variation as a function of four variables: change in industry output, substitution of electricity for other fuels, change in employment of labour, and the survival of estab­ lishments. The first section of the paper provides a brief description of the available data on energy con­ sumption and manufacturing production in Chile. The specific variables used and the estimated equa­ tions are described in the next two sections. The main empirical findings are summarized in a con­ cluding section. *Staff member of the Joint CEPAL/UNIDO Industrial De­ velopment Division. Andrés Bianchì, Joseph Mullen and Terence Lee provided helpful comments on an earlier ver­ sion of this paper. Data The manufacturing sector now accounts for more than a quarter of total energy consump­ tion in Chile, ^ Between 1967 and 1977 annual energy consumption in this sector increased by 31%, with the greatest increase occurring in electricity (see table 1). The average price of electricity for industrial use actually fell in real terms over this period of time by more than 20%, while the price of petroleum products increased by more than 50% (see table 2). Rel­ ative price changes thus provided Chilean Manufacturers with a strong incentive to in­ crease consumption of locally-produced elec­ tricity and economize on imported oil. Manufacturing output grew much more slowly than energy consumption in the 19671977 period. According to official government statistics, manufacturing production fell 25% in the 1975 recession and regained its 1967 level in 1977. The production index compiled by the manufacturers’ association (SOFOFA) shows a similar fall in 1975, but indicates recovery in 1977 to a level of output 15% greater than that of 1967, Regardless of the production index one uses, however, there has thus been a clear in­ crease in energy consumption per unit of out­ put in Chilean manufacturing. In this paper the SOFOFA production index is used because both it and the energy consumption statistics are based on the revised version of the International Standard Industrial Classification (ISIC Rev. 2). These data show that the ratio of energy consumption to gross manufacturing output increased by 13.9% be­ tween 1967 and 1977. This estimate of the in­ crease in the energy/output ratio is biased downwards for two reasons. First, it is based on the higher of two available indices of real out­ put. Secondly, energy consumption by small establishments employing fewer than ten per­ sons is included in the 1967 data but excluded from those for 1977, This downward bias, coupled with the increase in the real price of rTotal energy comprises commercial fuels and fire­ wood. For data on economy-wide energy consumption, see Comisión Nacional de Energia, Balance de Energía I9601968 (Santiago, Chile, 1980). 132 C E P A L R E V IE W No. 18 /D ecem ber 1982 petroleum products, is consistent with the fact that energy expenditures as a percentage of gross manufacturing output, both measured in current prices, nearly doubled from 2.2% in 1967 to 4.2% in 1977. For individual industries, there were mixed changes in the energy intensity of pro­ duction between 1967 and 1977. Seventeen of the three-digit industries in table 3 show an increase in the energy/output ratio whereas eleven industries show a decrease. At this level of disaggregation, very little of the 14% in­ crease in the overall energy/output ratio can be explained by changes in industry mix, i.e., by an increase in the output of energy-intensive industries relative to other industries rather than a general increase in energy/output ratios within each industry. If energy/output ratios are held constant at their 1967 levels, changes in industry mix account for only about one. and a half percentage points of the observed increase in the energy intensity of Chilean manufactur­ ing. Table 1 CHILE: ENERGY CONSUMPTION IN MANUFACTURING, CLASSIFIED BY TYPE OF FUEL, 1967 AND 1977^ Thousands of tons of coal equivalent Electricity Coal Petroleum products Natural gas Wood and other Total 1967 904 484 1268 24 178 2 858 Percentage change 1977 1549 386 1552 21 227 3 735 71.3 -20.2 22.4 - 11.8 27.5 30.7 S ou rce: Calculated from data in Instituto Nacional de Esta­ dísticas (INK), /V C enso N acional d e M anufactu­ ras (1967) and corrected data in INE, Industrias M anupictureras (1977). “Data for 1 ^ 7 refer to establishments employing five or more persons while those for 1977 refer to establishments employing ten or more persons, hence changes in energy consumption are underes­ timated. Table 2 CHILE: AVERAGE FUEL PRICES PAID BY MANUFACTURING FIRMS IN 1967 AND 1977 (Escudos per thousand tons o f coal equivalent) Current escudos per thousand TCE 1967 J977 Electricity Coal Fuel oil Diesel oil Gasoline Kerosene Natural gas Firewood 222 136 121 166 262 146 449 146 1545 000 1307 000 1691000 2 237000 3 471000 2 218 000 3 501 000 1478 000 1965 escudos per thousand TCE“ 1967 1977 Percentage change 141 86 77 105 166 92 284 92 111 93 121 160 248 159 250 106 - 21.4 8.9 57.6 52.1 49.6 72.1 -11.8 14.6 S ou rce: Calculated from data in INE, IV C enso N acional de M anufacturas (1967) and corrected data in INE, In du stries M anufactureras (1977). ^Nominal prices deflated by the implicit deflator corresponding to the index ofgross value of manufacturing output, which is 158 for 1967 and 13 982 for 1977 (1965 = 100). E N E R G Y D E M A N D IN C H ILEA N M ANUFACTURING /Larry Willmore 133 II Variables used in the regression analysis Change in energy intensity (E) The dependent variable is the energy/output ratio in 1977 divided by the ratio for the same industry in 1967. This is denoted as E and is listed in the last column of table 3. With the exception of electricity, different fuels have been aggregated on the basis of their inherent thermal content in the calculation of these ra­ tios. Electricity has a value farbeyondthatofits thermal energy alone, so the amount of fossil fuel required to produce electricity in thermal plants of average efficiency (600 kg of coal equivalent per thousand KWH) was used as a conversion factor in lieu of the thermal energy available from electricity (123 kg of coal equiv­ alent per thousand KWH).^ Change in output(Q) Production growth in each industry is mea­ sured by the ratio of gross output in 1977 to gross output in 1967, both measured in 1967 prices. Only eleven of the 28 three-digit in­ dustries registered a larger output in 1977 than 1967. Since an expanding industry is more apt to adjust to higher energy prices by investing in energy-efficient plant and equipment than is a stagnant or declining industry, one can expect a negative coefEcient for this variable. There is another important reason to ex­ pect a negative coefficient. The implicit de­ flator for domestically-produced manufactured goods in 1977 was nearly 9 000 times that of 1967. Price inflation of this magnitude intro­ duces unusually large errors into estimates of real output. These measurement errors enter the denominator of the dependent variable, giving rise to a negative but spurious correla­ tion between production growth and changes in energy intensity. In other words, over­ estimation of the growth in real output of an ^ e e United Nations, World Energy Supplies 19731978 (New York, 1979), p. xvi. industry leads to underestimation of the in­ crease in its energy/output ratio and vice versa. Substitution o f electricity fo r other fuels (S) This variable is measured as the ratio of the 1977 proportion of electricity in total energy consumption to the 1967 proportion. Eighteen of the 28 three-digit industries increased their consumption of electricity relative to other fuels. For the sector as whole, electricity as a percentage of total energy consumption in­ creased from 32% in 1967 to 41% in 1977. Assuming that electricity will by its nature be used more efficiently in a physical sense than other fuels, increased consumption of electricity relative to other fuels should be as­ sociated with a decrease in the energy/output ratio. Four types of substitution of electricity for other fuels are possible. First, in broadly defined industries there is ample scope for changes in product-mix, i.e., for shifts into elec­ tricity-intensive products and away from pro­ ducts relatively intensive in other forms of energy. Secondly, there may be direct substitu­ tion, such as the change from a diesel engine to an electric motor. Thirdly, there may be a shift away from self-generation to the outside pur­ chase of electric power which will produce re­ corded gains in energy efficiency as small, inef­ ficient thermal generators are replaced by power from large thermal and hydro plants. Fourthly, and most importantly, electricity consumption is a proxy for mechanization. Al­ though there is a well-known positive correla­ tion between mechanization and energy intensity,^ln a period of rising energy prices in3See, for example, J.S. Wabe, “Energy Expenditure in Sectors of Manufacturing”, Energy Economics 3:3 (July 1981), pp. 178-81 for evidence that capital-intensive in­ dustries tend to be energy-intensive. For 28 Chilean in­ dustries in 1967, the rank correlation (Kendall’s tau) be­ tween energy output ratios and capital intensity is .593 when capital intensity is measured as installed horsepower per employee and .598 when it is measured as electricity consumption per employee. Both coefficients are highly significant. C E P AL R E V IE W No. 18 /D ecem ber 1982 134 Tables CHILE: ENERGY/OUTPUT RATIOS FOR 28 MANUFACTURING INDUSTRIES, 1967 AND 1977 ISIC Major products 311-312 313 314 321 322 323 324 331 332 341 342 351 352 353 354 355 356 361 362 369 371 372 381 382 383 384 385 390 Food Beverages Tobacco Textiles Clothing Leather Footwear Wood Furniture Pulp and paper Printing Industrial chemicals Other chemicals Petroleum refineries Petroleum and coal products Rubber products Plastic products Pottery Glass Cement Basic iron and steel Copper Metal products Non-electrical machinery Electrical ipachinery Transport equipment Professional and scientific equipment Other manufactures Total m anufacturing Energy/output ratios» 1977 1967 114.1 76.0 59.6 7.7 8.0 124.1 127.0 37.7 22.4 97.7 19.5 41.4 153.2 63.9 33.1 18.7 425.2 782.5 37.5 68.3 960.2 299.5 61.2 38.0 82.8 36.1 71.3 121.7 101.4 115.5 75.8 89.0 560.1 384.0 558.5 435.5 577.0 1016.0 497.2 590.9 153.3 144.0 69.4 79.6 79.1 234.0 38.9 69.6 66.9 46.9 74.7 71.9 37.4 21.9 110.6 m.6 134.8 153.5 1977/1967 1.032 0.784 0.953 1.023 1.683 0.875 2.129 0.417 0.564 1.840 1.821 3,206 0.620 0.436 1.708 1.139 1.174 1.459 0.780 1.761 1.188 0.940 1.146 2.957 1.791 1.425 0.962 0.585 1.139 Source; Calculated from the index of industrial production prepared by the Sociedad de Fomento Fabril; INE, IV Censo Nacional de Manufacturas (1967) and, with conections, INE, Industrias Manufactureras (1977). »Direct energy consumption in tons of coal equivalent per million 1967 escudos of gross production. creased mechanization could well result in in­ creased energy efficiency, and a negative cor­ relation could emerge between changes in mechanization and changes in energy output ratios. Change in employment (L) The employment variable used is the average number of employees in 1977 divided by the average number in 1967 excluding, in both cases, establishments with less than ten em­ ployees. Only five industries recorded an in­ crease in employment between 1967 and 1977; for .the manufacturing sector as a whole, em­ ployment in establishments with ten or more employees declined from 327 000 to 247 000 persons. In view of the drastic reduction in both labour union power and import tariffs in Chile after 1974, a fall in employment is likely to reflect, at least in part, efficiency gains and the removal of redundant labour. The data suggest, in fact, that change in the level of employment is not a good predictor of change in the level of production: the simple correlation between E N E R G Y D E M A N D IN C H ILEA N M ANUFACTURING /Larry Willmore employment changes (L) and output changes (Q) is only .27, which is not significantly dif­ ferent from zero at the 5% level in a one-tailed test, and the rank correlation (Kendall's tau) is 15, which is even less significant. For this pe­ riod in Chilean history, employment changes are thus likely to be a good proxy for efficiency changes. Increased efficiency implies de­ creased energy intensity in a period of increas­ ing energy prices, so a positive coefficient is expected for this variable. Survival o f establishm ents (N) Establishment survival is measured as the ratio of the number of establishments with ten or more employees in 1977 to the number with ten or more in 1967. The number of establish­ 135 ments fell sharply in all industries, with a re­ duction from 6 350 to 2 150 for the sector as a whole. It is possible that these figures exagger­ ate the mortality rate of manufacturing estab­ lishments, for 1967 was a complete census whereas 1977 was a survey which may under­ state the number of smaller plants. An addi­ tional 5 118 establishments employing be­ tween five and nine persons were registered by the 1967 census but there are no data on the number of establishments of this size category in 1977. The expected sign of the coefficient of the establishment survival variable is positive, on the assumption that a reduction in the number of firms in an industiy is likely to re­ flect industry rationalization and efficiency gains, including gains from the improved use of energy inputs. Ill Empirical results The simple correlation coefficients between produced the following result (t-statistics are in changes in energy intensity and each explana­ parentheses): tory variable are presented in table 4. All of the coefficients have the expected sign and all are In E = ,529 -.854 In Q -.469 In S + .693 In L statistically significant at customary levels of (-4.97) (-3.94) (3.41) confidence. R2 = .81 + .158 InN An ordinary least squares regression with (.87) all variables measured in natural logarithms Table 4 SIMPLE CORRELATION COEFFICIENTS: CHANGES IN ENERGY INTENSITY AND VARIOUS INDUSTRY CHARACTERISTICS, 1967-1977 Industry characteristics Change in output (Q) Substitution of electricity for other fuels (S) Change in employment (L) Survival of establishments (N) Correlation with changes in energy/output ratios Coefficient t-statistic ” .644? -4.29 -4.33 “ .64» 1.72 .319f> .397^ 2.21 Note: All variables are logarithms; the units of measurement are described earlier in the text. “Statistically significant at the ,01 level. ^Statistically significant at the .05 level. C E P A L R E V IE W No. 18 /D ecem ber 1982 136 All coefficients in this equation are significant at the .01 level with the exception of In N, The insignificance of In N is a product of collinearity between that variable and In L (r - .62). The significant correlation between the employment variable (L) and the establish­ ment survival variable (N) is not surprising, for the removal of redundant labour in an industry often occurs via, the removal or merger of inef­ ficient firms. When In L is dropped from the regression, the coefficient for In N increases and becomes highly significant: In E = .761 - .653 In Q ^ .494 In S + .563 In N (-3.37) (-3.46) (3.42), R2 = .71 Similarly, the size and significance of the coefficient of In L increases when In N is de­ leted from the equation: In E = .396 - ,889 In Q - .465 In S + .808 In L (-5.35) (-3.93) (5.29) R2 = .80 In all of the calculations up to this point, the conversion factor for electricity has been based on the amount of co^l required to pro­ duce electricity in thermal plants of average efficiency. If we follow the alternative pro­ cedure of converting electricity on the basis of its inherent thermal content, all energy/output ratios are lower and the coefficient of In S will increase, for substitution of electricity for other fuels will have, for strictly arithmetic reasons, a stronger negative effect on measured energy/ output ratios. The regression equation be­ comes: In E* - .548 - .757 In Q - .714 In S* + .698 In h (-4.19) (-9.0^) (3.15) + .153 InN R2- .88 (.77) where the asterisk (*) refers to the system of lower weights for electricity relative to other fuels. The absolute value of the coefficient of In S* is fifty per cent greater than that of In S, but the size and significance of the other regression coefficients are affected very little by this sub­ stantial change in the conversion factor for electricity. EN ER G Y DEMAND IN CHILEAN MANUFACTURING /Larry Willmore 137 IV Conclusion Estimates of real output changes in Chile are subject to wide margins of error as a result of the rapid price inflation experienced in that country, but it would appear that 14% would be a conservative estimate of the increase in the energy/output ratio for Chilean manufacturing between 1967 and 1977. This increase in the energy/output ratio for the sector as a whole is due almost entirely to changes in energy in­ tensity within each of the 28 three-digit in­ dustries rather than to changes in industry mix. Regression of variations in energy/output ratios on four independent variables shows clearly that decreased energy intensity of production is associated with increased output, a shift away from other fuels to electricity, a decrease in the amount of labour employed, and a reduc­ tion in the number of establishments in an in­ dustry, The significance of the last two vari­ ables is undoubtedly due to the industry ratio­ nalization that took place in Chile after 1974 as a result of a drastic reduction in both import tariffs and trade union power. Appendix C O E F F IC IE N T S USED TO CONVERT F U E L S INTO TONS O F COAL EQUIVALEN T Fuel Coefficient Electricity (1 0 0 0 KWH) Coal and coke F u el oil (tons) F u e l oil {cubic metres) D iesel oil (tons) D iesel oil (cubic metres) Gasoline (cubic metres) Kerosene (cubic metres) Liquefied petroleum gas (tons) Liquefied petroleum gas (cubic metres) Natural gas ( 1 000 cubic metres) Wood (tons) 0.6 1.0 1.5 1.4175 1.557 1.308 1.168 1.28 1.729 0.951 0.571 0.5 Source; Calculated from data in Comisión Nacional de Energía, Balance de Energía 1960-1978 (Santiago, Chile, 1980), Annex A, CEPAL REVIEW D ecem ber 1982 On the history and political economy of small-farmer policies David Dunham* This paper tries to show that the recent spate of small’farmer policies fit an identifiable historical pattern, and that they are concerned with restructur­ ing the ‘traditional’ agricultural sector (or a certain part of it) in order to achieve the necessary food production and political stability for accumulation to continue more or less unabated. In this respect, these policies are based on the old philosophy that a peasant with his small plot of land and his basic means of subsistence is likely in general to prove a conservative force, to serve the interests of the major capitalist groups, and to constitute an important ele­ ment in the foreign policy considerations of both the poor and the more advanced capitalist countries. This paper consists of three parts. Part I exam­ ines small-farmer policies in a historical perspective and seeks to show that these policies are by no means the new phenomena that they are sometimes sup­ posed to be, that their history has been intrinsically connected with the contradictions in particular soci­ eties, and that it rarely bears out the abstract concern that is placed in them. Part II deals with contempo­ rary policies and argues that, far from constituting a radical break with the past, ‘small-farmer’ policies have tended on the whole to be extremely conven­ tional, preoccupied not so much with the needs of the poor as with the needs of political stability and economic expansion of the capitalist sector. The final part attempts to draw the various threads to­ gether and to show how the interests of capitalist groups are strengthened by small-farmer pro­ grammes and their elaboration through conventional planning procedures. *Staff member of the Institute of Social Studies (ISS), The Hague. Netherlands, and consultant to the Latin American Institute for Economic and Social Planning (ILPES). This paper was originally drafted as part of a research assignment under the auspices of a joint programme between ILPES, Santiago, and die Institute of Social Studies of The Hague. Introduction Since Robert McNamara’s Nairobi speech in September 1973, concern with ‘small farmers’ and ‘the rural poor’ has become a standard component of the policy recommendations and research programmes of international develop­ ment institutions. Rural poverty suddenly ap­ peared a respectable topic, and an important one. With the sharp rise in world food prices in the early 1970s and the increased cost of im­ ported fertilizers in the wake of the petroleum price hike of 1973, the problem of food supplies and of feeding their populations was brought home to Third World countries in a forceful way. An yet, for all the familiar emotive inclina­ tions for prefering ‘family farms’ to say, ‘agri­ business’, the ‘small farmer’ was to prove to be an elusive analytical category. Writings of the World Bank and similar institutions set out as though it was self-evident what a ‘small farmer’ was. He (and quite clearly it was ‘he’ and not ‘he or she’) was abstracted from the agrarian context of real situations. There was little con­ cern with the historical context in which these people found themselves, or with the political environment in which these ‘small-farmer’ pol­ icies might (or might not) be applied. Just how much of an impediment ownership patterns, tenure arrangements and local power struc­ tures had proved to be in the implementation of ‘equity-oriented’ small-farmer policies was lost in the optimistic tone of the World Bank’s pre­ sentation. The small farm was labelled a target for development aid, but there was such a dif­ ference in the meaning of farm size from coun­ try to country (or from province to province) that it was very difficult in practice to come to terms with the abstract notion of aiding ‘the small producer’. This was one problem. A second, more fun­ damental problem that partly explained the stand that these institutions took was the para­ digm in the light of which their discussions were cast. This influenced their perception of the small farmer’s problem and of the kinds of behaviour patterns they considered to be rele­ vant; it shaped the way that they looked at the planning process, and the kind of rural com­ munity that they were likely to create. It was a paradigm with neo-classical (and neo-Malthu- 140 CEPAL REVIEW No. 18 /D ecem ber 1982 new théchnology and the capital to utilise it” and on “the need for new and improved service systems to support a modem system of agricul­ ture”.