CEPAL Review RAUL D irec to r PREBISCH Technical E d ito r ADOLFO GURRIERI UNITED NATIONS ECONOMIC COMMISSION FOR LATIN AMERICA SANTIAGO, CHILE/DECEMBER 1979 ECONOM IC COMMISSION FOR LATIN AMERICA E xecutive S ecretary Enrique V. Iglesias D e p u ty E xecu tive S ecretary f o r C o -o p era tio n a n d S u p p o rt Services D e p u ty E xecu tive S ecretary f o r E conom ic an d Social D evelo p m en t Robert T. Brown Norberto González PUBLICATIONS ADVISORY BOARD Oscar Altimir Eligió Alves Nessim Arditi Oscar J. Bardeci Ricardo Cibotti Silboume S.T. Clarke Jorge Graciarena Luis López Cordovez Roberto Matthews Michael Nelson René Ortuño Aníbal Pinto David Pollock Alejandro Power Gert Rosenthal Octavio Saavedra Alejandro Vera Jorge Viteri PUBLICATIONS COMMITTEE Héctor Assael Oscar J. Bardeci Andrés Bianchi Robert Brown Norberto González Jorge Graciarena Adolfo Gurrieri Jorge Viteri E x-officio members: Marta Boeninger Claudionor Evangelista (CLADES) Robert Gould Jorge Israel (ILPES) Guillermo Macció (CELADE) Aurelio Ruiz Octavio Saavedra Secretary o f the Publications Advisory Board and the Publications Committee R enée Chassagne U N IT E D NATIONS PU B U C A T IO N Sales N.° E.79.II.G .5 Price: US$ 3.00 (or equivalent in other currencies) NOTE Sym bols of U nited N ations docum ents are com posed of capital letters com bined w ith figures. M ention of such a symbol indicates a reference to a U nited Nations docum ent. T h e designations em ployed and th e presentation of th e m aterial in this publication do no t im ply the expression o f any opinion w hatsoever on th e part.of th e Secretariat of th e U nited Nations concern in g th e legal status of any country, territory, city or area or of its authorities, or concerning th e delim itation of its frontiers or boundaries. CEPAL Review Number 9 December 1979 CONTENTS Latin America on the threshold of the 1980s Enrique V. Iglesias 7 The periphery and the internationalization of the world economy Aníbal Pinto 45 Commercial bank finance from the North and the economic development of the South; congruence and conflict Robert Devlin 69 Exports and industrialization in an orthodox model; Chile, 1973-1978 Ricardo Ffrench-Davis 95 José Medina Echavarria; an intellectual profile Adolfo Gurrieri 115 Notes and Comments; Two statements at La Paz; Raúl Prebisch and Gabriel Vaidés Two statements at the ILPE S/CEPAL/UNICEF Course on Social Planningi Jorge Méndez and Carlos Martinez Sotomayor 171 Some CEPAL publications 185 T h e secretariat o f th e E conom ic Com m ission for Latin America prepares th e CEPAL Review, but th e view s ex p ressed in th e signed articles, including th e contributions of secretariat staff m em bers, are th e personal opinions o f th e authors an d do not necessarily reflect the views o f the Organization. E/CEPAL/1096 December 1979 Notes and explanation of symbols T h e follow ing sym bols are u se d in tables in th e Review: T h re e dots (...) in dicate th a t data are not available or are not separately reported. A dash (— ) indicates th at th e am ount is nil or negligible. A b lank space in a table means that th e item in question is not applicable. A m inus sign (-) indicates a deficit or decrease, unless otherw ise specified. A p o in t (,) is u sed to in dicate decim als. A slash (/) indicates a crop year or fiscal year, e.g., 1970/1971, U se o f a h y p h e n (-) b e tw e e n years, e.g., 1971-1973, indicates reference to the com plete num ber o f calendar years involved, in cluding th e b eginning and e n d years. R eferences to “tons” m ean m etric tons, and to “dollars”, U nited States dollars, unless otherw ise stated. U nless oth erw ise stated, references to annual rates of grow th or variation signify com pound annual rates. In d iv id u a l figures an d percentages in tables may not necessarily add up to th e corresponding totals, because o f roundin g . Introduction C E P A L R E V IE W December 1979 Latin America on the threshold of the 1980s Enrique V. Iglesias* W ith th e e n d o f th e 1970s a t h a n d , by w ay o f d ra w in g u p a g e n e ra l b a la n c e th e a u th o r sk etch es th e m ain fe a tu re s o f L a tin A m e ric an d e v e lo p m e n t in th e re ­ c e n t p a s t a n d n o te s th e m a in c h allen g e s w h ic h th e re g io n w ill h a v e to face in tire y ears to com e. H e b e g in s b y re c o g n iz in g th a t since th e w ar, and e s p e c ia lly d u rin g th e 1960s a n d th e b e g in n in g o f th e p r e s e n t d e c a d e , L a tin A m erica a c h ie v e d vigorous e c o n o m ic g ro w th , b u t h e stre sse s th a t th is d id not s u c c e e d in so lv in g som e o f th e m ost serio u s social p ro b le m s , w h ile it a lso b ro u g h t w ith it a grow ing in te rn a tio n a liz a tio n o f th e e c o n o m ies o f th e region, w ith a c o n s e q u e n t in c re a se in th e ir e x tern al v u l­ n e ra b ility . F u rth e rm o re , to w a rd s th e m id d le o f the 1970s th e r e w as a re v e rsa l o f th e e x p an siv e c y cle as a r e s u lt o f th e flag g in g p e rfo rm a n c e o f th e c en tral e c o n o m ie s , th e c h a n g e s in th e in te rn atio n al p rice s o f so m e g o o d s, e sp e c ia lly oil, a n d th e in te rn a l d ifficul­ tie s fa c e d b y th e n a tio n a l d e v e lo p m e n t p a tte rn s th e m s e lv e s . In th e lig h t o f th is situ atio n , he holds that r e d o u b le d efforts m u st b e m ad e to e n su re th at in th e c o m in g y e ars th e c o u n trie s m ove tow ards an e q u ita b le , d y n a m ic a n d in d e p e n d e n t form o f d e ­ v e lo p m e n t. T h e a c h ie v e m e n t o f th e s e o bjectives in v o lv e s, in tu rn , th e c ap acity to overcom e th ree fu n d a m e n ta l c h a lle n g e s; im p ro v in g th e social irra­ d ia tio n o f e co n o m ic g ro w th , s p e e d in g u p its rate and m a k in g it m o re in d e p e n d e n t. A fter th e p re s e n ta tio n o f th is fram ew ork o f a n a ly sis, th e m ajor p a rt o f th e p a p e r is d e v o te d to c o n s id e ra tio n o f th e re q u is ite s im p o sed by th e se o b je c tiv e s, th e p o te n tia lity o f th e reg io n for a ch ie v ­ in g th e m , a n d so m e o f th e m ost su ita b le strateg ies to r «Joing T h e a rtic le c o n c lu d e s w ith som e re fle c tio n s in w h ic h th e w rite r sum s u p his view s a n d s tre sse s th e n e e d for a sy stem atic reappraisal o f th e id e a s a b o u t th e e co n o m ic a n d social d e v e lo p ­ m e n t o f th e re g io n in o rd e r to a d a p t th e m to a rapidly c h a n g in g context. *Executive Secretary of CEPAL. As on other occasions, I should like to take this opportunity to express some thoughts on the economic and social situation of the region, in the light of our observation of the many diverse facets of Latin American reality. This meeting is taking place at a special moment in our history, as one decade draws to a close and another dawns. These moments of transition have a particular attraction in the historical evolution of our societies, for they are suitable occasions for exercises of introspec­ tion which enable us, as we look at the recent past, to put forward some hypotheses concern­ ing the major problems and challanges which will face us in the 1980s. An exercise of this kind is particularly timely and necessary at a moment when the governments of the region must turn to the task of laying the foundations of what is to be the international development strategy for the forthcoming decade, to be discussed by the United Nations General As­ sembly in 1980. This kind of analysis, however, is inher­ ently fraught with difficulties, for obvious reasons. In the first place, we are living today under the sign of change and uncertainty in all spheres. This is clearly visible in the international economic situation and the violent changes in the political, economic and social settings which affect the very values on which we believed that post-war civilization was firmly based. These changes transcend the confines of economics, and call into ques­ tion in various ways man's present and con­ tinued existence on this planet. Furthermore, the growing interdepen­ dence among the nations of the globe —another sign of our times— means that no-one can escape the effects of these changes, and our region has certainly felt their impact especially strongly. One thing is sure, namely that follow­ ing a period of extraordinary prosperity and confidence in a stable future, which began some thirty years ago, we have entered a dangerous period in which feelings of inse­ curity and anxiety about the future prevail at every level. It is therefore a hazardous business to venture on hypotheses about the probable course of future events. All forecasts which 8 C E P A L R E V IE W N .° 9 i D ecem ber 1979 go beyond the short term may become quite unrealistic very shortly after being formulated. It is equally difficult to formulate hypothe­ ses about the future of Latin America, again for a number of reasons. Perhaps the most important of these is the course followed by the world economy, which has such a direct effect on the development of the countries of the region. Equally important are the great changes which have taken place in Latin America in recent years. New political situa­ tions, new economic experiences and new so­ cial factors have emerged, revealing profound changes which in many respects are often in keeping with those which have occurred at the world level. This has meant that the common traits of the region have been overlaid by increasingly clear and unmitigated disparities between some of our countries, stemming partly from their varying geographic and demographic size, their different economic and social struc­ tures, or the particular way in which they are linked with the world economy. This explains why, despite the common denominators, it is more difficult now that previously to general­ ize about the problems of the region. Always risky, such generalizations have now become more dangerous than ever. Despite these obstacles, however, re­ flection about the immediate past and possible future scenarios for the region as a whole is particularly necessary and opportune. The speed with which events are taking place in the modem world often obliges us to give priority to immediate problems. Thus, by force of circumstance, there is a growing tendency at all levels to focus on the short term, a tendency which should be overcome from time to time, however, in order to draw on the wealth of regional experience for guidelines to orient future action. This, indeed, has been the role of CEPAL over its many years of existence. We therefore feel bound, on occasions such as this, to express our thoughts to the governments of the region — in all honesty, and fully aware of the limita­ tions of the undertaking— in order to let them know our views on the fundamental problems of the day and the great challenges of the approaching decade. It is in this spirit that I wish to make a number of comments on three major areas of concern: —Firstly, the main lessons to be learned from the economic and social evolution of the 1970s. —Secondly, the balance-sheet of the achievements and shortcomings of the process of change observed in the region in recent decades. —Lastly, what we consider to be the main challenges of the near future. I T h e 1970s: culm ination o f a cycle, interruption and advance towards the unknow n If, looking back, the period between 1970 and 1973/1974 represented the euphoric Anyone looking at the main feature of the world culmination of the post-war cycle of expansion, economic situation in the 1970s must conclude the succeeding years saw the interruption of that the decade will be remembered for two that process and the beginning of a stage of fundamental aspects: the culmination of a substantial adjustments which are still continu­ cycle of unprecedented progress which began ing, and whose complexity, intensity and dura­ in the 1950s, and the profound change of tion make it impossible to discern as yet the direction in this trend which occurred in the nature of the new stage which may take shape after this interregnum. m iddle of the 1970s. A. The tu rn a ro u n d o f th e 1970s LATIN AMERICA ON THE THRESHOLD OF THE 1980s / Enrique V. Iglesias Some tend to view the 1973 rise in oil prices as the decisive element in this uneven evolution. However, it is important not to exaggerate its importance, or to ignore other significant factors, for in reality this rise in prices was superimposed, in the central eco­ nomies, on a variety of monetary and financial upheavals which date from the final years of the previous decade, and which emerged clearly in 1971. Even at that time the embryonic symptoms of “stagflation” had already been diagnosed, and deep thought was being given to the possible consequence of the policies designed to remedy it by decreasing growth rates.1Thus the “oil trauma” should be regarded more as the spark which precipitated and aggravated a worsening situation than as the sole or basic cause of it. tí we must not forget in our current discussions on interdependence. At the same time, one can also see with clarity the impact of the realign m en t o f in ter­ n a tio n a l p ric e s , a n d p a rticu la rly the rise in th e p ric e o f p e tro le u m . The latter has had very different effects depending on the country in question: so much so that it has necessitated