^ What was at stake was “the modernisa­ tion and monétarisation of rural society” and its rapid incorporation into the capitalist econo­ my.^ This being so, a pertinent question which immediately arises is how this ‘incorporation’ was to be carried out—^how small-farmer pol­ icies related to macro-strategies, what kinds of strategies they were in practice promoting, the nature of the planning process by which they were implemented, and the nature of the agrar­ ian society that they were likely to create. One of the sustaining theses of this paper is that small-farmer policies must be seen in their his­ torical context and analysed in relation to mac­ ropolicies and to the process of capital accumu­ lation taking place at a national and an interna­ tional level. It will be argued that it is this which determines to a large degree where and how far the ‘traditional’ small-farm sector re­ mains intact, where and in what ways it is strengthened of re-structured, and where it is replaced by larger units of agricultural produc­ tion. sian) overtones which, for all their references to structural change, placed its emphasis fairly and squarely on questions of efficiency as mea­ sured in terms of purely quantitative notions such as the amount of inputs used, the volume of credit and other financial resources that were made available, and the size of the farm.^ The problem facing these Third World countries (at least in the rural sphere) was seen as one of producing sufficient food to meet the needs of a rapidly increasing population. To achieve this, higher priority was to be given to small producers (defined as people working less than 2 hectares of land), organised on the basis of (nuclear) family units and oriented squarely towards sales for the market Given the very real limits on cultivable land (especial­ ly in Asia) and the lag in employment creation in other sectors, small-farmer production was, in this view, not only attractive but could well be efficient when measured in terms of criteria such as employment and output per unit of land.^ Seen in this light the issue became one of determining the correct blend of inputs and services to ensure a sustained increase in pro­ ductivity in the small-farm sector, and this was automatically considered to hinge on “access to I Discussion on small-farmer policies often over­ looks the fact that they have been present in thinking on agricultural and rural development at least since the Second World War, and in most parts of the Third World since long before that. The small-farm sector was an important element in the Russian debates of the 1920s and in the whole question of the co-operative movement in the 1930s; independence moveiBehind this lay the notion that an agrarian society in which everyone had a plot of land of more or less the same size would be ‘egalitarian’. Where land is the main factor of production this may be the case. But once access to capital and modern inputs becomes important, equal-sized plots are unlikely to ensure an egalitarian structure. Farm size was in this sense a quantitative notion. ^ h e underlying philosophy stretches back further, at least to the beginning of McNamara's presidency of the World Bank Group in 1968, if not before. See IBRD, World Bank Operations: sectoral projects and policies, Balti­ more, 1972. ments of Africa and Asia looked for much of their support to the peasant producer, and in Latin America the land reform programmes of liberal and, leftist parties contained similar concerns. It is true that they involved rather different notions as to the nature and potential role of the small-farm sector, but it is also unde­ niable that there exists a considerable body of evidence and historical experience in which it proved (in one sense or another) of strategic importance. It is worthwhile looking at this experience and asking ourselves what insights are to be gleaned from it that can help in interpreting the upsurge of small-farm policies in the last five to ten years. In doing so, it would seem particular^IBRD, The Assault on World Poverty, Baltimore, 1975, pp. 5 and 10. ^Ibid., p. 3. ON TH E H ISTORY AND POLITICAL ECONOMY OF SMALL-FARMER POLICIES /D m id Dunham 141 ly apt to try and analyse the role which small farmers have played (or have been expected to play) in different strategies of economic and political development. In this section an at­ tempt will be made to outline some of the main types of small-farmer policies that have been introduced in the non-socialist world and in Third World countries in the periods roughly before and after 1950. The choice of year is little more than one of convenience: more rele­ vant, perhaps, is that we will look at smallfarmer policies first in the context of what is labelled a ‘colonial export economy' and then of one that placed greater weight on industrial­ ization. large-scale commercial production had adverse effects on a great many village communities, depriving them of land and leading to the pro­ letarianization of the village poor.® Weaker pro­ ducers were pushed to more marginal lands, and more generally small farmers found them­ selves confronted with tenure structures, na­ tional policies and legal institutions which were heavily biased in favour of capitalist groups.^ This aspect of the colonial situation and of capitalist expansion in Latin America is now well documented and it is frequently cited. And yet, notwithstanding this point, the fact remains that even in the context of these export-oriented macrostrategies and of the rather 1. Small-farmer policies before 1950 conservative political regimes that tended to support them, small-farmer policies were con­ Prior to the 1939-1945 war (and even in the sidered, and were in some cases preferred and postwar period in many parts of the world), the majority of Third World countries could still be described as having a ‘colonial export' econ­ omy based on the export of primary products to nature, and the second, associated with agricultural sta­ was intented to show the ‘traditional’ farmer Europe and North America and on the import of tions, be achieved. Colonial governments failed to seewhat could pas­ metropolitan manufactures. Government pol­ ture and reserve lands as an essential part of existing pro­ icies for the expansion of these economies duction systems, especially in areas where shifting agricul­ ture nomadic placed their emphasis on infrastructural devel­ wereorconceivedherding were the rule. Agricultural stations demonstration centres, and they opment to facilitate the production and evacua­ more concernedaswith placing ‘native agriculture’ were on a tion of export commodities, to distribute im­ ‘scientific basis’ than with helping the peasant poducer in ported goods to different parts of the country, his own situation. of this see the R eport o f the Kandyan ®For and to meet the local manpower needs of an P easan tryevidenceission, Colombo, Sessional Paper No. Com m expanding economy. In some cases (not only in XVIII of 1951; K.J. Pelzer, “The Agrarian Conflict in East Sumatra”, A ffairs, Ju e 1957; Latin America but also, for example, India) in­ ian Unrest Pinacific theast Asia,nLondon,Erich Jacoby, Agrar­ 1961; George Beckdustry was already a substantial sector of the ford, P ersistenStou Poverty, London, 1972; Peter Klaren, For­ economy. However, such countries were still m a ció n d e tas h a cien d es azu careros y orígenes d el APRA, 1976, very much an exception, and the prevailing Lima,Amongchapter 3; Frank Mills,in"ProductionS Relation­ ships Small-Scale Fanners St. Kitts”, ocial and ideology was bound up with the colonial con­ E co n o m ic Studies, Vol. 25, No. 2, 1976, p. 154; David cept of export-led growth. Dunham, “Land, Plantations and Peasants in Sri Lankan And yet, even in this context, serious con­ Development: the period prior to 1900”, Institute of Social Hague, 1980. cern with small-fiirmer production often existed. Studies, 'The very clear in the case of what is often called "^This is It was a concern that was sometimes short-lived, ‘the planter raj’. See Carl Stone, “Political Aspects of PostJamaica Social and at times very much of secondary impor­ War EAgricultural Policies in23, No. 2, 1945-1970”,George a n d con om ic Studies, Vol. June 1974; tance. After all, almost nothing was known of Beckford, “The Dynamics of Growth and the Nature of the structure and needs of ‘traditional agricul­ Metropolitan Plantation Enterprise”, S ocial a n d E conom ic 19, December 1970, ture'; it was rarely the subject of continuous S tu dies, Vol. cit., No. 4, Similar biases are pp. 456 f; and Dunham, op. 1980. well technical research, and the efforts that were Brazil; see Celso Furtado, The E con om ic G row th noted for o f Brazil, made to improve (or rather to change) it, were Berkeley, 1963, and Martin Katzman, “The Brazilian Fron­ in in general crude.® The enclosure of land for tier in Comparative Perspective”, C om parative Studiesthe S ociety a n d H istory, Vol. 17, No. 3, 1975. See also ®The research that was carried out was basically of two kinds. The first was anthropological or ethnographical in extensive literature on white settlement in the United States, Canada and Australia. On the latter see Rosa Lu­ xemburg, T he A ccum ulation o f C apital, translated by A. Schwaizschild, London, 1951, chapter 29. CEPAL REVIEW No. 18 /D ecem ber 1982 142 even firmly promoted. Some derived from a strong philanthropic dimension,® but more gen­ erally it would seem to have been the case that they were promoted because they were instru­ mental in export production or because they were dissociated with situations of crisis for the governments concerned. Basically there were two types of policies involved. The first were designed primarily to strengthen and maintain the existing economic system; they were con­ cerned with the increased production of export crops and with the production of staple foods for non-food producers. The second, which were a response to demands for change, were largely associated with the hoary question of land and land tenure reform. In many cases these motives overlapped; nevertheless, they will be considered separately for analytical purposes in order to explore the logic that lay behind them and the nature of the political context in which they emerged. (a) The role o f small farm ers in export production The first of these situations was one in which export production could be more ef­ ficiently, or at least (for the capitalists) more safely carried out by small farmers selling to large-scale (usually foreign) commercial firms or to independent centrally-located processing mills.® ®See for example Robert Chambers, Settlement Schemes in Tropical Africa, London, 1969, Part I. ®This picture of the small farmer in export expansion has to be treated rather carefully, since it is often debatable as to how far it can really be characterized as a ‘smallfarmer’ system. Since the 1920s the idea of frontiers as “wild unsettled places where resources are free, rules do not apply, and where at the cost of personal hardship and danger an individual can better himself by his own efforts” has been a recurring theme of western romance and his­ toriography. Even in the period of white settlement (of the American West) this was simply not true. In the United States rail companies were granted land and allocated it to pioneer farmers on a massive scale, while in Canada the North-West Land and Hudson Bay Companies controlled over half of the land that there was to be settled. Similarly, the Australian frontier was not a frontier opened up by small prospectors and family farmers, but by capitalist ranchers with numerous flocks of sheep and dependent wage labour. They were actively supported by large land companies and banks. See Rosa Luxemburg, op. cit., and Brian Fitzpatrick, “The Big Man's Frontier and Australian Farming”, Agricultural History, Vol. 21,1947. The image Though it is difficult to generalize about the circumstances under which a system of this kind began to emerge, it seems fair to say that during this early period it was particularly viable where one or more of the following cri­ teria applied: (i) in areas where for certain his­ torical or climatic reasons white settlement was difficult; (ii) for those crops which did not re­ quire high capital outlays to reach acceptable production levels (or where they offered com­ paratively little advantage); (iii) where cultiva­ tion could be carried out for most if not all of the year with family labour; and (iv) where limited outlets and the risk of deterioration and loss in the marketing process kept the producer very dependent upon his buyers. Where small farm­ ers could be controlled through credit and through marketing arrangements and offered the buyer a regular supply of a uniform and fairly high-quality product, it was generally in the interests of major capitalist groups to leave small farmers with the responsibility for pro­ duction, and with it much of the risks. Two particular cases stand out as classic examples of small-farmer production of export crops during this period, namely, those of Ghanaian cocoa and of the rice-exporting coun­ tries of Eastern Asia, Although these cases dif­ fered in a number of important respects, they were all promoted by colonial interests (except in the case of Thailand) and were tightly con­ trolled through tenure arrangements, market­ ing structures and the politital system. In the case of Ghana, cocoa was produced on both privately-owned and on lineage lands, on small farms of one or two hectares or even less, run by the family with the help of migrant labour from further north. Until 1945, and in a somewhat revised form until very much later than that, a cartel of some thirteen European companies (the so-called “Pool Firms”) had tight control of Ghana’s (then the Gold Coast’s) international trade.^® They bought the crop diof the ‘pioneer’ former which underlines much of our thinking on ‘colonization’ is in fact very largely a construc­ ted one; it is a myth, a product of western ideology and of western romance. i®In 1938 these 13 firms controlled some 93% of all the cocoa bought in Ghana; this was heavily concentrated in 4 or 5 firms, the principal of which was the United Africa Company (a subsidiary of Lever Brothers). See the Report ON T H E HISTORY AND PO U TIC A L ECONOMY O F SMALL-FARMER P O U C IE S /D avid Dunham reedy from the small producers through their own network of brokers and petty buyers, with liberal use of cash advances to secure their sup­ plies.O n ce this organization had been estab­ lished it was difficult to change it, nor was there any demand for change in the production sys­ tem. The second case was that of the rice-ex­ porting countries of Eastern Asia, namely Burma, Thailand, Indo-China and Taiwan. Though all were examples of small-farmer rice production, there were also variations amongst them. On the one hand were countries such as Burma, where migrant labour and an abundant supply of thinly-populated land made possible the extension of ‘traditional’ production meth­ ods under the stimulation and control of for­ eign traders. On the other hand were areas such as Taiwan, where land was more or less fully occupied from the beginning of this ex­ port expansion and where the growing impor­ tance of rice produced by small farmers as an export commodity was associated with the in­ troduction of new varieties under colonial rule. In the Burmese case high prices resulting from European demand sparked off heavy mi­ gration to frontier areas. This was accompanied by a proliferation of traders and moneylenders providing the credit needed for the massive extension of rice production, while European merchants dominated milling and monopo­ lized the exports to Europe.^^ There was a sharp decline in prices after the 1914-1918 war; o f the Commission o f Enquiry into theWest African Cocoa Industry (the Nowell Commission), H.M.S.O., London, 143 mortgaged land was lost as a result of foreclo­ sures, and there was a gradual concentration of paddy land in the hands of the by-then-established landlord class. In this sense the case of the Burma delta followed an almost classic path of capitalist development. The example of Taiwan under Japanese occupation was very different. The export of rice for the Japanese market was underway by the middle of the 1920s and it was associated with the introduction of a new v a r i e t y . The average size of farm was about 2 hectares, and colonial policy rested heavily on the small-farm sector. However, a large proportion of the pro­ ducers were either sharecroppers or tenant farmers, and the Japanese worked almost entire­ ly through the landlord class. Small producers marketed their rice via their landlords (many of whom were also in practice millers) and export was solely in the hands of Japanese firms. Comparable cases of small-farmer involve­ ment in export production can be found in many other parts of the world, reflecting similar patterns of differentiation and of control. In Colombia the average size of the coffee farm was still small during this period. In 1950 it was just over three hectares; over a third of all the coffee farms in Colombia (36%) were of less than one hectare, and the industry was con­ trolled by some five export houses.*'* In Sao Paulo coffee lands were given to colonos and to small farmers working on a sharecropping basis. Under this system the owner not only supplied the land, but dictated how the land was to be used, the system of cultivation that was to be followed, and the types of manage­ ment practices that were to be applied.*® 1938, the early cocoa development see Polly Hill, The Migrant Cocoa Farmers o f Southern Ghana, Cambridge, 1963. Her thesis was essentially that cocoa production was from the very beginning a form of incipient capitalism. On the organization and control of trade see David Dunham, Group Interests and Spatial Structures: A Study o f Re­ gional Development in Southern Ghana, University of Amsterdam, 1977. See Michael Adas, The Burma Delta: Economic De­ velopment and Social Change on an Asian Rice Frontier, 1852-1941, Madison, 1974; and Hla Myint, The Economics o f Developing Countries, (4th edition), London, 1973. To give an impression of the scale of this transformation, the population of Lower Burma increased from 2.6 million in 1871-1872 to 4.1 million in 1900, while the area cropped rose from 0.4 million hectares to 3.5 million hectares over the same period. i^See S.C, Hsieh and T.H. Lee, Agricultural Devel­ opment and its Contribution to Economic Growth in Taiwan, JCRR, Taipei, 1966; S.M. Yeh, Rice Marketing in Taiwan, JCRR, Taipei, 1955, and Taiwan Agricultural Statistics J90J-J965, JCRR, Taipei, 1966. *^United Nations/FAO, Coffee in Latin America: Pro­ ductivity, Problems and Future Prospects, Vol. 1, New York, 1 9 ^ , p. 27; J.W.F. Rowe, The World’s Coffee, Lon­ don, 1963, p. 64, and Absalon Machado, El café: de la aparcería al capitalismo, Bogotá, 1977. *®United Nations/FAO, Cojfjfee ín Latin America..., op. cit, 1958, Vol. II, p. 89, and Thomas Holloway, "The Coffee Colono of Sao Paulo, Brazil; Migration and Mobil­ ity, 1880-1930”, in KenneÓi Duncan and Ian Rutledge (eds.). Land and Labour in Latin America, London, 1977. 144 In the West Indies banana and sugar pro­ duction had a significant small-farmer sector.