a systematic differentiation between countries which export fuels and the remaining non-fuelexporting countries —the majority— which have had to face up to different degress of dependence on imports. It is worth while emphasizing that the serious problems of the latter have not led to conflicts or animosity vis-à-vis the former, the fundamental reason being that the affected countries have not forgotten two very impor­ tant aspects of the matter. Firstly, it is almost beyond doubt that no The fact is that, for a complex set of other primary commodity —in this case non­ reasons, a signif icant break took place in a trend of progress and economic growth which had renewable— had suffered such a damaging begun two and a half decades previously and deterioration in its price in the post-war period. In fact, as is demonstrated in a recent CEPAL which had begun to seem indefinite. publication, the real price of petroleum If the problem is viewed from the stand­ dropped by almost half between 1950/1951 and point of our region, a similar evolution can be 1973, before it was readjusted.2 This process identified in the economic field: the culmina­ might well be regarded as a clear demonstra­ tion of a dynamic cycle of growth in the product tion of the historical short-sightedness of the at the beginning of the decade, followed by a traditional policy on raw materials and its decline in the expansionary cycle in the second consequences. In that context the following half of the period. statement by the President of the European The first essential element in the decline Economic Community, Mr. Roy Jenkins, is in the region’s former buoyant trend was, of telling: course, th e p erfo rm a n ce o f the cen tral eco­ “For far too long the industrialized world n o m ies. The document presented to the assumed that it had a divine right to indefinite CEGAN meeting by CEPAL records with supplies of cheap energy. We finally seem to startling clarity how growth in the region has be learning from our mistakes, although the followed the ups and downs in the central learning process is still too slow.”3 countries, and particularly the downward Secondly, leaving aside possible reserva­ tendency starting in 1974/1975 (see figure 1), tions concerning the form of the price readjust­ Notwithstanding slight differences in ment and the use made of the increased trajectory, intensity and performance in spe­ revenue, the affected countries could not but cific cases —to which I shall refer below— appreciate the potential implications of joint this parallelism confirms the long-standing conception of the reflex character of the cycli­ 2See J. World oil prices: prospects and cal movements at the periphery —a fact which implicationsW. rM ullen, policy-makers in Latin America's fo energy oil-deficit countries. Cuadernos de la CEPAL, Santiago, 1978. ^ e e , for exam ple, CEPA L, Economic Survey o f Latin America, 1971 (U nited N ations publication: Sales N.° E .7 3 .II.G .I). 3Europe and the Developing World, speech delivered to th e O verseas D ev elo p m en t Institute in London on 8 M arch 1979. Figure l GROWTH RATES OF THE MAIN INDUSTRIALIZED ECONOMIES AND OF LATIN AMERICA {A n n u a l percentage grow th o f the gross d o m estic p ro d u c t at co n sta n t prices) 13 A-INDUSTRIALIZED COUNTRI ES 12 II 10 9 8 7 6 5 United Stat es 4 3 2 Western European i ndust ri al i zed countries t 0 -I 1967 66 69 70 71 72 73 74 75 76 77 10 B-LATIN AMERI CA 9 8 7 6 Other countries S Lati n Ameri ca 4 A r g e n t i na , Sraz it, Mexi co 3 2 i; o -ï (9 6 7 68 LATIN AMERICA ON THE THRESHOLD OF THE 1980s I Enrique V. Iglesias action in favour of an adequate return for their commodity exports. Finally, it is also clear that the upsets of the recent period are linked with th e inh erent c h a r a c te r istic s o f n ation al fo rm s o f d e v e lo p ­ m e n t a n d th e p o licies a d o p te d to d ea l w ith th e m . Despite the favourable climate for expansion which prevailed until 1973/1974 in Latin America, one cannot forget that even then many countries were encountering serious difficulties and uncertainty concerning the continuation of the process of transformations in production and the form of that process, especially as regards its social impact Al­ though it had specific features in each country, this situation was repeated both in the larger economies and in the medium-sized and smaller economies. In this way the particular problems posed by the international economic situation were added to the specific problems of each country and were either exacerbated or alleviated depending on the countries’ degree of vul­ nerability and the capacity of national policies to deal with them. B. The p ressu res o f th e conjuncture: new fa c e s f o r o ld p ro b lem s The upheaval in the middle of the decade took place against this background, and economic policies had to face, in addition to the tradi­ tional challenges, the more pressing problems arising from the international economic situa­ tion. On the one hand, the countries most affected by the situation were obliged to tackle simultaneously problems on their external accounts, the repercussions of inflation, and their depressive consequences for production activity, employment and income distribution. The policies differed according to the coun­ tries, but all of them had to take dramatic steps, combining and re-ordering their defensive policies in very different ways. The three-way choice between growth rates, external borrow­ ing and the degree of inflation was as frequent as it was painful, and old problems reappeared which the region thought it had overcome in the euphoria of the beginning of the decade. Secondly, the countries which benefited 11 from a rise in their foreign currency earnings had to cope with the task of assimilating the additional resources in such a way as to ensure maximum impact on development and mini­ mum effect on inflation. Their position was more favourable than that of the former, but it undoubtedly put the tools of economic policy to the test. It w h o u ld be m istaken to liken th is crisis o f th e m id-1970s to previou s crises , for two reasons which, it seems to us, should be underlined with particular emphasis in order to describe the new situation correctly. (a) The ‘in tern a tio n a l fin a n c ia l perm is­ siv e n e s s’ which, as a result of the unpre­ cedent abundance of financial resources arising from the oil surpluses and the crisis in the industrial centres, made it possible to moderate the effects of the payments imbal­ ances and postpone many of the costs of the adjustment in international prices. Of course, this also led to considerable borrowing, which by the end of 1978 was estimated at about US$ 100 billion for the region as a whole. This financial permissiveness was a com­ pletely new factor in the historical experience both of the region and of the world as a whole. While in most cases the balance-of-payments crisis did not have a dramatic impact on internal development, it did make it necessary to adjust growth rates and incur substantial loans to which we shall refer again below. ( b) The region’s ‘new capacity to d efen d its in te r e s ts ’, which manifested itself in many ways. There is no doubt that vital importance was assumed by the progress achieved in previous decades in the broadening and diver­ sification of the structure of production: that is to say, industrialization in its widest sense. In this regard, and with reference to the coun­ tries which best managed to cope with the setbacks produced by the economic situation, a recent report submitted to the Group of 24 points out very correctly that: “ ...Their capacity for adjustment was subs­ tantial because of earlier progress that they had made towards the diversification of the domestic economy in general and of the struc­ ture of exports in particular.”4 4UNDP/UNCTAD, The Balance o f Payments Adjust- 12 On the other hand, due recognition should also be given to the high degree of maturity and flexibility achieved by national economic policies as a result of the greater experience acquired in managing the economy at both the public and private levels. As a result, adjustment policies of greater or lesser scope were introduced in the different countries; a high rate of expansion of exports, particularly non-traditional exports, was maintained; and high levels were attained in trade within Latin America, which functioned as an anti-cyclical factor at a time of weakness in international markets. No less significant for the region was the marked capacity to secure resources from pri­ vate financial markets and the continuation of a high rate of direct foreign investment by the transnational corporations, as is indicated by recent secretariat studies. The combination of plentiful external financing and the improvement in the defence capacity of the economies meant that although in the majority of the Latin American countries the growth rates of the product decreased, they did not do so as much as might have been expected in view of the crisis in the central economies. The cost that this implied in terms of indebtedness has already been mentioned, but it was certainly not the only one. In social matters there were large-scale setbacks resul­ ting from the policies of readjustment and also from the rate of inflation, which regained momentum in many countries. Both these types of costs had regressive effects on the poorer sectors and on rates of investment. CEPAL REVIEW N.° 9 / December 1979 behaviour of the central economies, i.e., by the recovery of their growth rate and the attainment of acceptable levels of price sta­ bility and equilibrium in their balance of payments. This is not the place to attempt to analyse the significance and the projections of the present weak level of activity of the indus­ trialized countries, on the subject of which thousands of pages have been written in recent years. It is, however, both necessary and possible to highlight some aspects of vital interest to our region and to the Third World in general. Some mistaken analogies have now been dispelled, such as the attempt to characterize the present crisis by evoking the Great Depres­ sion of the 1930s or the assumption made that this crisis was yet another of the transient upsets of the post-war period. Neither is the case. Instead, the predominant view is that a deep-seated, difficult and lasting readjust­ ment is taking place at the level of the central economies and the relations between them, on the one hand, and their links with the rest of the world on the other. As far as the first element is concerned, the contradictory features of this crisis spawned by the economic system of the indus­ trial market economy countries are much in evidence. In addition to the elements which are common to all crises —decline of private investment, reduction of real rates of profits, increase in unemployment, growth of idle installed capacity— there are others such as active and persistent inflation, which repre­ C. The extern al fa c to r con dition in g the sents a notable contrast to the situations of im m e d ia te p ro sp ects; the evo lu tio n o f the deflation typical of such conjunctures in the ce n tra l econom ies past. The well-known scenario of “stagflation” has created a dilemma which is too much for It is clear from several points of view that the the Keynesian therapies used to solve the immediate prospects of the regional situation problem on other occasions and overwhelms will be strongly influenced, in the case of the them completely: any effort to secure growth great majority of the countries of the region, through traditional policies appears to be frus­ by the behaviour of the international economy, trated by the activation of inflationary pres­ which in turn is basically determined by the sures, while policies directed at reducing such pressures tend to aggravate the slowing down of production. ment Process in Developing Countries: Report to the Group o f Twenty-four, N ew York, January 1979, p. 6. Although the disequilibria in the external LATIN AMERICA ON THE THRESHOLD OF THE 1980s / Enrique V. Iglesias accounts have played a substantial role in some countries, it is equally true that the same dilem­ mas also occur in countries with surpluses, and this contradictory situation constitutes another of the seemingly insoluble problems raised by the impotence of the policies so feverishly sought or attempted. What are the options available in the light of the immediate prospects of the international conjuncture? Some main options —which are not neces­ sarily mutually exclusive in all aspects— may be deduced from the variety of analyses and opinions on the short- and medium-term pros­ pects of the present situation. The first is that the situation of the last few years will continue its precarious existence, with recurring ups and downs in the priority assigned to and the successes and failures achieved in the reactivation of growth and the control of inflation and external disequilibria. The second is that the obstacles to the more rapid growth of the production process and of external trade and financial transactions will get worse, opening the way for more clearly restrictive policies and a situation at least resembling that of a traditional or “clas­ sical” crisis. The third possibility —and certainly the most favourable— is that the present crisis will culminate in a transition towards a more favour­ able scenario in which the central economies will succeed in making the necessary structural and institutional adjustments, and that this will facilitate new forms of insertion in external trade and better opportunities for the devel­ opment of the periphery. This option reminds us of the lucid defi­ nition given by our fondly remembered master, José Medina Echavarría, who said that in the strict etymological sense a crisis should be understood as a certain moment in the evolu­ tion of a system which shows sufficient signs of fluctuation and upheaval to indicate a state of transition, but which does not exclude either the system’s strengthening and recovery or its final breakdown and ruin. Let us adopt the relatively optimistic hypo­ thesis that we are living in a period of readjust­ ments which will later evolve into a broader and more favourable course for the world economy. 