^® To this list could be added Fijian sugar after 1920, oil-palm and cocoa in Nigeria, coffee in French West Africa^ West African groundnuts, and East African cotton. There were also many cases where small farmers played a role in ‘outgrower’ production, producing for sale to the neighbouring plantation factory or to a process­ ing mill}^ In short, there is no dearth of evidence to show that the role of small producers in export production was far from insignificant during this period. What is more, replacing them with large producers was not an issue so much as establishing tighter control over their produc­ tion and finding ways of raising the quality and yield of their crop through the introduction of better cultivation practices and management methods and, more generally of acquiring a cheaper product. Priority was clearly assigned to export growth, rather than to the welfare and development os small producers. Many of these people did benefit and were amongst the most prosperous small producers in the country concerned, but this they could only achieve at a certain cost, the principal features of which in­ cluded the nature of their existing tenure ar­ rangements, their vulnerability to changes in prices on external markets, and their depen­ dence on those who controlled the access to these markets and those who controlled the processing needed before export. Small farmers were part and parcel of the process of capitalist expansion. Within the l^For example over three-quarters of all banana grow­ ers in Jamaica, Dominica, St. Lucia, St, Vincent and Gre­ nada operated farms of less than 2 hectares in the early 1950s, Furthermore, the vast majority of these specialized in export production and were tightly controlled by ex­ porting firms. See Dennis McFarlane, “The Future of the Banana Industry in the West Indies”, Social and Economic Studies, Vol. 13, No. 1, 1964, p. 70. On the sugar industry see George Abbott, “The West Indies Sugar Industry with some Long-Term Projects of Supply”, Social and Eco­ nomic Studies, Vol. 13, No. 1, 1964; and Ramiro Guerra y Sánchez, Sugar and Society in the Caribbean; an Econom­ ic History o f Cuban Agriculture, first published 1927, English translation. New Haven, 1964. ^"^See George Beckford, “The Growth of Major Trop­ ical Export-Grop Industries”. Social and Economic Studies, Vol. 13, No. 4, 1964; P.P. Courtenay, Plantation Agriculture, London, 1965, chapter 4; and on French West Afnca, Jean Suret Canale, LAfrique Noire, Paris, 1962. CEPAL REVIEW No. 18 /D ecem b er 1982 parameters set by the export model {and the institutional structures that carried it out), they also acquired certain new opportunities and their success encouraged others to export pro­ duction. The small-farm sector developed its own dynamics of accumulation and social dif­ ferentiation, with betterment for some (often for many), but indebtedness, loss of land and impoverishment for a great many more. As the number of producers increased prices often fell; farmers were left heavily dependent on ‘modem’ inputs, on cash incomes to buy their foodstuffs, inputs and other ‘necessities’ and to pay their tax. The important point, however, was that the possibilities for small farmers to improve their position ultimately depended on continued interest in these crops on the part of richer capitalist groups, on the fortunes of these crops in international markets, and on the ways in which those who were in a position to control this trade used small-farmer production to meet their own ends. (b) Smallfarmers in domestic fo od production The second situation in which small-farmer policies were introduced in order to maintain the prevailing economic system was one char­ acterized by serious and often persistent short­ ages of food, where the Government was faced with a reduction in foreign supplies or the prospect of a rapidly mounting import bill be­ cause of a shortfall in domestic supplies of the staple diet. In an agricultural export economy priority was given to export production, at the expense of domestic food production. This sit­ uation was generally characterized by a stmctural imbalance which was exposed at times when export values decreased and costly im­ ports of food began to prove an embarrassment, or when the power of agrarian capitalists began to decline and they were challenged by urban groups and by the votes and demands of pro­ ducers outside the export sector. In some cases both ofthese trends occurred simultaneously. By the 1920s and 1930s many such econ­ omies suddenly found themselves vulnerable; a large proportion of their population was in the ‘traditional’ sector, unemployment was high, and with significant improvements in health conditions in the rural areas pressure on the ON TH E HISTORY AND POUTICAL ECONOMY OF SMALL-FARMER POUCIES /D m id Dunham little good cultivable land available to the ma­ jority of small village producers began to in­ crease. By the 1950s the import bill for food­ stuffs was often considerable: Brazil was im­ porting almost a million tons of wheat and wheat flour each year, and Cuba, Trinidad and Tobago, Sri Lanka, Malaysia, Indonesia, the Philippines and many more countries were highly dependent on external supplies of their basic foods.*® In this context colonization and small-farmer food production became a topic of concern to policy-makers as a means of keeping these export economies viable systems. A good illustration of this is the case of Sri Lanka during and immediately after the two world wars. The experience of the 1914-1918 war, for example, and its immediate aftermath made the Government acutely aware of the ex­ tent of the Colony's dependence on imported rice. Over 60% of supplies came from foreign sources, and when these were cut off the struc­ tural imbalance built into the export economy was such that there was a shortage of crisis proportions.^^ Import purchasing power was reduced by the slump in the estate sector after the war, and there was a constant threat of India imposing export duties on rice in order to try and resolve its own food situation. The result was a drive for self-sufficiency in rice produc­ tion and growing concern for the problems of the small producer.^ A similar situation ocurred in Jamaica in the late 1930s. The country was confronted with shortages of food which continued during the war, and with the economic decline of the dominant planter class there was a marked shift in priorities towards small-farmer food produc­ Yearbook o f Food and Agricultural Statistics, Vol. IV, No. 2 (Trade Statistics), Rome, 1950, pp. 9f. ^^There was a very definite political dimension in this in that the Sri Lankans had a majority (albeit a divided majority) on the Legislative Council by 1921, and these people saw the peasant producer as a potential constituent. This point will be taken up later. On the structural imbal­ ance of such an economy see Gamani Corea, The Instabili­ ty o f an Export Economy, Colombo, Marga Institute, 1975. 20On this see Ben Farmer, Pioneer Peasant Colonisation in Ceylon, London, 1957, and David Dunham, Govern­ ment Policy Towards Peasants and Towards Colonisation: Sri Lanka prior to J931, The Hague, Institute of Social Studies, 1980. 145 tion in the context of considerably expanded land settlement schemes.^* In Ghana there was mounting concern with food production in the wake of the ‘urban disturbance’ of the post-war years,while else­ where in Africa there was a paternalistic con­ cern with ‘conservation’ and ‘improved prac­ tices’ to combat the threat of famine in peripherahareas.^ The list could be extended, but the point that stands out is that in general the em­ phasis on export crops had been taken too far, exposing the fragility of the domestic food sit­ uation —a fact which very quickly came to the surface when the system was threatened, as it was during the depression years of the 1930s and in the course of the 1939-1945 war. In this period the power of the ‘colonial’ export class was beginning to weaken; the economic sys­ tem of many of the colonies could no longer be maintained without a shift towards increased food production, and in many cases this led to a greater concern for peasant production'. (c) Politics and the demand fo r land and land tenure reform The third case, interrelated in many ways with both of the earlier ones, centered around the thorny question of land and land tenure reform. The concern with the peasantry and with food production invariably touched upon the avail­ ability of land and upon the question of land ownership and of private property. Export pro­ duction and other forms of large-scale commer­ cial agriculture had in many areas pre-empted the possibility of peasant expansion. The effect 2tSee C. Stone, op. cit., 1974, and Ken Post, Arise Ye Starvelings, The Hague, 1979. ^^See the Report o f the Enquiry into Disturbances in the Gold Coast, London, H.M.S.O., 1948. ^Robert Chambers, Settlement Schemes..., op. cit., 1969, p. 22. In 1954 the Belgian Government for example, reflected precisely this when they prefaced their remarks on a U .N. questionnaire by saying “in the Congo we have to deal with a primitive rural society which is profoundly apathetic, fatalistic and attached to its ancestral traditions” and went on to argue this as a justification for “native agricutural settlement” (“paysannat indigène"). See UN/ FAO/ILO, Progress in Land Reform; Analysis o f Replies by Governments to a United Nations Questionnaire, New York, 1954, p. 108. 146 was not always a direct one. At times the dif­ ferent forms of production did not compete, as plantations were located in the upland areas and paddy rice was concentrated in valley bot­ toms.^ And even where they did the implica­ tions were not always immediately apparent. In was often only later, with health improve­ ments, population growth and increased social differentiation, that the pressure on available land began to increase and there was a growing demand for some measure of redistribution. In Asia the highly skewed pattern of land ownership had long been recognized. There were clashes between landlords and tenants and between estates and villagers, often be­ cause peasant farms (or the income left to a family after payment o f‘rents*) had simply be­ come too small to enable families to live. In the Philippines tlie proportion of landless farmers was “astonishingly high” in the 1930s, and there were frequent disputes.^ In Sri Lanka tenant farmers in the wet zone of the country were oppressed by tenure arrangements and by the activities of headmen employed for the administration of local affairs.^ Much the same could have been said for rural Java, where there was concern for “the problem of overcrowd­ ing” and where inequalities in ownership and in access to land had long been recorded.^'?^ In much of Latin America and the Carib­ bean the situation was also similar. Physical displacement was a prominent feature of com­ mercial expansion; the indigenous population (in Bolivia, Ecuador and Peru especially, but also elsewhere) were forced to the altiplano and to remoter parts of the country (as in Co­ lombia) where they endeavoured to farm the marginal soils and the limited lands which 24In many areas there was a distinct and definite segre­ gation, implying different ecological requirements and dif­ ferent access conditions. 25J.R. Hayden, The Philippines: A Study in National Development, New York, 1942, p. 380. On this see also K.J. Pelzer, Pioneer Settlement in Tropical Asia, New York, 1948. 26See the Report o f the Commission on the Headman System, Sessional Paper No. II of 1922, and its successor No. XXVÏI of 1935. For an impression of the way caste operated see Barrie Morrison, M.P. Moore and M.U. Ishak Lebbe (eds.), The Disintegrating Village, Colombo, 197^. 27K.J. Pelzer, Pioneer Settlement, op. cit., 1948, chap­ ter IX. December 1982 CEPAL REVIEW No. 18 / were left to them.^ The most urgent demands in the 1930s and 1940s came, however, from the densely populated rural areas, from the minifundistas tightly controlled by tenancy struc­ tures and confined to areas where there was simply not enough land to afford them subsis­ tence.^® Many could claim no more than a “squatter* status and were living under constant threat of summary eviction. Others had been squeezed onto the hillsides where soils were often poor and easily eroded. There was in­ creasing fragmentation of the land available, and a growing problem of landlessness, pover­ ty and unemployment.^ In most of these cases the basic problem was not simply one of unequal land ownership and tenure arrangements, but one of power; of the economic, social and political hold of the landowning class. Small farmers were faced with a series of pressures and institutions which, while they were sometimes (though by no means always) paternalistic in nature, pro­ vided them with little scope for social mobility and conceded them very low incomes and very few rights.^^ In a situation of mounting discon­ tent, with landowners organized into rightwing parties influencing government and ad­ ministration, the social climate was often one of increasing repression. The need for land re­ form was portrayed (and in time perceived) as ‘an explosive force*.^^ In Africa the relative abundance of uncul­ tivated and reasonably fertile land meant that in general there were fewer strains of this kind, 28UN/FAO/ILO, Progress in Land Reform: Third Report, New York, 1962, p. 2; Solon Barraclough and Juan Collater (eds,), Agrarian Structure in Latin America, To­ ronto and London, 1973; and Henri Favre, “The Dynamics of Indian Peasant Society and Migration to Coastal Planta­ tions in Central Peru”, in Duncan and Rutledge (eds,), in Land and Labour..., op, cit., 1977. 29See United Nations, Report on the World Social Sif«aiiop, New York, 1963, pp. 131-133. sointer-American Committee on Agricultural Devel­ opment (CIDA), Tenencia de la tierra y reforma agraria en América Latina, OAS, Washington, D.C., 1971; see also Orlando Fals Borda, El hombre y la tierra en Boyacá: desarrollo histórico de una sociedad minifundista, Bogotá, 1957. 3iSee on this CIDA, Tenencia de la tierra..,, op. cit., 1971. 32Thomas Carrol, “Land Reform as an Explosive Force”, in J.J. Tepaske and S.N. Fisher (eds.), Explosive Forces in iMtin America, Colombia, 1964, p. 89. David Dunham ON TH E H ISTORY AND POLITICAL ECONOMY OF SMALL-FARMER P O U C IE S / with some exceptions. In Zimbabwe (Southern Rhodesia), Kenya and Southern Africa Euro­ pean settlement seriously reduced the good land available to African people. Exacerbating or creating ‘population problems' in the re­ maining areas, it also led to a political situation in which African expansion was seen as a threat to European security.^ In Kenya the situation was considered to be particularly threatening, culminating in the Emergency of the 1950s, when the Kakuyus rebelled. And yet, at least until the early 1950s, there were very few statistical surveys on which to base any serious analysis of land distribution. In many countries the prevailing pattern was only too clear, but in general the information available was ‘spotty and conjectural’.^ It was very difficult to say whether (or how far) the problems that came to light in particular cases were representative of the national picture or not. The whole question of land and land ten­ ure reform and of colonization (or transmigra­ tion) was therefore largely a political response to social contradictions and pressures for change. The latter in practice took on various forms. In colonial areas land policy had proved an angry issue by the turn of the century. In India Gandhi was fighting to improve the lot of impoverished villagers as early as the 19141918 war; the abolition of landlordism was part of the socialist programme of M.N. Roy (to align the National Congress with “exploited workers and peasants”), and the Congress supported small-farmer interest at the All-India level.^ In the Caribbean, estate land was very much a political issue, and by 1950 the sugar industry lived in an atmosphere of mounting hostility, of 33R. Chambers, Settlements Schemes..., op. cit., 1969, chapter 2. The European response to the mounting land problems was one with overtones of “confining and control­ ling Afirican formers in their own areas” (p. 25). 3^See UN/FAO/ILO, Progress in Land Reform, New York, 1954; and Richard Schaedel, “Land Reform Studies”, Latin American Research Review, Vol 1, No. 1,1965, p. 75. ^®For a summary of the material available see Sipko de Boer, Peasant Movements in India during the Twentieth Century,. The Hague, Institute of Social Studies, 1973; Gene Overstreet and Marshall Windmiller, Communism in India, Berkeley, 1959; and Myron Weiner, The Politics o f Scarcity, Public Pressure and Political Response in India, Chicago, 1962. 147 strikes, riots, labour disputes and the burning of cane. Throughout the colonial world, this op­ position concern with the needs of village pro­ ducers was never far from the fight against im­ perialist rule, and in this respect it was used as a plank in a broader campaign.^^ With the gradual move to elected representation and the increas­ ing politicisation of rural areas in the wake of improvements in transportation and literacy levels, the ownership of land and the lot of the rural poor were skillfully used by nationalist leaders to rally support and to hit out at the bias inherent in colonial rule.^ The situation in Latin America was not very different. In some areas there was not only discontent, there were campesino uprisings, mass meetings in rural towns, determined and armed invasions of large estates, and mounting support for the small farmers’ cause amongst urban groups. These events were to create a widespread feeling of apprehension and of in­ security, alarming not only the traditional land­ owning class, but a wider range of national pol­ iticians, businessmen and others as well. In many cases the social tensions that were being generated were of such proportions that they were not so easily controlled and could not be ignored. Nor were these governments in­ variably so insensitive to the impoverishment of village communities trying to feed their fam­ ilies on minute parcels of land, or with no land at all. With the heightening of the depression and the increasing population growth of the post-war era, they were above all aware of the potential political threat posed by uncontrolled situations of deprivation and exploitation. As a 36See W. Arthur Lewis, Issues in Land Settlement Policy, Report to the Caribbean Commission West Indian Conference, 1950. 37Whether the main target should be colonialism or capitalism was very often a topic of considerable debate (especially in India), but in neither case were problems of the small producer per se of central concern. 33R also served in some cases (for example Sri Lanka) to distract attention from the fact that the nationalist leaders came from landowning families. See David Dunham, “Pol­ itics and Land Settlement Schemes; the Case of Sri Lanka”, forthcoming in Development and Change. 39See Rodolfo Stavenhagen (ed.). Agrarian Problems and Peasant Movements in Latin America (New York, 1970), which provides material on specific cases. 148 result, various ‘small-farmer' policies began to emerge. These policies were basically of four main kinds. Firstly, there was the increasing impor­ tance of government-sponsored colonization schemes, especially in Asia.^** Depression led to retrenchment in the plantation sector. In In­ donesia it seemed quite unlikely that the plan­ tations would ever employ the same numbers again; pressure on land in Java had reached dangerous proportions, and the Government turned to large-scale colonization of the Outer Islands by way of response,^^ In the Philip­ pines the ‘opening up' of the island of Min­ danao began during this period, while in Sri Lanka the Land Development Ordinance of 1935 paved the way for a series of settlement sc h e m e sIn Latin America ‘spontaneous col­ onization' was permitted for rather similar reasons, while settlement schemes in Kenya and Zimbabwe were introduced in an attempt to defuse a potentially dangerous situation.^^ The second response was to ‘reserve' lands for the use of the local population. Policies of this kind were generally presented as a means of ‘protecting' the needs of local communities against the incursions of speculators, money­ lenders or the plantation system, preserving the possibility of village expansion (or subsis­ tence production) as their population grew. Examples of this were the ‘mapping out' and protection of lands for villagers’ use in the Wet Zone of Sri Lanka, the creation of Malay reser­ vations in Malaysia, and the setting aside of lands for ‘indigenous occupation' in South Afri­ ca, Kenya and Zambia (then Northern Rhode­ sia). ^^Earlier African projects were more concerned with clearing the land for European settlement or with moving people from unhealthy areas (notably areas of sleeping sickness). These involved a very different context from that described here. ^^Large-scale colonization took place principally be­ tween 1932 and 1941. See K.J. Pelzer, Pioneer Seifiement..., op. cit., 1948, p. 228. 42 See K.J. Pelzer, ibid., and B. Farmer, Pioneer Peasant Colonisation..., op. cit., 1957. 43This was particularly true of the areas of irrigated settlement. See R. Chambers, Settlement Schemes..., op. cit., 1969, and on Latin America, CIDA, Tenencia..., op. cit., 1971. "^Report o f the Land Commission,,., op. dt., 1929; Erich Jacoby, “The Problems of Vulnerable Communities December 1982 CEPAL REVIEW No. 18 / Thirdly, legislation was introduced to reg­ ulate tenancy arrangements and sales of land and fourthly, land redistribution policies were implemented. The legislation aimed at land tenure reform, for example, was far more fre­ quent and far more prolific during this period than is sometimes realized. The Philippines had a particularly long history of agrarian legis­ lation, reflecting the violence taking place in the countryside,^® The Land Tenure Act passed in Colombia in 1936 had a similar history, while in India there were a series of tenure laws passed by the various states,^ When it came to redistribution of land there were far fewer examples. The Mexican revolution was the clearest case, though Bolivia undertook se­ rious reforms in 1952, as had Guatemala in 1944, only to see them overthrown in counter­ revolution a decade later.^’^ The important point here was that sweep­ ing measures for the redistribution of land only occurred in the wake of radical political change at the national level; in most societies landowners were amongst the principal powerholders, and there was little chance of them will­ ingly sanctioning policies that were likely to undermine their own power position. Conces­ sions had to be made in many respects, but the outcome was frequently different from what was proclaimed. The legislation that was passed was frequently thwarted by obstruc­ tionist tactics and by the influence of powerful landed groups during implementation. Coloni­ zation schemes were fraught with difficulties; it was not necessarily the case that the land went to those in need, and projects generally involved a considerable degree of control over in Land Policies”, in FAO, Documentation Prepared for the Center on Land Problems in Asia and the Far East, Rome 1955, pp. 61f; United Nations, Land Reform: Defects in Agrarian Structure as a Bottleneck to Economic Devel­ opment, New York, 1951, p. 33. 45K.J. Pelzer, Pioneer Settlement,.., op. cit., 1948, chapter IV. 4® United Nations, Progress in Land Reform: Second Report, New York, 1956, p. 10; and United Nations, Land Reform: Defects..., op, cit,, 1951. Similar legislation can be found in the case of Burma (the Tenancy Act of 1938 and the Land Alienation Act of 1940) and in the Middle East. 47See R. Stavenhagen (ed.), Agrarian Problems..., op. cit., 1970, and S. Barraclough and J. Collarte (eds.). Agrar­ ian Structure..., op. cit., 1973. David Dunham ON T H E HISTORY AND PO U TIC A L ECONOMY O F SMALL-FARMER P O U C IE S / both the production and social life of the indi­ vidual settler.'