13 It seems reasonable to suppose that even in such a case th e tra n sitio n w ill in volve som e y e a rs o f risks a n d sacrifices w h ich w ill be very d iffe r e n t f o r cou n tries o f the p erip h ery like th o se o f L a tin A m erica. These risks will perhaps be more serious than those experi­ enced in the last part of the present decade, and it is consequently essential to prepare for tackling and overcoming them. The f i r s t risk arises out of the continuing situation of slow growth and persistent infla­ tion in the central countries. This stands in the way of the necessary growth of our exports and makes imports continually more expensive. This general effect becomes worse in propor­ tion as the industrial countries resort to policies which aim at the reduction of growth and trade rather than their necessary expansion through the structural adjustments required in their domestic economies. In this respect it is of interest to recall some recent statements. At a meeting of the Group of 24 held in March this year, the com m u niqu é issued by the Ministers present expressed dismay at the proliferation of trade restrictions in the developed countries. Another forum carrying considerable weight —the Interim Committee of the Board of Governors on the International Monetary System— announced that since its last analysis of the world eco­ nomic situation in September 1978 there had been some worsening of the prospects for economic growth in the industrial countries, increasing inflation, a slow rate of expansion in international trade and a tendency in some countries to resort to protectionist measures. These developments in external condi­ tions are already being reflected in the eco­ nomies of the countries of the region, although with notable differences between one country and another: not only between the oil-export­ ing countries and the rest but also within each group. Thus, it can easily be seen that, despite the efforts made, the deficits on current account still stand at very high levels compared with the beginning of the decade, while there has been a continuous increase in the amounts of indebtedness in respect of private credit, which has constituted the bulk of the net inflow of capital (see table 1). 14 CEPAL REVIEW N.° 9 / December 1979 T a b le 1 L A T IN A M E R IC A : BA LA N CE O N C U R R E N T A C C O U N T A N D N E T C A P IT A L IN F L O W (M illio n s o f dollars) B alance on c u rre n t acco u n t 1970 L a tin A m e ric a O il-e x p o rtin g c o u n trie s N o n -o il-e x p o rtin g c o u n trie s 1975 - 3 103 - 1 4 046 N et ca p ital inflow 1977 1978- 1970 1975 - 1 0 361 - 1 4 622 4 660 15 011 1977 1978 « 14 694 21 583 -2 7 2 2 047 - 2 362 - 5 034 358 1041 2 795 3 568 - 2 831 - 1 6 093 - 7 999 - 9 588 4 302 13 970 11899 18 015 Source: CEPA L, on th e basis of official data. “P relim inary figures. In global terms, the situation does not appear alarming at this stage in the light of such current relations as the ratio of payments of interest and amortization on the external debt, plus remittances of profits, to the value of exports, but —exceptions apart— it is nonethe­ less true that there is good reason to be concerned that these trends may continue. The sec o n d risk lies in the fact that the relatively abundant supply of external credit cannot be considered a prop on which it will be possible to rely indefinitely. This is so because the high liquidity of the market and the easy access to it are the result of exceptional condi­ tions which can hardly continue in the future, quite apart from the fact that the terms and costs of such credit are frequently not in keeping with the requirements of development fi­ nancing. This means that we must recognize that the chances of continued use of international credit by the debtor countries necessarily depend on their ability to rectify the basic imbalances in their external accounts by taking the positive approach of increasing and diver­ sifying their exports rather than severely res­ tricting their purchases abroad. As is well known, this second option would also harm the industrialized economies by weakening or eliminating one of the factors which have stimulated their shaky economic growth in recent years: namely, the demand stemming from their sales to the periphery. The th ir d risk, as we already noted, is the impact of the present situation of the central economies on the region’s growth rate and on inflationary pressures. While the region is today better able to defend itself than in the past, it would face a much more severe challenge if the restrictive effects stemming from the central economies were to continue for a protracted period. The picture is even gloomier if one con­ siders the potential inflation. Although in 1977 and 1978 the rate of price increases declined in comparison with the high levels of earlier years, it is nevertheless true that inflation continues to pose difficult problems of control and management in a sizeable number of countries which have considerable weight in the regional total. The picture is therefore very unfavourable as regards the objective of keep­ ing up the growth rate, and in addition it involves sacrifices and social inequalities which hinder the concerted determination required to advance towards a solution. LATIN AMERICA ON THE THRESHOLD OF THE 1980s / Enrique V. Iglesias 15 II The great challenges of the coming decade The basic question which emerges as we stand on the threshold of a new decade is what major challenges Latin America will face during the next ten years. If an adequate answer is to be given to this question, the analysis of the main features of the economic conjuncture in recent years is not enough. A longer retrospective view is also required, to enable us to make an appraisal of the economic and social evolution of the region in