** Finally, when the land was ‘mapped out’ in the form of ‘reserves’, in the absence of other institutional changes it was concentrated in the hands of the ‘well-to-do’*® In other cases is served to ‘protect’ the interests of European groups or to ensure a supply of labour for the mines and European estates.“®It was by no means the case that ‘small-farmer’ policies were based on a preoccupation and concern with ‘the needs of the poor’. The twenty years immediately prior to 1950 were marked by severe resentment of the inequalities that existed in access to land and to other opportunities and of paternalistic and generally repressive political regimes promot­ ing the very structures that had heightened this inequality. The pressures were such that many governments were forced to adjust their posi­ tion, and the result was often a stream of‘smallfarmer’ policies. The introduction of laws and distributive measures served (often very effectively) to give the impression that the government recognized and was tackling agrarian issues, but in practice the problems involved in ensuring effective enforcement were well beyond the technical capacity and inclination of governments and of the courts. Some laws could be supervised with a degree of success, but in many more cases measures were only approved at the national level on the tacit agreement that they would rarely, if ever, be rigorously enforced.“* Once laws were passed, no matter how ineffective they were to prove in the course of time, they made the logic of further action that much more difficult. The underlying objective was revolution; to bring an end to foreign land ownership or destroy latifundismo rather than give rise to a concrete view of an alternative “ iSSee B. Farmer,Pioneer Peasant..., op. cit., 1959, and K J. Pelzer, Pioneer Settlement..., op. cit., 1948. 49See Kew Tan, The Land and the Agricultural Or­ ganisation o f Peninsular Malaya: A Historical Interpreta­ tion, Centre for Development Studies, Swansea, 1981, and D. Dunham, The Politics..., op. cit., 1982. SOR. Chambers, Settlement Schemes..., op. cit., 1969, and United Nations, LandRe/orm; Defects..., op. cit., 1951. this see Solon Barraclough and Arthur Domike, “Agrarian Structure in Seven Latin American Countries”, in R. Stavenhagen (ed.). Agrarian Structure..., op. cit, 1970,pp.41f. 149 society. It was essentially a pressure for change in the economic and political structure, and this could not be obtained through legislative re­ form, Only with the overthrow of colonial rule would small farmers be seen in a different light; nationalist leaders attentive to old in­ equalities and often struggling to establish ef­ fective control voiced a greater concern for ‘their countrymen’ and for ‘nation-building’. It was in this ‘independence’ era from the 1950s that the new States and those in Latin America began to develop a different economic model in which the priorities attached to the smallfarm sector were (if not always higher) at least different. 2. The situation a fter 1950 After 1950 many of the same contradictions continued, but they did so in a different polit­ ical climate and in the context of a rather dif­ ferent economic model. Thinking on economic policy was influenced by the situation of newly independent States of Africa, Asia and the Ca­ ribbean and by theories derived in the Eco­ nomic Commission for Latin America. In both cases the image was one of ‘underdeveloped countries’ struggling to adjust their economic and political ties with advanced capitalist na­ tions. Industrialization was seen as the basis for ‘real’ development, and the main body of ortho­ dox thinking on development strategies in­ creasingly emphasized large-scale (capital-in­ tensive) infrastructural investment and indus­ trialization. By the 1950s this was the basic model for economic growth.““ On the other hand, few countries were actually in a position to undertake a major pro­ gramme of industrialization. In Latin America there had already been serious efforts. In Africa new States were striving to develop a rudimenS^See Thomas Carrol, “The Land Reform Issue in Latin America’*, in Albert Hirschman (ed.), Latin American Issues, New York, 1961, 53There were also other arguments behind this line. No country had become rich or succeeded in achieving a significant improvement in standards of living without having industrialized. Industrialization was therefore rath­ er easily related to the idea of‘development’. In other cases (such as Argentina and Brazil) the military was press­ ing for industrialization to sustain the country’s military power and independence. December 1982 150 CEPAL REVIEW No. 18 / tary industrial base or else were pursuing so­ cialist experiments in an effort to make a clean break with their colonial past, but in neither case was there industrialization in a mean­ ingful sense outside South Africa. In Asia, Tai­ wan had undergone some industrialization un­ der Japanese rule to serve the needs of the Imperial war effort; Korea was beginning, but elsewhere war and the vicissitudes of national leaders made this a far less plausible proposi­ tion. It was only in India, and to a lesser extent Pakistan, that industrialization could be said to have become a major policy line. The finances needed to pay for industrial­ ization, and more especially to pay for im­ ported capital goods, basically had to come from three main sources: from external loans and investments by foreign capitalists; from in­ dustry itself; or from the export sector. With a few notable exceptions (such as Bolivia, Chile, Venezuela, Suriname and South Africa), it was the foreign exchange derived from agriculture that accounted for the greater part of the coun­ try's export earnings, though once industrial expansion was underway investment could come from the industrial sector itself. How­ ever, this was more likely when inputs from other sectors were relatively cheap compared to the price of industrial manufactures, and when the wages paid in the industrial sector were low in relation to industrial profits.®^ Which sources were to prove the more prominent, and how far agriculture was ex­ pected to bear the brunt of industrial expan­ sion, depended both on the structure of the given economy, and on the nature and structure of the political system.®® How far there was in practice a ‘squeeze' on agriculture, and how far there was an alliance between the nascent in­ dustrial and the traditional rural bourgeoisie is difficult to sum up in a generalization. But what is clear is that, in as far as industrial policy needed changes in the rural sector, these were only possible with the emergence of politically powerful urban groups who had interests dif­ ferent from those of the landlord class, with the growth of electoral systems in which small ^On this see R.B. Sutcliffe, Industry and Underdevel­ opment, London, 1971. ®^See Ashok Mitra, Terms o f Trade and Class Rela­ tions, London, 1977. farmers and propertyless groups had some voice, and with a situation in which industrial­ ization and falling prices in export markets weakened the importance of landed as against other forms of wealth. As industrialization (and with it urbaniza­ tion) progressed, demands on the agricultural sector began to change. There was pressure on the traditional export sector for foreign ex­ change to meet the increasing importbill; there was a growing demand for cheap inputs and cheap wage goods (principally food) in order to keep down costs in the industrial sector; there was increased demand for cheap labour (both in the urban areas and in capitalist agriculture) which had primarily to come from rural areas, and there was a need to expand the internal market for the manufactures that would be lo­ cally produced. Together these factors led to a different economic model, and one which looked at problems in rural areas and in agrar­ ian structures in a different light. With these demands, the constraints at work in the rural sector became more apparent. From the 1950s onwards per capita food pro­ duction and total food production per capita were growing at less than 1% per annum, and this rate was slowing down despite advances made in the so-called ‘green revolution'.®® To­ tal population, and more particularly the urban population, was increasing rapidly, and the countries' export sectors were facing growing problems in international markets.®'^ Agricul­ ture was seen as a point of ‘internal strangula­ tion' —as the ‘bottleneck' in economic devel­ opment— and increasing emphasis was placed on the need for balance between agriculture and other sectors.®®A new approach to agricul­ tural development seemed needed. seSee Keith Griffin, “Agrarian Policy: The Political and Economic Context”, World Development, Vol. I, No. 11,1973. SlSee United Nations, Concise Report on the World Population Situation in 1977, New York, 1979, pp. 62-69; Inter-American Development Bank, Latin America in the World Economy, Washington, D.C., 1975, chapter III, and CEPAL/FAO, “Situation and Evolution of Agriculture and Food Supplies in Latin America”, Economic Bulletin for Latin America, Vol. XIX, Nos. 1-2,1974. ssSee Raúl Prebisch, Hacia una dindmica del desarro­ llo latinoamericano, CEPAL, Santiago, 1963; and United Nations, Land Reform: Defects in Agrarian Structure..., op. cit., 1951. David Dunham ON TH E HISTORY AND PO U TIC A L ECONOMY OF SMALL-FARMER P O U C IE S / For all this, there was inevitably continuity in government policy. The export sector re­ mained an important one, albeit at times with different objectives, and often with struggles to control it through nationalization. ^9 In the sa­ vannah zone of West Africa and in Southern Africa, ‘peripheral' regions were consciously undeveloped, receiving little byway of govern­ ment expenditure, in order to ensure an out­ flow of migrant labour. Wages in the capitalist sector were based on the subsistence costs of the single man; women, older men, the dis­ abled and children were cared for ‘at home' in small-farming communities which in this way (in the absence of‘social services') lowered the costs of labour in the industrial sector.®® This was a policy developed in the colonial period and retained because it facilitated develop­ ment of the ‘modem' sector and because these structures simply could not be adjusted over­ night without undermining the country's eco­ nomic growth. However, the situation was changing and a number of broader considerations were being brought to bear. One of the these was the fear of communist infiltration. In the early 1950s the United States army was engaged in Korea, and in other Southeast Asian countries guerrilla wars were raging in rural areas. In Malaysia the British were fighting ‘communist insurgency', the French were losing ground in Indo-China and the Philippines were considered to be un­ der dire threat.®^ In Latin America the United States was trying to improve the climate for foreign private investment until the Cuban re­ volution led to reassessment of its position. All of this influenced western foreign pol­ icy. In Asia the inability of colonial and post­ colonial governments to provide enough food to feed their growing populations was consid­ ered to be the crux of the political issue. Amer®9See the case of the West African Marketing Boards, the marketing of Taiwanese rice and Indonesian rubber, and more recently the nationalization of tea, rubber and coconut estates in Sri Lanka. ® A the need became increasingly more for skilled ®s labour, labour had to become more permanent to make training worthwhile. This in turn led to a shift in the pattern of migration, with more migration of women and of people moving as couples. ®iHarry Cleaver, “The Contradictions of the Green Revolution”, Monthly Review, June 1972, p. 82. 151 lean aid, other than military aid, was closely tied up with food and with food production, and one of its important weapons in this respect was the way it used its surplus food produc­ tion.®^ Distinctive views were also beginning to emerge concerning the need for reform in the rural areas. “In country after country", wrote one observer,®® “one sees feudal classes bent on maintaining the status quo unsullied. They cannot gain popular support. They neither ben­ efit the rural community nor have they proved at all effective against communist penetration. They are the unwitting and unwilling allies of communism, for they are the creators of the revolutionary situation”. It was clear that policies with regard to food production were developing definite po­ litical connotations. Regarding Latin America, in the wake of the Cuban experience, the choice was increas­ ingly seen as reform or revolution. President Kennedy insisted on various occasions that the promotion of democracy and reform were “the ultimate answer to Castro and the commu­ nists”, and the Alliance for Progress placed particular stress on “economic growth, struc­ tural change and political democracy”. The lat­ ter two were for a while a condition for Amer­ ican aid. In short, there were various strands to be observed in the policy lines that the Western bloc began adopting in response to capitalist interests in Third World countries and to what it saw as the threat of communist infiltration and of insurgency. The small-farmer policies that emerged in this period have to be seen in such a perspective, against the cold-war situa­ tion of the early 1960s and communist succes­ ses in Asia and Africa in the decade that fol­ lowed, Both dimensions —the importance of economic growth and political stability— influ­ enced strategic thinking on the small-farm sec­ tor, and both of them can be seen in the emer­ ging policy-lines. The most important of these concerned land reform, the opening up of new ®20n this see the evidence of Hubert Humphrey to the Senate Committee on Agriculture and Forestry, Hearings on Policies and Operations ofP.L. 480,1957, p. 129. ^Louis J. Walinksy (ed.), Agrarian Reform as Unfin­ ished Business; The Selected Papers o f Wolf Ladejinski, New York, 1977, p. 134. 152 land, and the intensification of production in existing areas, and these three will each be discussed in turn. (a) The new perspectives on land reform With changes in the conventional develop­ ment model there was also a renewed interest in land reform, in abolishing ‘quasi feudal’agrarian relations which were seen as a principal pro­ blem in the agricultural sector. In Asia the main bone of contention in rural areas was the exces­ sive rents extorted by absentee landlords who hoarded money, used it for conspicuous con­ sumption, or else re-invested it in other sectors. The shortage of capital and the general air of insecurity surrounding tenancy arrangements meant little capital investment in agriculture and little scope for increasing productivity. In such cases land reform was to be seen as ‘land to the tiller’ and the abolition of an absentee rentier class and of an intermediary group of rent collectors, with the basic unit of produc­ tion remaining the same. In Latin America the situation was differ­ ent. There was concentration of ownership and a great deal of power in large estates which had vast areas of underutilized or even unused land, while the vast majority of agricultural families had no land at all.®^ In this context land reform implied reorganization —the consolida­ tion of small and fragmented units or the sub­ division and redistribution of existing estates. In either case it required new units of man­ agement; land reform meant the disruption of earlier production patterns and in the short­ term at least it seemed likely to lead to lower levels of production. Land reform therefore had different implications. In all areas a crucial part of the whole land reform issue was of course the balance of po­ litical power in particular countries, and the 64See FAO, Perspective Study o f Agricultural Devel­ opment in Latin America^ Vol. I, Rome, 1972, pp. 1-23; S. Barraclough and J. CoHarte, Agrarian Structure,.., op. d t, 1973, Table 2-1, p. 16; Anthony Bottomley, “Planning in a Underutilised Economy; The Case of Ecuador”, Social and Economic Studies, Vol. 15, No. 4, 1966; and CEPAL, “An Agricultural Policy to Expedite the Economic Develop­ ment of Latin America”, Economic Bulletin for Latin America, Vol. IV, No. 2,1961. CEPAL REVIEW No. 18 /D ecem ber 1982 composition of the group that was pushing for change had much to do with the possibilities of ultimate success. In the Middle East many of the large landowners were viewed as collab­ orators with the colonial regime and they were eventually ousted by a coalition of urban-based groups and small producers under that ban­ n e r .^ In Venezuela and Peru small farmers and landless workers invaded estates and the gov­ ernment later ratified their action by land re­ forms after the fact (as had also occurred in Mexico and Bolivia). In all of these cases (and more generally elsewhere) land reform was used to confirm and to stabilize an already ac­ complished political change. Later, in the shadow of the Cuban revolution, the agree­ ment of Punta del Este and the Alliance for Progress, the United States exerted consider­ able pressure on other governments in Latin America to introduce some measure of land reform, but the extent to which this occurred was very limited because the dominant polit­ ical interests were very wary of change. Finally, when land reform measures were introduced and an emphasis was placed on re­ distribution and on ‘small-farmer’ policies, they had to serve what the new leaders consid­ ered to be the needs of‘national development’. The small-farm sector was generally seen as something that required a good deal of control and supervision, encouraging farmers to ‘mod­ ernize’ their production, to raise their incomes and to contribute to the needs of people in the urban centres and in other sectors. It also im­ plied that the State itself should play an in­ creasing role in guiding the production and marketing of peasants’ crops. This tendency and some of the implica­ tions of it are perhaps best illustrated from in­ dividual cases. In Egypt, for example, there were a series of land and land tenure reforms following the overthrow of the ancien régime in 1952.®® The country’s agrarian structure had previously been one in which there was a high degree of concentration in the ownership of this see Doreen Warriner, Land Reform in Prin­ ciple and Practice, Oxford, 1969, p. 12. ®®For a specification of these reforms see Mahmoud Abdei-Fadil, Development, Income Distribution and So­ cial Change in Rural Egypt 1952-70, Cambridge, 1975, chapter 1, David Dunham ON T H E HISTORY AND PO U TIC A L ECONOMY O F SMALL-FARMER POLICIES / land. Some 94% of all owners had plots of less than 2.1 hectares (5 feddans); rents were high, accounting for as much as 75% of the net in­ come that sharecroppers or tenant farmers de­ rived from their land, and it was more advan­ tageous for absentee landlords to lease their land than to cultivate it themselves. There had emerged a whole structure of intermediaries between owner and tenant, and with it ‘a whole hierarchy of tenures’ on the same piece of land,®"^ By 1950 poverty and exploitation were such that there was considerable tension and unrest in the countryside. The leaders of the July coup were conscious of this, of the need to destroy the power of the landlord class and to win the support of tenant farmers and landless groups. Agrarian reforms^ “were welcomed by the ‘enlightened’ business circles in Egypt as timely measures, long overdue, to redirect in­ vestment into industry and to avert the risk of a more radical solution to the agrarian question, which was looming large on the horizon”. The result was a redistribution of some 8.5% of the country’s land area to medium and small producers and the introduction of ten­ ancy regulations giving legal status to tenants and sharecroppers on other land.®®At the same time, beneficiaries were obliged to form co­ operatives. These were seen as a means of con­ solidating farms to take advantage of the econo­ mies of scale that were needed for ‘modem’ production, and they represented a systematic attempt on the part of the State to establish tighter supervision and control of small-farmer production. An important element in this was the introduction of compulsory sales to govern­ ment agencies at ‘administered prices’ well be­ low those in the open market,™ 87M. Abdel-Fadil, ibid., pp. 5-6, and G.S. Saab, Egyp­ tian Agrarian Reform 1952-1962, London, 1967. Abdel-Fadil, Development..., op. cit., 1975, p. 22, See also National Bank of Egypt, Economic Bulletin, Vol. V, No. 3,1952, p. 167. ®®See Sayed Marei, “The Agrarian Reforms in Egypt”, International Labour Review, vol. LXIX, No. 2,1954, and Doreen Warriner, Land Reform and Development in the Middle East, London, 1957, p. 39. The tenancy regulations \vere in fact the more important element, since they in­ cluded rent reductions, minimum wage legislation and se­ curity of tenure for very large part of the population. ™See Samir Radwan and Eddy Lee, “The State and 153 Another example was that of South Korea, which undertook a series of land reforms be­ tween 1948 and 1957. In 1945 half of the coun­ try’s cultivated land was controlled by only 4% of all rural families and a further 20% of the arable land was in Japanese hands.Tenants were in a precarious situation, and this was only made worse with the advent of civil war. With the end of the Korean war this land was ap­ propriated and given to those who were farm­ ing it to increase production in support of the policy of industrialization and to remove mral discontent on which the communists could play. Between 1963 and 1973 output in the in­ dustrial sector rose by 17% p.a. and industrial employment by over 9% p.a. This created a sharp increase in the demand for food, but to maintain this dynamic it was important to keep industrial wages down. Compulsory State pro­ curement of rice and barley was retained after the war, the Government maintaining control of marketing and of the supply of ‘modern’ in­ puts to the small-farm sector.™This was again in practice done by means of co-operatives. The rural sector bore the brunt of the indus­ trialization policy through the low procure­ ment prices that were being offered. As yields increased, so too did incomes, but not as fast as the rural cost of living. The terms of trade were turned against agriculture, and real household incomes (while rather unstable) were more or less unchanged until the 1970s.™The reforms Agricultural Change; a Case Study of Egypt 1952-1977”, in Dharam Gai, Azizur Khan, Eddy Lee and Samir Radwan, Agrarian Systems andDevelopment,London, 1979,p. 169. ’^tRobert Morrow and Kenneth Sharper, “Land Reform in South Korea”, United States Agency for International Development (USAID), Spring Review o f Land Reform, June 1970, p. 6. ™Eddy Lee, “Egalitarian Peasant Farming and Rural Development: the case of Korea”, in Dharam Gai et al, Agrarian Systems..., op. cit. 1979, p. 29. See also Pal Yong Moon and Byung Seo Ruy, Korea’s Agricultural Policies in Historical Perspective, Seoul, Korean Development In­ stitute, April 1977. Lee, “Egalitarian Peasant Farming...”, op. dt., 1979, table 2.3, p. 31 and Y.K, Ro, D.N, Adams and L.J. Hushak, “Income Instability and Consumption-Savings in South Korean Farm Households, 1965-70”, World De­ velopment, Vol. 9, No, 2, February 1981. This trend was partly mitigated by the high level of job creation in the urban sector. December 1982 154 created an apparently egalitarian rural struc­ ture, but small farmers as a class were being exploited in order to meet the needs of indus­ trialization. In Latin America after the Cuban revolu­ tion there were again fierce debates about land reform. Governments, preoccupied with indus­ trial development and with the need to keep ‘peasant’ movements under firm control, were faced with both internal and external pressure to introduce some measures of reform in the rural areas. In Chile landowners had power and patronage over small farmers and rural workers, and with a growing interest in ‘mod­ ernization’ there was a political battle to break this influence and gain control of the rural vote.^“ In Peru there was rural unrest in the late ^ 1950s as repressive measures were introduced by the military government to increase its con­ trol. In the wake of this the need for agrarian reform was increasingly recognized and was to become an important element in the Govern­ ment’s economic strategy. The Agrarian Re­ form Law of 1969 expropriated large estates, broadening and consolidating the position of ‘progressive’ farmers operating on a small-tomedium or medium scale and forcing them to work through a State-controlled co-operative system."^^ A similar pattern can be seen in a great many other cases —in the Zamindari reforms in India, in the Taiwan reforms of the early 1950s, or the Pakistani reforms of 195^®— reflected the needs of economic growth and of political control in the countries in question, and they were aimed at reinforcing (or at reconfirming) an already accomplished shift in the balance of power away from the traditional rural landown­ ing class. To achieve this there was often need "^^See David Lehmann, “Agrarian Reform in Chile 1965-72: An Essay in Contradictions”, in David Lehmann (ed.), Agrarian Reform and Agrarian Reformism, London, 1974, and James Petra and Maurice Zeitlin, “Agrarian Rad­ icalism in Chile”, in R. Stavenhagen (ed.), Agrarian Prob­ lems..., op. ext., 1970. 75See Ramón Zaldivar, “Agrarian Reform and Military Reformism in Peru", in Lehmann (ed.), Agrarian Reform..., op. cit., 1974, the Taiwan case, see Raymond Apthorpe, “The Burden of Land Reform: An Asian Model of Land Reform Re-analysed”, in Development o f Societies; the Next Twenty-Five Years, The Hague, Institute of Social Studies, 1979. CEPAL REVIEW No. 18 / for the small farmers’ support. Many gained land and saw a significant improvement in their standards of living. However, this did not ne­ cessarily imply any serious interest in the poor­ est farmers nor any long-term commitment to offer them help. The reforms often led to an­ other type of social differentiation and at times a swing to large-scale production in another form. (b) The opening-up o f new land as a policy instrument Many land reforms of the 1950s and 1960s were important in facilitating capitalist growth, even though —^particularly in Asia—a great many small farmers gained ownership of land. The advances that were made were rarely thorough­ going and the rate at which they were imple­ mented in practice was slower than the increas­ ing landlessness in rural areas.''" Population growth, concentration of land ownership in the ‘modern’ sector and the increasing mechaniza­ tion of larger units were heightening resent­ ments and forcing people to look for employ­ ment in other areas. The 1960s saw a dramatic increase in ur­ ban population, to such an extent that there were often serious problems of urban conges­ tion, poverty and violence, associated with what was to be called ‘the informal sector’. There was concern with lowering the rate of rural-urban migration, and recognition that land reforms would have to be supplemented with other measures that would help to defuse potential political threats and to improve na­ tional agricultural production. There was often a very real need to produce more food, and one means of facilitating these objectives was to open up ‘new lands’ in ‘underutilized areas’. Since somebody (and not always the State) had a claim on the land in almost all of these areas, the dividing line between coloniza77In the 1960s 1,0-1,2 million landless families ac­ quired lands from government agencies in Latin America, This was the equivalent of about 100 000 families a year. At the same time, the number of potential beneficiaries was estimated to be 10 million families, and the growth of the rural labour force was estimated to be about 500 000 workers per year. See CEPAL/FAO, Situation and Evolu­ tion..., op. cit., 1974, p. 107. David Dunham ON T H E H ISTORY AND POLITICA L ECONOMY OF SMALL-FARMER P O U C IE S / tion and agrarian reform was both subtle and blurred. The former was seen, and at times officially recognized, as being a practical alter­ native to agrarian reform.™In many parts of the world the good land still available was ex­ tremely limited —far more so than had been believed a decade before. In parts of Asia (Sri Lanka) and Africa (the Sahelian region) the opening up of new land was still important, but in other areas in Asia (India) and Latin America it was slowing down.™ The process of coloniza­ tion proved slow and difficult, and especially when it required irrigation facilities it also proved an expensive policy alternative.^ Such were the costs of reclaiming semiarid areas and controlling supplies of water that opening up new land rarely offered any real solution to the problems of overpopulated rural areas or to the extremely high rates of ruralurban migration. Colonization, rather than land reform, more aptly describes many of the changes that took place following agrarian re­ form in Central and South America, involving the ‘spontaneous’ invasion of underutilized areas or government-sponsored schemes in outlying a re a sIn Asia there were a number of large-scale projects (such as the settlement of 200 000 small farmers in the Mahaweli basin) dependent on elaborate and extremely expen­ sive irrigation facilities.But their impact on ■^SThis was clearly the case in Brazil, where the Gov­ ernment worked through an Institute of Colonization and Agrarian Reform. "^^In the first two decades of Indian planning emphasis was placed on extending the cultivated area through land reclamation, soil conservation schemes, the introduction of improved dry farming methods and irrigation. The costs were such, however, that the emphasis had to shift to in­ troducing more intensive methods of production (see Biplap Dasgupta, Agrarian Change and the New Technoh ogy in India, United Nations Research Institute for Social Development (UNRISD), Genev^ 1971, pp. 16-17. In Latin America the harvested area increased by 2.6% p.a. in the first 5 years of the 1960s and by 1.3% p.a. in the next 5 years, but in the first 5 years of the 1970s it was increasing by only 0.5% p.a. (see CEPAL/FAO, Situation and Evolution..,, op. cit., 1974, p. 101). ®0See Michael Nelson, The Development o f Tropical Lands, Baltimore, 1973, and IBRD, Agricultural Land Set­ tlement, A World Bank Issues Paper, Washington, D,C., January 1978, p. 5. ^iWilliam Thiesenhusen, “Colonization: Alternative or Supplement to Agrarian Reform”, in Peter Domer (ed.). Land Reform in Latin America; Issues and Cases, Larid Tenure Center, Wisconsin, 1971. 82See D. Dunham, “The Politics...’', op. cit. 155 the structure and output of the agricultural sec­ tor (and the social and political problems con­ tained within it) was disappointingly small. Secondly, even in areas or regions where colonization was important, it did not always work in the interests of small producers. The costs involved and the desire to establish tight control over peasant production were such that in government-sponsored projects the earlier pattern of close supervision was firmly main­ tained. What emerged was often a highly cen­ tralized system of management remarkably like that of a plantation or a large corporation. One study of colonization schemes in Chile found that a large proportion (44%) of settlers on 12 projects prior to 1962 were professional people, people engaged in some form of business, peo­ ple who worked with the Caja de Colonización Agrícola or other government agencies, or peo­ ple who had been working for them at one time or another.®^ In Nicaragua it was common prac­ tice for livestock farmers prior to the revolution to lease areas of woodland to would-be settlers, allow them to clear the land, plant an annual crop (such as rice, maize or beans) and with it pasture. The latter took over when tiie crop was harvested; the land reverted back to the owner who now had a use for it, and the settlers were pushed out to “open up” areas further afield.®^Elsewhere, despite official accounts of ‘boundless resources’, colonists gained little more than semi-arid or otherwise marginal ‘frontier’ land that offered no attraction to more powerful groups. When it came to competition for better land, small producers and other subsistence groups were in practice physically expelled (or displaced by the use of threats) unless they had the protection and support of the Government. In many areas this was not forthcoming, and such was the concern with ‘modernization’ that preference was given to large-scale, capital-in*®W. Thiesenhusen, “Colonization...”, op. cit., 1971, footnote 2 on p. 211. ajam es Taylor Jr., Agricultural Settlement and Devel­ opment in Eastern Nicaragua, Land Tenure Center, Wis­ consin, 1969. On this subject see also Orlando Fals Borda, La cuestión agraria en Colombia, Bogotá, 1976, and his discussion of “la ley de los tres pasos”. A comparable example of this process can be seen in the Oriente Region of Bolivia. 156 tensive forms of production. “There is evi­ dence’', wrote one observer of the Brazilian case in the mid-1970s,®® “that large companies attempting to ‘develop’ Amazonia are pre-emp­ ting peasants’ attempts to settle the region, and in some cases evicting ‘squatters’ who have lived there for generations”. Similar cases of displacement on varying scales can be observed in the Llanos Orientales of Colombia,®® in the Sahelian region,®’^on Min­ danao,®® and in the north-eastern lowlands of Ethiopia.®® In fact it seems to have been a fairly typical feature of ‘frontier’ development, with little concern for the small farmers, subsistence cultivators or nomadic pastoralists living in these areas. And yet, it would be wrong to give the impression that the opening-up of new lands was invariably characterized by physical dis­ placement or savage exploitation of subsis­ tence cultivators and nomadic herdsmen. This has often occurred. But in many other cases small farmers have managed to gain access to land, and many of them have prospered as a result. The more important point is that open­ ing up new lands could never offer a lasting solution to the serious agrarian problems in other parts of the country. To some extent it provided a safety valve by making available more land and creating more employment, but more generally (and more significantly) it served a political function by giving govern­ ments time and by helping them meet the con­ ditions of aid-donor countries, (c) ‘Modernization o f agricultural production The third policy line was the ‘modemizaSSMartin Katzman, “The Brazilian Frontier in Compar­ ative Perspective’*, Comparative Studies in Society and History, Vol. 17, No. 3,1975, p. 282. ®®Over the last decade several examples of this can be iound recorded in the main Colombia daily newspapers El Tiempo and El Espectador. ® ’^See Comité d’information Sahel, Qui se Nourrit de la Famine en Afrique?, Paris, 1975, and Claude Meillassoux, “Development or Exploitation: is the Sahel Famine a Food Business?’’, Review o f African Political Economy, Vol. 1, No. 1,1974. ® K Griffin, Agrarian Policy..., op. cit., 1973, ®. p. 9. SSLars Bondestam, “People and Capitalism in the North-Eastern Lowlands of Ethiopia”, yowmai o f Modem African Studies, Vol. 12, No. 3,1974. December 1982 CEPAL REVIEW No. 18 / tion’ of production in the areas already in use. This was to be a principal thrust ofpolicy from tiie 1960s: an effort on the part of advanced capitalist and Third World countries to raise the agricultu­ ral productivity of the latter by introducing ‘ad­ vanced’ mechanical equipment, ‘modem’ in­ puts and ‘modem’ management methods. This shift to more commercialized forms of agricul­ tural production was to be promoted through a system of subsidized prices, by ensuring that the capital needed was made available (through agricultural development banks, farmers’ associations or co-operatives), with the Government providing infrastmcture, advice and supervision as and when it was needed. In this way producers would gain access to new technology, the market for farm equip­ ment and for manufactured inputs could be ex­ tended, and the increased purchasing power of mral areas would widen the market for manu­ factured consumer goods. However, when it came to intensifying production in existing areas the influence of agrarian stmctures was invariably strong. The mechanization of large-scale agricul­ ture and the increased use of new seeds and other inputs that characterized the so-called ‘Green Revolution’ involved different pro­ cesses, and yet they reflect a great many fea­ tures in common. Both saw the involvement of large-scale (and generally foreign) commercial interests. Mechanization entailed the transfer of established, relatively capital-intensive farm technologies from Europe and North America to Third World locations. With the possible ex­ ception of Argentina (and in the view of certain authorities parts of Brazil), the mechanization of agriculture in Latin America has been pro­ moted and guided by business interests with much use of credit to speed up its adoption: they showed little interest in adapting equip­ ment to local conditions, and even less to pro­ moting its use on smaller farms or in different systems of agricultural production.®® This mechanization had a considerable ®®CEPAL/FAO, Situation and Evolution..., op. cit., 1974, p. 105. On this trend see also CEPAL/FAO, La ex­ pansión selectiva de la producción agropecuaria en Améri­ ca Latina, E/CN. 12/378/Rev, 2 (United Nations publica­ tion, Sales No.; 1957. II. G. 4). David Dunham ON T H E HISTORY AND POLITICAL ECONOMY OF SMALL-FARMER POLICIES / amount of government support. In the mid1960s over a third of loans granted by the Agri­ cultural Development Bank in Pakistan were for the purchase of tractors and other mechani­ cal equipment.^^ The Government of India adopted a liberal stand on the import of tractors, and in turn encouraged their local production in co-operation with multinational firms Not only tractors but also power tillers, combined harvesters, mechanized threshers and irriga­ tion facilities of various kinds were purchased from international commercial concerns on government credit. Nor have the inputs associated with the ‘Green Revolution’ been any more divorced from commercial pressures. New strains of wheat and rice were developed with the sup­ port of the Rockefeller and Ford Foundations, and promoted by an aid lobby in which com­ mercial interests of various kinds were well represented.®^ In Jalisco, Mexico, the U.S. Agency for International Development (USAID) looked for ways in which foreign private invest­ ment could provide the necessary inputs for small producers and then market their product (in this case maize).®^ The ESSO company was engaged in the distribution of fertilizers in the Philippines, and efforts werp made to promote foreign investment in fertilizer production in other parts of the world, North American and European agribusi­ ness had the interest and the capital as well as the technology to provide the equipment and the inputs to bring about modernization of agri­ cultural production. In many (though by no means all) countries, the emerging policy was to be ‘good for business’; profit motives influ­ 9iKeith Griffin, The Political Economy o f Agrarian Change, London, 1974, p. 53. s^Biplap Dasgupta, Agrarian Change and the New Technology in India, United Nations Research Institute for Social Development, Geneva, 1977, p. 98. ^ T h e International Centre for the Improvement of Maize and Wh'eat (CIMMYT) in Mexico and the Interna­ tional Rice Research Institute (IRRI) in the Philippines were both set up under the auspices of United States foundations. Cleaver, The Contradictions..., op. cit., 1972, p. 90. ^Ibid. Efforts were made to encourage foreign invest­ ment in fertilizer production in India. 157 enced views as to what should be done, often to the disadvantage of the small producers.®® Secondly, the cost of‘modem’ equipment, irrigation facilities and other inputs was such that, regardless of the attitudes of the suppliers, they were confined to a comparatively small proportion of the nation’s producers. Access to credit (and thereby to new technology) was in general so costly, or at least so restricted, that the medium-sized and large farmers were the main beneficiaries. In India in the early 1970s the price of a Hindustan 35HP tractor was Rs 27 000 and a Massey-Ferguson Rs 35 000, if they could be obtained. This was some thirty to forty times the net annual income to be derived from a five acre farm operated with bullocks in parts of the Punjab.®^ Large farmers used their influence to ac­ quire loans and to move up or bypass the wait­ ing lists, and those who were able to obtain equipment and inputs saw an increase in yields and, in turn, of income. In the Punjab one study found the average net income per hectare in canal irrigated areas to be Rs 459 on farms using bullock power, and Rs 923 on those using trac­ tors.®® No doubt these farms differed in more ways than just the level of mechanization, but statistics of this kind do serve to show the dif­ ferentiation occurring in particular areas and the widening gap in income and wealth be­ tween those who ‘modernized’ their produc­ tion and those who could not. In areas of sharecropping or tenant farming the prospect of higher profits led landlords to show greater interest in commercial produc­ tion. No doubt this has helped smaller farmers get access to inputs by way of their landlord, but it also resulted in many areas in the latter taking decisions about land use, varieties to be ®®The enormous profits sometimes ascribed to these enterprises were by no means assured, though there seents little doubt that there was often a considerable amount of money to be gained from the sales of equipment, licenses and inputs of various kinds. 97A.S. Kahlon and S.S. Grewal, “Farm Mechanisation in a Labour Abundant Economy”, Economic and Political Weekly, 13 May 1972. 9^.S. Kahlon, S.S. Miglani and S.K. Metha, Studies in the Economics o f Farm Management, Ferozepore District (Punjab), New Delhi, Ministry of Agriculture, 1972. December 1982 158 CEPAL REVIEW No. 18 / grown and the inputs used.®®In such cases the tenant became more a farm worker than an in­ dependent farmer, and tenancy was merely a convenient arrangement enabling the landlord to pass on production risks. In West Godavari rents paid by sharecroppers in the dry season more than doubled with the introduction of high-yielding varieties, and the net share of the tenant suffered a marked decrease.