the context of a long-term historical pers­ pective. This appraisal would lead to the following main conclusions: 1. S in ce th e w a r, an d p a rticu la rly during th e 1960s a n d th e ea rly years o f the presen t d e c a d e , th e region as a w h ole — w ith excep­ tio n s w h ic h th is is n ot th e m o m en t to anal­ y se — a c h ie v e d vig o ro u s d ev elo p m en t o f its fo r c e s o f p ro d u c tio n . continued to be intolerably high, unemploy­ ment and particularly underemployment did not decrease significantly, and some social indicators improved only slowly or even show­ ed signs of deterioration. The development of the last thirty years was thus marked by a basic ambivalence. While on the one hand it revealed the region’s capacity for increasing its material output at a fairly high rate, on the other it reflected a flagrant inability to distribute fairly the results of this more rapid material progress. It is this essential ambivalence in the development style which explains the contrast between the optimistic conclusions which may be drawn from the evolution of some conventional eco­ nomic indicators, such as those referring to the growth rate of the product, exports or inter­ national reserves, and the sometimes discour­ aging conclusions arising out of certain social indicators which show that in many countries of the region acute problems of malnutrition, poverty, illiteracy and underemployment con­ tinue to exist. In some cases their solution is desperately slow, and in others it is even more distressing to note that there has actually been a worsening of the situation. 3. These fe a tu r e s o f internal econom ic This development was analysed in some detail in previous presentations by the Exe­ cutive Secretariat, so that only its most es­ sential features need 'to be summed up here. These were, firstly, the sustained growth of the Latin American economy, which meant that in 1975 the joint product of the region had increased fivefold since 1950; secondly, the growth and diversification of Latin American ch an ge w e re accom pan ied b y an increasing exports, which continued even through the in te rn a tio n a liza tio n o f the L atin A m erican recent recession in the world economy; and econ om ies w h ich stren g th en ed the links b e­ lastly, the improvement of the capacity for tw e e n th e ir d e v e lo p m e n t processes an d chan­ handling economic policy observable in the g es in th e w o rld econom y. The process of internationalization repre­ Latin American countries, to which I referred, sented a new dynamic growth factor for certain earlier. 2. This d e fin ite su b sta n tia l m aterial pro­ countries but also involved a new and perilous g ress, h o w e v e r, w a s n ot able to solve som e o f vulnerability. The latter took shape with par­ L a tin A m e ric a ’s m o st acu te a n d seriou s social ticular clarity when, in the middle of the p ro b le m s. Modernization and progress, in fact, present decade, the great growth cycle of the only benefited certain strata of society. Others, world economy which had begun early in the particularly the great masses, remained outside 1950s was interrupted and the trend towards a this progress or only received its benefits liberalization of international trade was simul­ marginally. Owing to this basic feature of the taneously paralysed. In recent years, as a result development style which tended to prevail in of these closer links with the exterior, the rates the majority of the region’s economies, the and forms of growth of the central countries number of people affected by critical poverty have become basic conditioning factors of the 16 CEPAL REVIEW N.° 9 / December 1979 rate of internal development of many of our economies. The relative importance of the three basic characteristics of Latin American development which I have just mentioned has, of course, varied greatly in the different countries of the region. All the same, these three basic features which sum up the achievements, shortcomings and vulnerable points of the development process in the last 30 years are repeated to some extent in the experience of the great majority of our economies and become evident when their evolution is viewed from the perspective of the last few years of this decade. What we consider to be the three funda­ mental challenges which the countries of Latin America will have to face in the next decade thus emerge very clearly and can be expressed in the form of three questions; (1) Is it possible to improve the social spread of the development style which pre­ dominates in the region? (2) Is it possible also to maintain and if possible speed up the rate of economic growth? (3) Is it possible to design defence mecha­ nisms against the inestability and uncertainty which characterize the present world scenario, so as to reduce the effects of the new external vulnerability of the Latin American devel­ opment process? An affirmative answer to each of these questions would mean that in the next decade the region can indeed progress towards fa ir, d y n a m ic an d au ton om ou s d evelopm en t. I should now like to go on to make some brief remarks on the possibilities of and requi­ sites for achieving each of these three basic objectives. A. THE FIRST CHALLENGE AND REQUIREMENT: BROADENING THE SOCIAL IMPACT OF GROWTH As I mentioned earlier, it is a widely accepted fact that the dynamic growth of the region in the post-war period bypassed, in relative or abso­ lute terms, a sizeable part of the population. I do not intend to dwell on this topic, but I think it is worth recalling that a recent CEPAL study, covering six countries which account for T a b le 2 E S T IM A T E S O F T H E IN C ID E N C E O F E X T R E M E PO V E R T Y IN S O M E L A T IN A M E R IC A N C O U N T R IE S A R O U N D 1970a P e rc e n ta g e o f ho u seh o ld s b e lo w th e p o v erty lin e C o u n try U rb a n A rg e n tin a B razil C h ile C o lo m b ia C o s ta R ica H o n d u ra s M ex ico P eru U ru g u a y V e n e z u e la L a tin A m e ric a 5 35 12 38 15 40 20 28 10 20 26 P e rc e n ta g e o f h o u seh o ld s b e lo w th e in d ig e n c e lin e R u ral N atio n al U rb a n R ural N atio n al 19 73 25 54 30 75 49 68 8 49 17 45 24 65 34 50 1 42 11 23 7 57 18 39 1 25 6 18 6 45 12 25 36 62 25 40 1 15 3 14 5 15 6 8 4 6 10 19 34 10 19 Source: O scar A ltim ir, La dimensión de la pobreza en América Latina, E/CEPAL/L.180, 1978, p. 81. aT h e te n countries considered account for 84% o f the population of Latin America. LATIN AMERICA ON THE THRESHOLD OF THE 1980s I Enrique V. Iglesias 70% of the population and an equal proportion of the gross product of Latin America, found that in those countries per capita income rose