^®In other areas (for example parts of Java) small-holdings were increasingly leased to ‘progressive' farm­ ers and there was a mounting concentration of control (if not necessarily of ownership) oftenanted land. In yet other areas owners took back their land from tenants to cultivate it themselves or to give it to sons, increasing the numbers of landless people. In all these cases institutional arrangements made it ex­ tremely difficult for small farmers to improve their relative position. In the view of some, the overall result was essentially a negative one. The efforts made were cynically dismissed as “a systematic and coordinated effort to organise a ‘pampered', small, efficient and highly subsidised sector of rich landowners and producers”, And cer­ tainly there is evidence to that effect. Policies showed a definite ‘landlord bias', xhe cases of India and Pakistan have already been cited, but in countries with more conservative polit­ ical regimes the situation was often a good deal worse. In Iran an Agricultural Development ^O n this see K. GrifRn, The Political Economy..., op. cit., 1974, Parthasarathy, “West Godavari; Andhra Pra­ desh”, in IRRI, Changes in Rice Farming in Selected Areas o f Asia, Manila, 1975, p. 66. ^®Ungrid Palmer, The New Rice in Indonesia, United Nations Institute for Social Development (UNRISD), Ge­ neva, 1976, pp. 137-138. I02jean G. Rosenberg and David A. Rosenberg, Land­ less Peasants and Rural Poverty in Indonesia and the Phil­ ippines, Cornell University Rural Development Com­ mittee, Ithaca, N.Y., February 1980, pp. 29 f. ^^^Ernst Feder, “The New World Bank Programme and the Self-Liquidation of the Third World Peasantry”, Journal o f Peasant Studies, Vol. XIX, Nos. 1-2,1974, p. 348, and Ernst Feder, “Agribusiness and the Elimination of Latin America’s Rural Proletariat”, World Development, Vol. 5, Nos. 5-7, 1977. On the package approach, see also Emiliano Ortega, “Peasant agriculture in Latin America: situations and trends”, CEPAL Review, No. 16, April 1982, pp, 75f. l04See. K. Griffin, The Political Economy..., op. cit., 1974. Fund was established in 1968 to finance largescale production on highly mechanized farms and to assist agribusiness in bringing this about. The minimum loan available was US$ 67 000 (five million rials), well beyond the dreams of any small farmer. The Banco do Bra­ sil for its part, was offering at that time a mini­ mum loan of some fifty times the annual earn­ ings of an industrial worker,^®^ Loans for new seeds and ‘modem' inputs were naturally lower, and credit was available in smaller amounts. Its provision was an es­ sential part of ‘modernization’ programmes, but who acquired it was really the important issue.™ Generally speaking it was the medi­ um-sized or large farmer who could better af­ ford to experiment with new varieties and to try expensive inputs.™ These people were nor­ mally (though not always) the first adopters, and it was they who were likely to take ad­ vantage of the subsidized prices designed to encourage farmers to ‘modernize' their produc­ tion. Small farmers saw that they could raise their output and hence their income, and the technology spread.™ As it did, so the cost of subsidizing the growing quantity of inputs needed also increased: it became an increasing burden upon the exchequer, and it was often reduced (or even removed) just as small farm­ ers were adopting these new techniques.™ Since small farmers were more likely to sow the whole of their plot with new varieties, when the subsidy declined (and the petroleum crisis raised the price of chemical fertilizers) it was they who found themselves in the most vulner­ able position.il® Griffin, Agrarian Policy..., op. cit., 1973, pp. lOf. ™ On the importance of credit as a part of the “pack­ age” arrangements that were being made see United States Agency for International Development (USAID), Spring Review o f Small-Farmer Credit,\o\. XIX, June 1973. l®70n this see K. Griffin, The Political Economy..., op. cit,, 1975; Dasgrupta, Agrarian Change..., op. cit., 1977; IRRI, Changes in Rice Farming..., op, cit., 1975; and ARTI, The Agrarian Situation Relating to Paddy Cultivation in Five Selected Districts o f Sri Lanka (five volumes and main report), Colombo, 1975. ™ On this pattern of diffusion of innovations see the UNRISD studies on the 'Green Revolution’. 1091BRD, World Bank Operations, op. cit., 1972, p. 17. ll®The tendency for small farmers to adopt innovations later and to sow the whole of their area with new varieties is noted in IRRI, Changes in Rice Farming..., op. cit., 1975. David Dunham ON TH E HISTORY AND PO U TIC A L ECONOMY O F SMALL-FARMER POLICIES / This is rjot to say that small farmers were always exploited or that ‘modernization’ only served the interests of a privileged class of me­ dium-sized and large farmers. In India alone it has been estimated that as many as six million small-farmer households may have benefitted from the efforts of the Small Farmer Develop­ ment Agency, and that there was at times as much as a 33% increase in household in­ come. Ill These figures may (to say the least) be rather flattering, but they serve to give an en­ couraging indication of the scale on which ben­ efits have occurred. The point is that the proportion of small farmers involved was, with the exception of certain areas, extremely small. In India there were over 70 million rural households who qualified as ‘small farmers’ under the defini­ tions of the Small Farmer Development Agency.ii2 Secondly, the ‘Green Revolution’ was at best a wheat and a rice ‘revolution’; it was in­ troduced to relatively few and comparatively small regions, and it only applied to certain parts of the world. Very little was done for the development of tubers. Thirdly, ‘modernization’ in practice meant promotion of commercialized agriculture. The logic of the process was such that it led to in­ creasing economic and social differentiation. New techniques were introduced into an al­ ready unequal agrarian structure and they inev­ itably had an unequal impact within the com­ munity. It was easier for officials to work with those who had power than to work against them; it was easier to deal with larger-scale farmers than to work with a mass of illiterate small producers, and this also created a bias in delivery systems.“^ And yet, from the point of view of a govemReserve Bank of India, Marginal Farmers and Agri­ cultural Development Agencies: a Field Study, Bombay, 1976. On the income estimates see Raj Krishna, "Small Fanner Development”, Economic and Po/iitcaiWeek/y, 26 May 1979. ll^The Indian Agricultural Census 1970-72, quoted in Krishna, “Small-Farmer Development”, op. cit, 1979, p. 913. ll^On this subject see for example L. Cliffe, J.S. Cole­ man and M.R. Doombos (eds.), Government and Rural De~ velopment in East Africa, The Hague, 1977, and S. Wil­ liams and J.A. Miller, Credit Systems for Small-Scale Farmers: Case Studies from Mexico, Austin, Texas, 1973. 159 ment’s underlying objectives this policy of agricultural modernization was not necessarily unsuccessful as far as it went. In global terms there was no marked increase in output per capita. ^i^Once the people in these pockets of ‘modem production’ were more or less satu­ rated with modem inputs and modem technol­ ogy, the growth in the rate of output began to drop off. ‘Traditional’ agrarian structures reemerged as a barrier to continuing this rate of growtii. But in particular areas the gains were often considerable, and sometimes sufBcient to have had some impact in macro terms. This was tme in the Punjab and in large parts of the Philip­ pines. More generally, this policy gave land to many small peasants and increased incomes while strengthening a class of ‘progressive’ farmers whose economic and political interests were generally in tune with those prevailing at the national level. The introduction of ‘land­ lord-biased’ or at least ‘progressive-farmer-bi­ ased’ innovations created or strengthened a class of mral producers who were loyal to (and dependent on) the government in power: a class which had considerable influence in mral areas (though not enough to pose a political threat), and whose interests generally favoured the status quo. In this sense these policies served these governments’ interest in ‘political stability’. The culmination o f this ‘modernization era: the 1970s The situation by the middle of the 1970s was by no means a promising one. There had been no great breakthrough in agricultural de­ velopment as a result of this modernization and the ‘Green Revolution’. On the contrary, in all parts of the Third World except the Far East the rate of growth in agricultural output was slower than it had been in the previous decade. In no region had there been any real acceleration in food production of sufficient dimensions to influence macro figures of the type that are Griffin, Agrarian Policy..., op. cit., 1973, p. 3. il^See. K. Griffin, The Political Economy..., op. cit., 2nd ed., 1979, pp. 4f. December 1982 160 CEPAL REVIEW No. 18 / regularly issued by the FAO.^^® What is more, in certain areas —mqst notably the Sahel— food production and marketing seemed an almost desperate issue. In most areas the situation continued to be one in which large farms, often run with the use of ‘sub-optimum' methods, were predominant,^^”The advances made in land reform had ^ been far slower than the rate of increasing landlessness, and the opening-up of new land was not only limited, but difficult and expen­ sive. Nor had everyone gained from the process of‘modernization’. In fact it seemed quite like­ ly that the vast majority of small peasant pro­ ducers were not included in it. The process resulted in new forms of differentiation; often it led to the concentration of land (or of control of land), and at times it was creating landlessness, raising unemployment and increasing poverty. With the displacement of small producers from the better soils and high rates of popula­ tion growth in poor rural areas there had emerged an increasingly marginalized popula­ tion ‘dumped’ into a minifundio (or subsis­ tence) type of productionProblem s of un­ employment had become very severe, and by the 1970s the causal tie with absolute poverty had been clearly discerned.“® Many people were living in precarious circumstances.^^ The situation was frequently one of considerable social tension, resulting in protest movements, at times in violence, and often in resort to re­ pressive measures.^^^ Although these were often no more than pockets of disturbance, a number of other fac­ tors were beginning to play a significant role and were putting events in a somewhat differ­ ent light. First was the sharp increase in the price of oil and of oil derivatives, including chemical fertilizers. Secondly, there was an in­ crease in world food prices, and with a series of droughts and biased distribution systems short­ ages of food were recorded in many parts of the world. Thirdly, there was at the same time a general decline in the price of many Third World export crops on international markets. The need for food imports was often of such proportions that balance of payments problems loomed high on the horizon; there was fear of Cuban and Russian influence in parts of Africa and of communist influence extending out­ wards from Indo-China, and in this context small-farmer policies (and particularly those that were oriented tow^ds food production) were considered of greater importance to the capitalist world. II Since the 1950s shifts in the emphasis of think­ the United States Agency for International De­ ing on economic policy have been reflected in velopment (USAID), FAO, the Asian Develop­ the position adopted by the World Bank Group, ment Bank (ADB), the Inter-American Devel­ opment Bank (IDB) and other bilateral and multilateral ‘development’ agencies.^^^ Their notably The State o f Food and Agriculture reports. ^i^Regarding the situation in Latin America, see CEPAL/FAO, Sítnatío» and Evolution..., op. cit., 1974. ti^See for example CEPAL/FAO, Situation and Evo­ lution..., op. cit., 1974; Orlando Fals Borda, El hombre y la tierra en Boyacá; Desarrollo histórico de una sociedad minifundista, revised edition, Bogotá, 1973; Emilio Klein, Diferenciación social: Tendencias del empleo y los ingre­ sos agrícolas, PREALC, Santiago, 1980; K. Griffin, Land Concentration and Rural Poverty, London, 1976; and ILO, Poverty and Rural Landlessness..., op. cit., 1977. “ ®See for example CEPAL, “Basic Aspects of Latin American Development Strategy“, Economic Survey o f Latin America, 1969, pp. 3-42 (United Nations publication; Sales N.o E.71.II.G.1); and CEPAL/ILPES, The State of Planning in Latin America and the Caribbean, Guatemala, 1980, pp. 198f. FAO, Perspective Study..., op. cit., 1972, pp. 1-10; and Arvind Das and V. Nilakant (eds.). Agrarian Relations in India, New Delhi, 1979. l2lSee, for instance, evidence of clashes between small farmers and farm workers on ffie one hand and landlords and police on the other in Bihar and Andhra Pradesh in the Economic and Political Weekly (for example 14 january and 22 April 1978 and 7 July, 22 October and 17 November 1979). On the question of repression see Mohan Ram, “Mini-Emergencies to Suppress the Poor”, Economic and Political Weekly, 18 November 1978. i^ S ee IBRD, World Bank Operations..., op. cit., 1972; IBRD, The Assault..., op. cit, 1975; IBRD, Annual Reports, 1972-1979; FAO, Small Farmer Development Manuel, Bangkok, 1978; ADB, Asian Agricultural Survery, Manila, David Dunham ON T H E HISTORY AND POLITICAL ECONOMY O F SMALL-FARMER POLICIES / individual stances have been very similar, part­ ly because of the strength of advanced capital­ ist nations in voting rights and policy-making, partly because of co-operative and co-financing arrangements between the agencies, and partly because of the paradigm that they used in com­ mon. And underlying all of this has been the fact that they were part of the capitalist world's response to economic and political conditions in Third World countries. They were an ad­ justment to facilitate the process of capitalist growth. From the mid-1950s the United States pro­ vided a major share of all foreign aid transfers to Third World countries. A decade later Wash­ ington was viewing the political situation with a certain urgency and, in the cold war years of the 1960s, a sustained United States commitment to increased aid became part of the counter-offensive against communist influ­ ence, compatible with the need for protecting United States interests, promoting and protec­ ting that country's investments and markets, supporting its allies in Third World countries and strengthening United States national secu­ rity .123 iri 1970, with events in Vietnam coming to a head, USAID funding to South Vietnam (with a population of 15 million) were notably larger than those to India (with 600 million) or indeed to Latin America as a w hole.A id was clearly linked to foreign policy, just as, for example, French and British aid programmes reflected ties to former colonies and Common­ wealth countries. At the same time, with changing economic strategies in the 1950s and 1960s there was widening scope for European, Japanese and North American involvement by providing technology, managerial skills and capital in­ vestment. This could not be financed by pri­ 1969; ADB, Rural Asia: Challenges and Opportunities, Singapore and New York, 1978; ADB, Annuai Reports and ID B, Annual Reports. ^^^See Abraham Lowenthal, “Alliance Rhetoric Versus Latin American Reality”, Foreign Affairs, April 1970, pp. 495 and 496. the fiscal year 1970 USAID flows to South Viet­ nam totalled US| 366 million, those to India came to US$ 244 million, and for Latin America as a whole the figure was US$ 254 million. USAID, Fiscal Year 1970 Operations Report, Washington, D.C., 1970, p. 5. 161 vate capital alone, nor could individual govern­ ments always provide the infrastructure and necessary incentives to promote this expansion without a greater degree of external aid. There was an increase in the flow of resources from international lending institutions, the estab­ lishment of which had to a large extent been predicated on the idea of facilitating capitalist expansion while avoiding the overt political interest inherent in the notion of bilateral aid.125 In the World Bank and the regional devel­ opment banks, voting power was linked to the size of each member country’s contribution, and the Relative strength of the advanced capi­ talist countries was such as to ensure that their interests were met within this new structure.^^® In 1964, in the case of the IDB Fund for Special Operations, the United States was able to im­ pose conditions ensuring that its increased con­ tributions could only be used for purchases in the USA, and that such goods must be trans­ ported in United States-registered ships.^^”^ * Under the Bank ruling that a two-thirds majori­ ty was required for all decisions affecting the Fund, the United States, which controlled some 40% of the total vote, had an effective veto of moves that it did not approve.^^ In 1972 the so-called ‘Gonzalez Amendment’ authorizing United States contributions to the IDA, IDB and the ADB laid down that United States Ex­ ecutive Directors in these agencies should vote against any loans or other forms of utilization of funds that were considered to run counter to that country’s interests.^^® Political controls were built into the logic and operation of these institutions. What is more, while an increasing number of bodies was involved, they were not acting independently of one another. The World Bank established a co-operative programme with the See for example Sidney Dell, The Inter-American Development Bank: A Siudy in Development Financing, New York, 1972, chap, 1. l26Annuii/ Reports of the IBRD, IDB and ADB. Dell, The Inter-American Development Bank..., op. cit., 1972, p. 114. Peter Dewitt, “The Inter-American Develop­ ment Bank and Policy-Making in Costa Rica”, Journal of Developing Areas, Vo\. 15, No. 1,1980. ^29Aart van de Laar, The World Bank and the Poor, The Hague, 1980, pp. 76-79. 162 FAO in the identification and preparation of its rural projects. Roughly a third of its agricultural lending was prepared in this way, with FAO staff working within the parameters of the Bank’s lending policy.^^ Similar arrangements were made with WHO, UNESCO and UNDP, and the Bank embarked on a programme of co-financing with regional bodies. One result of this external influence and interlinkage was that no effective ‘alternative view’ was likely to emerge. In all these institutions there was a gradual shift in policy emphasis over time, reflecting a continual reassesment of the perceived needs for capitalist expansion in terms of agricultural output and political stability. This can be seen in the changes that have taken place in World Bank policy, with its gradual move towards agriculture and ‘the rural poor’. In the postwar era World Bank policies emphasized ‘infra­ structural development’. Agriculture ac­ counted for only a small proportion of the Bank’s total lending (8.5% up to 1963): the majority of this was on capital-intensive infra­ structure (such as large-scale dams and irriga­ tion systems), and it unashamedly pursued a laissez-faire notion that its task was to open the way for private investments,^^^ A significant proportion of the loans made during this period were clearly intended to meet the needs of large landowners Between 1964 and 1968, the share of total lending destined for agriculture increased (to 12.6%) with emphasis on the export sector and i3i*Cheryl Payer, “The World Bank and Small Farm­ ers”,/oumal o f Peace Research^ Vol. XVI, No. 4,1979, and Rosemary Galli, “The UNDP, ‘Development' and Mul­ tinational Corporation”, Latin American Perspectives, Vol. 4, No. 4,1976. 131IBRD, The Assault..., op. cit., 1975, annexes 8 and 9, pp. 84-85, and chap, 3, pp. 58f. The total sum loaned was US$ 436 million. See Richard Stryker, “The World Bank and Agricultural Development: Food Production and Rural Poverty”, World Development, Vol. 7, No. 3, 1979, John Adler, “Tlje World Bank's Concept of Development”, in Jagdish Bhagwati and Richard Eckaus (eds.), Development and Planning, London, 1972, pp. 34-36, and on IDB poli­ cies, S. Dell, The Inter-American Development Bank..., op. cit., 1972, p. 129. 132'j’he Bank’s ‘dogmatic preference’ for private owner­ ship and private enterprise is stressed by R. Stryker, The World Bank..., op, cit., 1979, pp. 326f, See also Feder, The New World Bank Programme..., op. cit., 1976, p. 344. December 1982 CEPAL REVIEW No. 18 / on livestock production.^^ This sector was frequently characterized by large-scale (even foreign) ownership,^^4 ^^d again if often con­ tained a large irrigation component, How­ ever, with agriculture increasingly seen as a ‘bottleneck’ holding back industrialization and ‘economic development’, the Bank also began to turn its attention to the need to promote technological change at the farm level through the provision of improved seeds, fertil­ izers and modern equipment.^^® Policies began to be viewed in a broader perspective, covering credit, road construction, processing industries and, to a lesser extent, education and health facilities. Between 1969 and 1973, with mounting evidence of the landlessness, differentiation and pauperization produced in the wake of the so-called ‘Green Revolution’, and with an in­ creasing threat of rural social unrest, there was a shift in the emphasis of World Bank policy towards the eradication of poverty as against growth per se, and to employment creation rather than simply an increase in gross national production.‘33Ry the 1970s, U1 Haq was openly talking of injecting distributional issues “into the very pattern and organisation of produc­ tion”.^39 However, the stress was still quite clearly on non-food crops, and this was even true in the case of food-deficit countries.By 133Between fiscal years 1961-1966 and 1966-1970 loans for livestock productton increased from US$ 35.3 million to US$ 252.4 million. Loans for non-food crops increased from US$ 2.8 million to US$ 86.8 million. To­ gether, their share rose from 8% to 28% of agricultural loans (IBRD, The Assault..., op. cit., 1979, p. 327). Î34R. Stryker, The World Bank..., op. cit., 1979, p. 327. i35Between the fiscal years 1966 and 1970 irrigation accounted for 43% of all agricultural loans. This was less than the 79% recorded over the previous five financial years, but it was still considerable (IBRD, The Assault..., op. cit., 1975, annex 9, p. 85.) ^^Ibid., p. 59. t^^Ibid., pp. 58f. p. 60; and R. Stryker, The World Bank..., op. cit., 1979, p. 328. 