by 26% in the period 1960-1970, a figure which is certainly satisfactory. Only 10% of this growth, however, benefited those who were below a given poverty line in 1960, while 60% of it was absorbed by the richest 20% of the population. Thus, in a b so lu te term s the 40% o f th e p o p u la tio n w h o w ere p o o r in 1960 in­ cre a se d th e ir p e r c a p ita incom e b y only 20 d o lla rs b e tw e e n th en an d 1970. Furthermore, 17 consensus is certainly of fundamental impor­ tance, for the collective awakening to the prob­ lem is not only a new development but also the prime and most essential condition for begin­ ning to solve it. The nature of the challenge facing us is certainly very complex, since without losing sight of the growth objective, which I will dis­ cuss later, we must find a means of achieving social justice; without renouncing the modern­ ization of society we must give preferential treatment to the groups which have not yet ben­ efited from technological progress; and with­ out neglecting the excellence necessary in the training of certain groups in our communities, we must broaden and improve the system of opportunities and rewards in such a way as to secure the active involvement of large groups in Latin American society who are still ex­ cluded from the decisions which directly affect their living conditions. according to the latest available data, in 1970 about 40% of the Latin American population suffered from extreme poverty and almost half of these could be considered indigent Al­ though the incidence of poverty varied enor­ mously from country to country, as may be seen from table 2, this percentage means that in 1970 the poor of the region numbered almost 110 million, of whom 54 million were indigent. With all the limitations involved in making a projection, and merely in order to be able to 1. The size o f the social challenges visualize the urgency of the changes that must be made in the forms of development which One factor closely linked with the situations of have so far characterized Latin America, it may critical poverty encountered in the region is be noted that if recent trends continue, b y the that of dem ograph ic tren ds. The projections y e a r 2 000 th e p o o r o f our region w ill have made by CELADE indicate that although there in c re a se d in a b so lu te fig u res, althou gh th ey will be a slight drop in the population growth w ill re p re se n t a sm a lle r p ro p o rtio n o f the to ta l rate from 1980 onwards, in the remainder of p o p u la tio n . And what is more serious, the this century the Latin American population income gap between rich and poor will have will increase by 75% (see table 3). At the same increased alarmingly: a fact which runs counter time, migration from the countryside to the to basic moral principles, has no justification in towns will continue, especially in the countries economics and constitutes an evident threat to where the percentage of the population living social coexistence. in rural areas remains very high, and where the The other fact of capital importance to incidence of critical poverty is greatest. All this which I should like to refer is that unquestion­ will increase the pressures on services and ably m o st o f the m anagin g cadres —in gover- physical space in the urban zones. ment, professional and intellectual circles, po­ Furthermore, due to changes in the age litical parties and basic institutions suchs as structure of the population, the proportion of churches, the armed forces, trade unions and the total population represented by persons of business associations —agree on the urgent active age will increase, and this, combined n eed to tackle th is sp ecific p ro b lem w ith the with higher rates of participation by women, u tm o s t p rio rity . This implies that there are few will generate an increase in the labou r fo rc e people who still believe that a dynamic growth estimated at an annual average of nearly 3%, process will suffice for the problem to solve with the total rising from 170 million in 1975 to itself. 345 million at the end of the century. Naturally enough, there are differences, A number of studies of the region show that sometimes profound, in the diagnoses and re­ if the current style of development continues medies suggested or adopted, but this overall unchanged, the growth rate needed to prevent CEPAL REVIEW N.° 9 I December 1979 18 Table 3 LATIN AMERICA: TOTAL POPULATION, BY COU NTRIES (In thousands o f inhabitants at mid-year) 1950 Latin America Argentina Bahamas Barbados Bolivia Brazil Chile Colombia Costa Rica Cuba Dominican Republic Ecuador El Salvador Guatemala Guyana Haiti Honduras Jamaica Mexico Nicaragua Panama Paraguay Peru Suriname Trinidad and Tobago Uruguay Venezuela 1978 2000 160 271 17 150 79 211 2 703 52 901 6 091 11597 958 5 858 2 361 3 307 1 940 2 962 423 3 097 1401 1403 26 606 1 109 825 1371 7 832 215 632 2 194 5 145 344 168 26 395 220 249 5 285 119 477 10 732 25 614 2 111 9 718 5 653 7 543 4 524 6 839 846 5 534 3 439 2 115 65 421 2 559 1 808 2 888 16 821 461 1041 2 886 13 989 601 247 32 861 330 285 9 299 212 507 14 934 42 441 3 377 12 717 9 333 14 596 8 708 12 739 1 256 9 860 6 978 2 726 132 244 5 154 2 823 5 274 29 468 904 1280 3 448 25 705 Source: C E L A D E , Boletín Demográfico, Año XII, N.° 23, Santiago, Chile, January 1979. a rise in current unemployment levels would be well above the rates achieved by most of the countries of the region in recent decades —rates which were actually the highest ever recorded. The rapid growth of the labour force certainly represents an important challenge to the capacity for job creation of the countries of the region, and this challenge increases still further if it is recalled that it will also be necessary to increase the productivity and incomes of those who are currently vegetating in backward activities or are suffering from dif­ ferent forms of underemployment. In this latter respect, the estimates of the International Labour Office show that underemployment affects nearly 30% of the labour force. In short, the problem is not only one of reducing unemployment but also of absorbing under­ employment so as to ensure opportunities for productive and well-remunerated work for the entire labour force. As will be understood, however, there are other social challenges which must urgently be dealt with: education, for example. Frequent reference is made to the major advances achieve here, but the shortcomings which still exist are overlooked. It is a fact that considerable progress has been made in increasing the access of the population to the educational system. Between 1960 and 1975, the coverage of primary edu­ cation doubled in absolute terms, secondary enrolment