139M. U1 Haq, The Poverty Curtain..., op. cit., 1976, p. 34. J. Burki and T. J. Goering, A Perspective on the Foodgrain Situation in the Poorest Countries, World Bank Staff Working Paper No. 251, April 1977, p. 41, The experi­ ence of the Sahelian zone during this period appears to have been a clear-cut example of this. See Comité d’infor­ mation Sahel, Qui se Nourrit..., op. cit., 1975, David Dunham ON T H E HISTO RY AND PO U TIC A L ECONOMY OF SMALL-FARMER P O U C IE S / this time agrieulture accounted for some 19% of total Bank lending, With the world food crisis, and with high and increasing rates of unemployment, atten­ tion was turned to food production and the small producer. The total amount loaned in­ creased dramatically (from US$ 12 700 million over the fiscal years 1969-1973 to US$ 32 320 million over the period 1974-1978); and the share of this devoted to agriculture rose sharply (to 31%), with roughly half the agricultural lending going to projects for domestic food production. In short, the changing emphasis of World Bank policy followed closely shifts in the in­ terpretation of ‘development policy’ as seen from the vantage point of the advanced capital­ ist nations. The emphasis on the poor and on food production was a response to a deteriora­ ting food situation, and it followed closely on the passing of the US Foreign Assistance Act of 1973, which reflected the growing concern of the United States Government over the risk of ‘internal subversion’ in Third World coun­ trie s .T h e policy that was to emerge was such as to provide greater control of peasant pro­ ducers, hitherto seen as ‘the great unknown’ of the national economy and as an area of poten­ tially dangerous social unrest. By commercial­ izing this sector, it was gradually brought into the realm of government planning. The technocratic rationale behind the poli­ cies of the World Bank and similar institutions hinged on two central factors —the imbalance between agricultural output (especially food production) and population growth, and the inefticiency of existing agrarian structures in terms of productivity per hectare and employ­ ment creation. The first of these focussed at­ tention on the low (and declining) rate of growth in per capita (food) production, and the 141IBRD, Annual Report, 1974, p. 13. l^^See R. Striker, The World Bank..., op. cit, 1979, p. 327, and IBRD, Annual Report, 1977 and 1978. In real terms this was in fact considerably more than the target that McNamara had projected in his Nairobi speech. It almost doubled (in real terms) relative to the previous 5 years, and it was some 35% higher than he had ancitipated (IBRD, Annual Report, 1979, pp. 17-18). 143A. Van de Laar, The World Bank,,,, op, cit., 1980, p. 78. 163 second stressed the underutilization of land and the constraints imposed by prevailing ownership and tenure patterns. Both had to be seen against the economic and political situa­ tion of the early 1970s and conventional inter­ pretations of the problems involved. The logic of their argument was in essence the following. To reduce rural poverty, policies had to raise the level of production and produc­ tivity in the small-farm sector. In the World Bank’s view, what was needed was a doubling of the rate of growth in output from this sector from 2.5% p.a. by 1985.^^^ This would enable farmers to double their annual output by the end of the century, halting the disparity in income distribution and starting to reduce it by the 1990S.145 How this was to be achieved was of course the important issue. As McNamara himself re­ marked in his Nairobi s p e e c h “a 5% rate of growth has never been achieved on a sustained basis among small-holders in any extensive areas of the developing world”. An expansion of these proportions in the smallfarm sector could only be achieved with a high rate of technical innovation, and more particu­ larly *through the increased use of purchase inputs and the provision of adequate infrastruc­ tural support.^^'^ What was proposed was basi­ cally a ‘package’ solution aimed at ‘target groups’ of the rural poor. This view was subse­ quently repeated in the Manila Declaration, which saw the small farmer as ‘the backbone of agriculture’.^^ l44Xhe United Nations/FAO World Plan for Agricul­ tural Development has estimated that for food production to rise by 4.3% p.a. between 1967 and 1985 to meet domes­ tic demand, the marketable surplus would have to rise by some 5-6% p.a. i45McNamara’s Nairobi Address. For a summary see IBRD, The Assault..., op, cit., 1975. i'inBRD, World Bank Operations..., op. cit., 1972, p. 6; IBRD, Annual Report, 1975, pp. 16f. This strategy was never in fact made precise, and there was no solid and detailed elaboration of it. On the contrary, the Bank maintained that “there is no universal formula that prescribes the right mix, or the most effective sequence of activities to raise the incomes of the rural poor” (The Assault..., op. cit, 1975, p. 18). On the ‘package’ approach see IBRD, ibid., pp. 8 and 40f. i^SManila Declaration on Food and Agriculture, Thir­ teenth FAO Regional Conference for Asia and the Far East, Manila, 5-13 August 1976, 164 The Bank adopted the view that the ef­ ficiency of the small farm had been seriously misconceived: in point of fact small-farmer production was labour-intensive, it offered a higher output per unit of land, and it was more efficient in the use of on-farm resources. As higher yielding varieties increased the number of production cycles, the employment that was generated in any one year would be that much greater. In this way the strategy was believed to be particularly well suited to meeting the needs of Third World development. At the same time it was recognized that existing agrarian structures were part of the problem, that they were likely to hamper poli­ cies aimed at the poor, and that land reform was an increasingly pressing issue. “The more secure producers”, it was argued in justifica­ t i o n , “tend to invest part of their higher earnings in their holdings —thus raising the level of investment in agricultural produc­ tion— whereas absentee landlords frequently invest in off-farm activities”. Earnings would be higher because less was tapped off by land­ lords and because security of tenure favoured better production methods. But even so, it was clearly recognized that achieving this was un­ likely in practice to prove sufficient without a complementary readjustment in the input de­ livery system and in marketing facilities.^®* This in turn led to the view that a 'comprehen­ sive' or 'integrated' approach was what was re­ quired. Such was the basic philosophy of the new approach to small-farmer policies. The poor were poor, not because tiiey had been mar­ ginalized by the activities of richer fmners and of agribusiness, but because they had been left behind by the process of 'economic develop­ ment’. Subsistence farming was taken to be more or less synonymous widi poverty, and emphasis was placed on new technology and increasing government intervention “to bring this silent or passive majority into the mainThe Assault..., op. cit, 1975, p. 223. 150FAO, Small-Farmer Development Manual..., op. cit., 1978, p. 156; IBRD, The Assault..., op. cit., 1975, pp. 16 If, and ADB, Annual Report for 1979, p. 28. December 1982 CEPAL REVIEW No. 18 / stream of economic growth and social progress”,i5i The World Bank, as we have seen, made much of its small-farmer emphasis; the resources it channelled to agriculture (US$ 10 018,6 million between 1974 and 1978) were very impressive, and in 1978 it proudly announced with regard to its small-farmer poli­ cy that “all the targets set have been achie­ ved”. H o w , then, should this be interpreted? Certainly it could not be taken to mean that the problems of rural poverty had markedly less­ ened. What had happened was that the political fears of the early 1970s had not materialized, and attention was shifting to the more volatile problem of the urban poor.*®* In analysing what was happening it seems important to maintain a careful sense of per­ spective. For example, while the flow of funds available to agriculture through multilateral agencies rose quite dramatically, the total flow of aid to the sector increased at a slower rate, reflecting the shift away from bilateral aid.*^ At the same time, the agencies retained a steady (if not growing) interest in agro-industry and large-scale agro-commercial concerns. An anal­ ysis of the loans and equity investments of the International Finance Company (IFC) —itself a member of the World Bank Group— shows a definite interest in agribusiness, and the total investments in agro-industry which it co-financed showed a gradual rise.*®® It was by no 151ADB, Rural Asia..., op. cit., 1978, p. 216. A similar thrust can be found in the writings of the other develop­ ment banks and of the relevant United Nations organiza­ tions. 152IBRD, Annual Report, 1978, p. 18. l53This can be seen from the IBRD, Annual Report 1979, pp. 22f. The growing concern with problems of urban poverty is clearly visible in the Bank’s Annual Reports from 1977 onwards. *5^In Asia, for example, aid from multilateral agencies increased fourfold between 1969 and 1974 but total aid flows rose by the much lower (though still significant) fig­ ure of 59%. ADB, Rural Asia..., op. cit., 1977, table lV-1.1, p. 296. ISSprom its establishment in 1956 to 1977 only some 4% of total IFC commitments went to food or food pro­ cessing firms. At the end of this period McNamara was looking to a new phase of IFC expansion in precisely this area, and Henri Bedie was appointed special adviser to see this through. The proportion of its total investment chan­ nelled to agro-industry in the fiscal year 1980 rose to almost 15%, and the IFC Annual Report for 1979 predicted that David Dunham ON TH E H ISTORY AND PO U TICA L ECONOMY OF SMALL-FARMER P O U C IE S / means the case that there was a sustained and all-out effort at small-£armer development. Even within the small-hum sector Bank figures themselves reveal that less dian a quarter of World Bank loans (three-quarters of the 31% devoted to agriculture) were chan­ nelled into rural development projects with a small-farmer componentf and that in these pro­ jects almost half of the direct benefits went —on its own admission— to other groups.^®® An analysis of the approved projects con­ tained in the World Bank's Annual Reports for 1974-1978 suggests that even this more modest view might be optimistic. Though descriptions of individual projects are admittedly brief, the intended beneficiaries are generally indicated, and the impression gained from their analysis is itself revealing. They indicate tfiat the World Bank estimates of its small-farmer effort are high —if not actually exaggerated, that ‘poor small farmers' appear to have comprised a comparatively small proportion (a little more than a quarter) of all ‘small-farmer funds, and that while total funds to agriculture have been steadily rising, the proportion allocated to small farmers has in &ct decreased. Indeed, the image that begins to emerge frrom this ‘smallfarmer policy’ is that promoting and extending the commercialization of viable farms has had precedence over concern for the poorer, more marginal producer. A cautious reading of the Bank’s own poli­ cy statements also shows that from the very beginning it had every intention of continuing its assistance to large-scale producers. It was certainly far easier to help those with ‘some tan­ gible assets’. 157With emphasis placed on rapid commercialization, the provision of credit was a crucial element in the overall strategy, but projects dealing with the production and processing of agricultural resources would in future comprise “an in­ creasing share of IFC’s investment activités” (p. 17). This expansion was not, however, sustained: IFC funding fell sharply from 1978, but the total value of agro-industrial investinents that were IFC-assisted continued to rise (IFC, Annual Reports). 15®IBRD, Annual Report, 1978, p. 18. 15'^M U1 Ha*q, “Changing Emphasis of the Bank’s . Lending Policies”, Finance and Development, Vo\. 15, No. 2,1978. 165 this was not even primarily intended for poorer producers. Credit would be given to the largerscale fanners “when it (was) necessary to raise their production in order to increase domestic food supplies and/or contribute to exports”,i“ This was an important caveat, and over half of the credit was earmarked for such producers.^®® It was explicitly stated that “increased atten­ tion to small farmers should not, however, ob­ scure the need for additional significant in­ creases in aid to other groups, especially me­ dium-scale farmers”.^® And indeed it did not. ® One study of some 18 small-farmer projects in Africa and Latin America financed and im­ plemented with international aid found that two-thirds were focussed on ‘progressive’ farm­ ers and that only one was specifically focussed on weaker groups.^®^ In Ghana the FAO-sponsorod ‘focus and concentrate’ programme was geared to ‘co-operators’ whose farm size was in practice double the local average, while in Kenya the (British/IBRD/IDA-financed) Tea Development Authority restricted small-farm­ er participation on economic grounds.^®^ In Guatemala ‘small farmers’ were defined as producers with less than 45 hectares of land (encompassing 97% of all producers). Half of the funds were allocated to these ‘small farm­ ers', the remainder going to ‘larger’ farms in the top 3%.^®^ Elsewhere, when new resources were fed into an unequal agrarian structure, they generally tended to favour the more pow- 158IBRD, The Assault..., op. cit., 1975, p. 12. ^^Ibid., p. 118. See also ADB, Rural Asia..., op. cit., 197s, and S. Dell, The Inter-American Development Bank..., op. cit, 1974 1501BRD, The Assault..., op. cit., 1975, p. 118. Similarly the ADB argued (Rural Asia..., op. cit., 1978, p. 219) that “although the large mass of the peasantry in these countries comprise small and marginal farmers, the bulk of produc­ tion and most of the marketable surplus comes from me­ dium-sized or^arge farms. It becomes expedient, therefore, to cater to the needs of the latter in order to augment production”. l6lElliot Morss, John Hatch, Donald Mickelwait and Charles Sweet, Strategies for Small-Farmer Development, Boulder, Colorado, 1976, Volume I, p. 17. ^^Ibid., Vol. II; case studies. ^^^Institute for Food and Development Policy, The Aid Debates; Assessing the Impact o f US Foreign Assistance and the World Bank, 1979, quoted in C. Payer, The World Bank..., op. cit., 1979, p. 306. December 1982 166 erful groups regardless of the intention of poli­ cy-makers.^®^ Once these farmers were incorporated into the emerging system diey also became depen­ dent upon it. There was often a high degree of government control in terms of the crops to be grown, the inputs to be used, the timing of various procedures and die madreting chan­ nels. There was litde scope for individual deci­ sion-making or variations ftom the "official" view of what should be done.^®® Indeed, in many cases the shift to modernized production was almost mandatory, and even carried through in the face of opposition.^®®Those who accepted the model and the opportunities be­ came dependent for advice, inputs and often for marketing on government officials, or even on officials of the donor agency that was in­ volved. And the list could be extended. In general, however, it could be said that credit and other resources tended to go to the more wealthy stratum rather than to ‘the poorest of the poor". This aid was strengthening or creating a layer of ‘progressive" farmers relying for their inputs and their prosperity on the bureaucracy and the government in power. It was this smaller group of the ‘not-so-poor" smaller and medium-scale farmers who werejn feet to provide the dynam­ ics of the 5% growth rate that McNamara fore­ saw. Finally, in analysing the policies of these institutions some attention must be paid to the countries that received the bulk of the fìnancial aid and the underlying alliance of interests that this implied. What this reveals in essence is that, in addition to concern for increasing the output of the agricultural sector, there have been strong political considerations in the al­ location of hinds, reinforcing established cap­ italist regimes or serving an impoitant stabi­ lizing function in areas of possible rural unrest or ‘insurgency". For example, the involment of for example papers evaluating the DRI Pro­ gramme, Departamento Nacional de Planifícación, Bogotá; and USAID, Spring Review,.., Vol. XIX, op. d t , 1973. l65See M. Nelson, The Development..., op. cit., 1973, pp. 81-82; USAID, Spring Review, Vol. XIX, op. cit., 1973, and E. Morss et al.. Small Farmer..., op. cit., 1976. i®®See C. Payer, The World Bank..., op. cit,, 1979, pp. 296f. CEPAL BEV IEW No. 18 / U SAID in the drought-stricken countries of the Sahelian region and the transfer there of a French-speaking technical assistance team from Indo-China after the Vietnam war re­ flected a fear of mounting Russian and Cuban influence within that area. When people have land, inputs and the possibility of reasonable subsistence or a higher income, they also tend to be more conservative, and to see more risk in radical points of view. What is more, their de­ pendence on modem delivery systems and marketing arrangements makes them far more open to government control. Given this thmst and the economic self-interest of capitalist countries in opening up markets, it was per­ haps hardly surprising that there should have been no clear relationship between the level of development of individual countries and the size of the loans which they received. Table 1 shows the top ten recipient countries of World Bank and IDA loans for agricultural and mral development over the period 1974-1978, to­ gether with estimates of their per capita GNP at the beginning and at the end of this policy period. These ten countries account for over 55% of Table 1 MAIN RECIPIENTS OF WORLD BANK AND IDA LOANS FOR AGRICULTURAL DEVELOPMENT, 1974-1978 Country India Mexico Indonesia Philippines Brazil South Korea Malaysia Turkey Nigeria Romania Volume of loans (IDA Per capita GNP“ and World Bank) in -------------------millions of US dollars 1974 1978 1644.0 976.0 637.0 586.5 378.0 130 1000 150 310 900 180 1290 360 510 1570 350,0 382.5 269.5 265.0 260.0 390 660 690 240 n.a. 1160 1090 1210 560 1750 Source; World Bank, Annual Reports 1974-1978 and World Bank, Atlas, 1975 and 1979. “At market prices. David Dunham ON TH E HISTORY AND PO U TIC A L ECONOMY OF SMALL-FARMER P O U C IE S / the total loans to the agricultural sector, and it is quite evident that with the notable exception of India and Indonesia none were among the 43 lowest-income countries by World Bank criteria.^®'^ On the contrary, Mexico, Brazil, South Korea/®® Malaysia and Turkey were fairly dy­ namic middle-income countries, while accord­ ing to World Bank figures Romania was among the richest of all. Furthermore, these countries included not only some of the most stalwart capitalist economies, but also some of the-most conservative and socially unresponsive politi­ cal regimes. It is true that the IDA component did not reflect this tendency, and that diere was a dis­ tinction between World Bank and IDA funds, since the latter were intended for the poorest countries (with a per capita income of less than U S| 520 at 1975 prices) which could not afford the near-commercial rates of the IBRD. How­ ever, the funds available through the IDA were comparatively small and they were concen­ trated. Between 1974 and 1978 some 42% of all IDA loans to the agricultural sector went to India alone (US$ 1 408.6 million). Though In­ dia contained less than a quarter of the eligible population for IDA loans by World Bank crite­ ria, this was to some extent understandable, as it was indeed one of the poorest and most populous countries. Put another way, sli^tly over 60% of the world population were tech­ nically eligible for IDA loans, while the latter comprised little more than a third of all funding available from the IBRD. In the case of the Inter-American Devel­ opment Bank over half of its loans were from iSTThe lowest-income countries have been defined by the Bank as those with a per capita GNP of less than US$ 200 p.a. World Bank, Atlas for 1975, p.8. I68\vhile the per capita income of South Korea was comparatively low in 1974, it increased rapidly to US$ 700 in 1976 and US$ 810 in 1977. leflThis is even more apparent in the case of World Bank loans, where the main recipients were (in order) Mex­ ico, Philippines, Indonesia, Brazil, South Korea, Malay­ sia, Turkey, Nigeria, Romania and Thailand. These 10 countries accounted for 63% of all loans to the agricultural sector, I70it comprised roughly two-thirds of the total popula­ tion in the poorest (less than US$ 200)income group. It is clear that priority was being givenJm this group, the only exception being Morocco, which had a per capita income in 1974 of US| 430. 167 the outset focussed on only four countries —Brazil, Mexico, Argentina and later Colom­ bia— and although low-income countries fared better in the distribution of concessionary FSO loans (Fund for Special Operations, compara­ ble to the IDA), even there very clear anom­ alies could be observed. In the case of the Asian Development Bank almost 60% of all loans went to South Korea, the Philippines, Indonesia and Pakistan in that order, while Bangladesh and Pakistan received the bulk of its Special Funds (44% over the period 19671979).^'^^ The availability of ‘suitable’ projects no doubt had an influence on the annua] alloca­ tion of funds, but the overall pattern that was to be observed in all these agencies reflected an underlying concern with i>olitical stability and economic expansion. The aid policies of multilateral (and most bilateral) agencies reflected the economic and political self-interest of the advanced capitalist nations who were the major subscribers. They were built on current theories about ‘the needs of development', but in practice they fitted a longer historical tradition in which small-farm­ er policies were introduced according to the needs of a broader economic and political strat­ egy aimed at capitalist expansion. Finally, the discussion of small-farmer pol­ icies cannot stop at an analysis of their objec­ tives and the distribution of funds. It must also look at their implementation, and several points can be made in this regard to re-emphasize some of the underlying forces at work. Firstly, multilateral agencies work through a bureaucratic apparatus amongst whose senior staff the advanced capitalist countries are strongly represented. Stringent appraisal, pro­ curement and disbursement procedures are used as a means of control, and they provide a bias towards capital-intensive projects with a large import component.^'^® Dell, The Inter-American Development Bank..., op. cit., 1972, pp. 126-129, for the period 1961-1970, and ID B, Annual Report, 1979, p. 36. Over the period 1961- 1979 FSO funds went primarily to Brazil, Colombia, Mexi­ co and Bolivia in that order. In the earlier part of the period (1961-1970) they went (again in order of total volume al­ located) to Brazil, Mexico, Colombia, Chile and Argentina. 172j\d b , Annual Report, 1979, p. 23. 173S. pell, Inter-American Development Bank..., op. 168 Secondly, the nature of these projects is frequently such diat they are dominated by engineering concerns or by a hefty administra­ tive apparatus. Many projects have in practice suffered from both. Those which have a large irrigation component or those opening new land have been planned with a heavy emphasis on engineering criteria; the physical layout was normally decided first (often to a remarkable degree of detailed design, such as the location of homesteads and delimitation of plots) and social factors (the nature of the rural communi­ ty) have proved at best to be of only secondary concem.^’^ ^ From the very beginning, the planning of a small-farmer project was likely to revolve around the use of norms, standardized proce­ dures and a fixed image as to the most ‘appropri­ ate’ farming unit, based on the idea of‘the in­ dependent, individualist peasant proprietor. The unit in mind was generally one small enough to be worked with family labour. Ideal­ ly, the plots would be of equal size (in the belief that this would remove an important source of inequality), and wherever possible let under strict conditions forbidding sale for profit, mortgaging of land or its fragmentation. All of this was likely in practice to be totally different from the life and expectations of peasants in existing production areas. Once the project was established, it was usually characterized by a strong degree of ad­ ministrative control and a paternalistic attitude towards the producer. In Morocco it has been noted that the staff of small-farmer projects tended ‘to be highly authoritarian and empha­ cit, 1972, p. 42, and R.P. Dewitt, The Inter-American De­ velopment Bank..,, op. cit., 1980. this respect see David Dunham, “Settlement Schemes and Family Farms as Policy Options: The Case of the Mahaweli Ganga Development Programme”, ISS, The Hague, 1979; M. Nelson, The Development..., op. cit., 1973; Mahaweli Development Board, Proposals for Hu­ man Settlement, Colombo, April 1978, and Marshall Wolfe, “Rural Settlement Patterns of Social Change in Latin America: Notes for a Strategy of Rural Development”, Lat­ in American Research Review, Vol, 1, No. 2,1966. I750n the general insensitivity to existing rural insti­ tutions see Uma Lele, The Design o f Rural Development, IBRD, Baltimore, 1975, p. 176. This runs throughout the thinking on integrated rural development. December 1982 CEPAL REVIEW No. 18 / size control’ much the same is true of the Autorité des Ménagements des Valleés des Volta (AW) in Upper Volta, the Mahaweli Ganga scheme in Sri Lanka, and many more.^*^ In the majority of cases the need for technical ad­ vice (given the parameters laid down by project officials) was a real one but the officiais’ role in farm management decisions was often such that the farmer was left with little say in the way that the farm was run. Finally, it must be added that many of the prominent officials were for­ eign nationals;^™ indeed, both in the engineer­ ing emphasis and the administration of individ­ ual small-farmer projects, foreign ‘expert’ ad­ vice was often necessary, or was laid down as a condition of external aid. The lack of concern with the nature of the rural community that was being created tended to promote individualism and to foster a greater degree of differentiation. The organization of farmers was strictly supervised, and beyond the needs of production and marketing it was in many instances actively discouraged. In Boli­ via (in Alti Beni II),^*^ “traditional campesino unions were banned, while the cooperatives imposed were specifically prohibited from tak­ ing any political overtones”. In Colombia organizations formed under the Integrated Rural Development Programme (DRI) were confined to marketing,^*® and in many other areas the power of ‘progressive’ farmers was such as to limit the effective viabil­ ity of farmers’ organizations and peasant unions. In short, small-farmer policies have tended to be heavily oriented towards increased out­ put and commercialization, with more concern i'^^Cynthia Gillette, “The Credit Connection: Cultural and Social Factors Affecting Small-Farmer Participation in Credit Programmes”, USAID, Spring Review, 1973, p, 167. 1‘^ See European Economic Community, Programme ’^ Global d'Etudes d’lrwestissement de TAW, Brussels, 1978, and Rapport sur la Campagne Agricole, Ouagadou­ gou, 1978. See also Chambers, Settlement Schemes..., op. cit,, 1969, pp. 83f, On the Mahaweli see Henk van Roosmalen. Social Aspects o f Settlement in the Mahaweli, The Hague, 1979. l™See E. Morss et al. Strategies..., op. cit., 1976, pas­ sim. i^^M. Nelson, The Development..., op. cit., 1973, p. 93. 180DNP/DRI, Evaluación del impacto socioeconómi­ co: subprograma comercialización de DRI áreas 4, Bogotá, August 1980. David Dunham ON TH E HISTORY AND POLITICAL ECONOMY O F SMALL-FARMER POLICIES / for efficiency in agricultural production tiian for the way it affects the lives and communities of small producers. The policies themselves have tended to be such that they have served to create a stratum of wealthier, more successful farmers and more inequalities, or else they have strengthened already powerful groups in the local community There is no doubt that a great many small farmers have benefitted (of­ ten substantially) as a result of these pro­ grammes; many projects have seen a notable increase in productivity, and in others the area cropped has expanded considerably, often with a rise in producer prices and in the average income of people in the area of the project concemed.^®^ This is not in dispute. The point iSlSee materials on the impact of the Colombian DRI Programme and the case of the FLDA Land Development Schemes in West Malaysia (for example, Noel Benjamin, “The Role of Land SetÜement in the Economic Develop­ ment of West Malaysia 1957-1970”, Development and Change, Vol. 9, No. 4,1978, pp. 581-598. l82See for example DNP/DRl, La silenciosa transfor­ mación del campesino minifundista en Antioguia, Bogotá, June 1980; DNP/DRl Evaluación del Impacto..., op. cit; and Sector Publico Agrícola y Secretaria del Consejo Na­ cional de Planificación Económica, Análisis del impacto del crédito de fincas pequeñas sobre ingreso, empleo y producción agropecuarios, Guatemala, June 1976. 169 is that along with it has tended to come increas­ ing differentiation and inequality. The policies of international development agencies have tended to be such that govern­ ments have had to tailor their own develop­ ment plans to these ideas in order to obtain loans, and such have been the accumulated debts of many of these nations that external capital has been crucial to their survival. The small-farmer thrust implied commercialization of the peasant sector, dependent on the capi­ talist economy for modem inputs and subject to a high degree of administrative control. It has been slowly drawn into the ambit of govenment planning; in the process it has become a manipulable element in economic strategy, less sus­ ceptible to the influence of radical groups and rural unrest. In this sense small-farmer policies have been part of the response of capitalist nations to the perceived needs and threats of the 1970s. They fitted a historically established pattern of adjustments and coercions designed to make use of the small-farm sector for wider needs. Small-farmer policies in this direction were not as much a solution to the poverty problem as a set of measures reproducing and reinforcing si­ tuations in which marginalization continued or was in fact made worse. Algunas Publicaciones de la CEPAL CEFAL, Economía campesina y agrícultura empresarial: Tipología de productores del agro mexicano, Siglo Veintiuno Editores, Mexico City, 1982. Until well into the 1960s, concern for the structural prob­ lems of Mexican agriculture were in general confined to the problem of the desirable relationship between the ejidal and private components. This relatively limited interest in delving into the structural problems of agriculture should come as no surprise considering that for a quarter of a century following the end of Cardenism, the behaviour of Mexican agriculture constituted one of the most outstand­ ing examples of the classical paradigm on relations be­ tween agriculture and development or, more specifically, between agriculture and growth of the urban-industrial complex. During that period the agricultural product grew at an annual average rate higher than 4.5%, with a cumulative increment of the product per person employed of about 2.8%. The domestic demand for food and inputs could be fully met at prices which were stable and even declining (1950-1963) by comparison with industrial prices. Agricul­ tural imports never exceeded 5% of the total local supply of these products, and usually amounted to 1% and 2% of the local supply. The city-countryside price ratio, which had grown by some 33% in the decade 1940-1950, dropped by some 23% in the following period. Foreign currency of agricultural origin was generated at an increasing rate (close to 6.5% as an annual average) until eventually it represented over half the total from exports of goods. The rural sector increasingly supplied the labour required for industrial urban growth, and the wages received by that labour increased appreciably more slowly than did produc­ tivity in the industrial sector. The rural population fell from nearly 65% to 45% of the total population in the period referred to, and per capita productivity in industry grew (at 1960 prices) by over 119%, while the minimum urban wage increased by only 31%. Surpluses were produced which could be transferred to the industrial accumulation through the fiscal, banking and price systems, and in some years the surpluses equalled 15% of the agricultural product. Final­ ly, the development of a modem agricultural sector and, to a lesser extent, the decline in peasant self-reliance con­ tributed to the more or less rapid growth of a domestic market for manufactured inputs and finished goods. However, in 1966 a downward trend began in the amount of land sown which could be offset only by an improvement in crop yields and composition. Because of this, the agricultural product grew by barely 0.8% a year in the period 1966-1977; all the elements of the paradigm began to revert. Self-sufficiency in food came to an end and imports of maize and beans reached unprecedented pro­ portions; the net agricultural balance, which in 1965 fi­ nanced a quarter of all imports, became a marginal, and in some years even a negative, source of income. Agricultural prices grew at a rate higher than those of the economy as a whole, especially in the period 1970-1977. The flow of labour remained significant, but, far from bolstering devel­ opment, it became a hindrance in that conditions were not such thht the flow could be productively absorbed in other sectors, and the emigration of labour to urban areas resulted in increasingly high social costs. In these conditions, the optimistic slant of the studies of the early 1960s, which was due to the high degree of elasticity of the agricultural supply, has been replaced by a search for the origins of the recession and stagnation in the sector. In addition, there is a growing consensus that indus­ trial development, no matter how rapid it might be, may not be able to give the poor people of the countryside an op­ portunity to escape from their poverty within a reasonably foreseeable future. Awareness of this fact has led to the formulation of, among other proposed solutions, the ambi­ tious prbject known as the Mexican Food System, which insofar as agriculture is concerned, represents a specific attempt to make this vast social segment self-sufficient in food. The need to dig deep in analysing the agricultural crisis and to design strategies or policies which would make it possible to tackle the problems of rural poverty which have been aggravated by the recession brings the analysis of the structural problems to the fore and makes it the focal point of sectoral considerations once again, super­ seding the attempts to ‘explain’ the loss of dynamism of the supply in terms bf simple relations of cause and effect, ascribing it to investment, prices, the domestic demand, the international demand or to any combination of these variables, such an approach having proved to be unsatisfac­ tory. The main intention of this study is, precisely, to con­ tribute to the analysis of the Mexican agrarian structure by integrating both the theory underlying its reformulation and the practical results of that reformulation, which draws upon the concepts introduced in a vast body of literature which has been produced on this topic since the mid-1960s. In addition to the objective described above, there is that of showing that the proposed reformulation constitutes a use­ ful tool in designing a rural development strategy which would take into account the varied range of producers which such a strategy will necessarily involve. The study has been divided into three parts: the first part is devoted to the theoretical development of the con­ cepts which will be used to construct the typology; the second part presents the quantitative results of the typolo­ gical analysis; and the third part gives an example of the way in which this typology may be used in designing a rural development strategy. Estilos de desarrollo de la industria manufacturera y medio ambiente en América Latina, Estudios e Informes de la CEPAL Series N.® 11, Santiago, Chile, 1982,180 pages. This study was prepared for the project on “Styles of devel­ opment and environment", implemented in CEPAL in November 1979, It does not claim to be a polished piece of research on a topic as complex and vast as its title indicates, but is concerned only to point out some of the fundamental aspects of the transnational style of development which prevails in the Latin American manufacturing industry. 172 In it consideration is given to some of the things which define this style, such as the repercussion had by the trans­ nationals, the dominant technology, the industrial struc­ tures and the way in which they change, the quality of life, the location of industries, natural resources, consumption of energy, the physical environment, etc. In respect of many of these subjects, the author is supported both by research carried out previously and studies conducted as part of the project referred to. The impact of industrialization on water resources is subjected to thorough analysis since it is used as the basis for a clear demonstration of an important working hypothesis; i.e., the present style of development is steadily eroding the physical and human environment, in both qualitative and quantitative terms. The study is divided into two parts. In the first part, concepts relating to styles of development and their eflects on industry in a wet environment are presented; in the second part an analysis is made of the style which prevailed in the 1950s and then of upward development style and the present or transnational style. All this is presented within the context of what has been the dynamic of the region ever since industrialization began. Relaciones económicas de América Latina con los países miembros del Consejo de Asistencia Mutua Economic ca (CAME), Estudios e Informes de la CEPAL Series N.® 12, Santiago, Chile, 1982,154 pages. This is a comprehensive report on the studies carried out under the joint CEPAL/UNCTAD/UNDP project on eco­ nomic relations between Latin America and the member countries of the Council for Mutual Economic Assistance (CMEA). In the first part of the report consideration is given to the general characteristics of the trade between the coun­ tries of Latin America and the CMEA countries and the obstacles to it; there follows a description of the institu­ tional system and the contractual framework in which eco­ nomic relations between the two areas are carried out, and finally, consideration is given to the special case of Cuba, a Latin American country within CMEA. Thus, a compre­ hensive approach is taken to the presentation of the main accomplishments and problems with regard to the trade relations between the Latin American and CMEA coun­ tries, as revealed in die abundant data contained in the 17 reports and documents prepared under the CEPAL/UNC­ TAD/UNDP project. The data has been grouped under headings, most of which refer to concrete country situa­ tions. Campesinado y desarrollo agrícola en Bolivia, Estudios e Informes de la CEPAL Series N.” 13, Santiago, Chile, 1982,175 pages. Prepared by the CEPAL/FAO Joint Agriculture Division, this document consists in a study of an agricultural sector in which nearly two thirds of the population of the country live and work and where, in spite of the progress which has resulted from a process of transformation, new mechanisms obstruct opportunities for peasant development. In the December 1982 CEPAL REVIEW No. 18 / study, consideration is given to the agriculture of an eco­ nomy with litde industrial development and a strong min­ ing tradition. The analysis covers the years between 1950 and 1977, which marked the transition from an agricultural sector which was primarily hacienda-oriented to an economy ba­ sed essentially on mineral exports, in which a peasant agri­ culture is taking shape. This is happening as part of a revo­ lutionary process which is changing the power structure, nationalizing the basic wealth and finally creating a new social framework in Bolivia. It is therefore useful to give consideration to how this resjtructuring of social relations alters or changes the nature and scope of intersectoral rela­ tions and the economic performance of the sector. In its various chapters, the study examines data relat­ ing to the development of Bolivia during recent decades, agrarian transformation and structural heterogeneity, the Bolivian agrarian economy, market participation of peasant farmers and their income and expenditure, markets and agricultural prices, the share of the crop-raising sector in final income and expenditure and, finally agricultural cre­ dit. CEFALINDEX (summaries of CEPAL/ILPES documents) Vol, 4, No, 2, December 1981. In this publication the Latin American Centre for Econom­ ic and Social Documentation (CLADES) continues its anal­ ysis and processing of the documentation prepared by CEPAL and ILPES. Its objective is to disseminate the thinking of the Economic Commission for Latin America by issuing a publication which contributes to the transfer and exchange of socioeconomic information in the region and provides for a data base which is easy to obtain and consult. The material analysed in this volume relates to meet­ ing documents, working drafts (only in cases where final publication has not yet occurred) reports and studies, an­ nual reports, books, texts and articles, most of which were published by CEPAL and ILPES during 1981. Política económica, organización social y desarrollo régional, by Sergio Boisier, Cuadernos del Instituto Lati­ noamericano de Planificación Económica y Social (ILPES) Series No. 29, Santiago, Chile, 1982, 149 pages. In this little book, the author summarizes his own personal experience and the collective experience of a profession which, at least in Latin America, seems to be in the midst of a severe crisis in which the accumulated knowledge is being put to the test while, at the same time, as in any unsatisfactory situation, the ground is fertile for the genera­ tion of new ideas and for great qualitative and quantitative progress in understanding the subject-matter covered by the profession. Chapter I first and foremost presents the frame of re­ ference in terms of the economic system, the prevailing styles of development and the dominant paradigm of re­ gional planning. These elements are considered to be the parameters, which determine, more or less rigidly, the con­ SO M E CEPA L PUBLICATIONS text within which the suggested interpretation of the re­ gional development process is viewed. Secondly, there is an exposition of the way in which regional development is interpreted in terms of the economic, institutional and so­ cial factors responsible for the existence or lack of regional development. Chapter II contains an extensive discussion of the logic behind the process of allocating resources among regions. Chapter III is dedicated to an examination of the regional impact of the economic policy; in addition, 173 an annex to this chapter contains a case study on fiscal policy and regional development in Chile, which provides a practical illustration of the argument advanced in the chapter itself. Chapter IV refers to the regions’ capacity for social organization, and this capacity is examined firom the point of view of an increase in the regional capacity for decision-making, the possibility for internalizing grflwth itself at a regional level and of participation by the popula­ tion. The last chapter consists in a summary. 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