increased five-fold and enrolment LATIN AMERICA ON THE THRESHOLD OF THE 1980s i Enrique V Iglesias in higher education increased more than six­ fold. It is also true, however, that despite the substantial effort made, illiteracy in a consider­ able number of countries of the region was still very high in 1970, while the average education­ al level of the labour force was still low and the proportion of workers without schooling was very high (see table 4). This last fact is par­ ticularly important since, as may be observed from recent CEPAL studies, the great majority of heads of households in situations of poverty have three years of schooling or less. It may also be noted that the incidence of poverty drops drastically when the head of the household has completed full primary education. Table 4 LATIN AMERICA: EDUCATIONAL INDICATORS OF THE LABOUR FORCE AROUND 1970 Average level of Proportion of the education of the econom ically active econom ically active population w ithout schooling population (years of (percentage) schooling) C ountry Argentina Brazil Chile Colombia Costa Rica Honduras Mexico Panama Peru Uruguay Venezuela 7.2 3.1 5.8 3.9 4.8 2.5 3.5 5.2 4.5 5.7 3.6 4.0 36.0 8.2 21.6 10.8 42.5 27.1 17.1 19.3 4.9 ... Source: D ata taken from th e C E P A L /U N IC E F project on social stratification and m obility in Latin America, 1975. The foregoing is a reflection of the fact that the proportion of students who complete the primary cycle in Latin America is still very low although there are substantial differences be­ tween countries. A study of 18 countries shows that a ro u n d 1975 less th an 50% o f the stu d e n ts w h o h a d en ro lled in p rim a ry edu cation 6 years p r e v io u s ly h a d c o m p le te d the cycle, w h ile m o re th a n h a lf th e drop-ou ts w ere in the f ir s t th re e yea rs o f sch ooling and thus ran a great 19 risk of becoming illiterates from lack of prac­ tice. From another standpoint the tendency towards a predominantly urban labour force and the increasing numbers of persons grad­ uating from the educational systems mean that new job-seekers come up against a labour market which offers fewer opportunities than are required at nearly all levels, and this creates insecurity and frustration, both among young people with little education and those who have succeeded in completing their secondary education. Indeed, in some countries this situation is emerging even among graduates from higher education, who are not succeeding in finding jobs in keeping with their training and aspirations. 2. Mission: possible! Although these and other related facts give some idea of the vast size of the tasks to be face, I am convinced that these are not insuperable. The economic growth of the region in recent decades, the noteworthy progress in technical knowledge, and the incorporation of increasingly large numbers of professionals trained in the management of public affairs constitute a group of factors which, united with a firm political will, may well remedy the social inadequacies that cause us so much concern. My optimism is thus not purely rhetorical. Recent studies on the problem show that the additional income which would have been required around 1970 to bring the income of the poor groups up to the estimated minimum for covering the basic overall consumption budget was equivalent to approximately 6% of the total disposable income of Latin American households or 12% of the disposable income of the richest 10% of the population. From ano­ ther standpoint, it would have represented about 22% of total public expenditure for the region as a whole. These values, of course, hide wide varia­ tions between countries, where the deficit expressed as a proportion of total personal income ranged from 0.6% to 20%, while as a proportion of public expenditure it varied between 3% and over 100%. These relationships between the mag- 20 nitude of the problem and the amount of national income or total disposable household income clearly shows that when a point has been reached, as has happened in Latin Ameri­ ca, where average per capita income is four times the figure corresponding to the poverty line, the eradication of poverty appears as an economically feasible task.5 If the problem is examined from the stand­ point of some basic deficiencies, much the same conclusions are reached. (a) It is estimated that between one-third and two-fifths of the population of Latin Ameri­ ca suffer from nutritional deficiencies since their calorie consumption is below the mini­ mum requirements laid down by specialized international agencies. Taking as a reference the cost of the basket of foodstuffs used to determine the poverty line, it is estimated that Latin America's nutritional deficit represents between 1 and 2.5% of the regional gross product; (b) As regards the educational deficit it is estimated that the additional cost of providing six years of primary schooling for the future cohorts would amount to somewhere between 0.3 and 0.5% of the region’s gross domestic product, while the additional expenditure re­ quired to finance an adequate health system would absorb 1 to 1.5% of the regional gross product; (c) Finally, with respect to housing, it is assumed that about 1% of the gross national product would have to be transferred to the poorest families in order for their expenditure on housing to equal that of families whose income is equal to the poverty line. In short, to solve those deficits would involve reassigning income amounting to be­ tween 3.3 and 5.5% of the regional total, which does not seem too ambitious an objective. Obviously, however, it is not a question here of merely transferring income from one destination to another, or from the rich to the poor. After the financial transfer —and the difficulties which by its very nature this invol5T h e p e r capita gross dom estic product in 1970, ex p ressed in dollars at th at year's prices, was US$ 886 and th e estim ated poverty lin e at that tim e was a little over US$ 200. CEPAL REVIEW N.ü 9 / December 1979 ves— real and perhaps bigger and more com­ plex obstacles arise. The operation really re­ quires the transformation of some structural profiles and, in the final analysis, of the mode of operation of the economic, social and political system. Only thus can the existing distribution patterns be permanently altered in a context of adequate productive dynamism which will guarantee higher real incomes on a stable basis for the poorer groups, without jeopardizing economic growth to the point of frustrating the income distribution attempt. It is not surprising, therefore, that the consideration of these problems should have opened an active discussions on the nature of the policies and expedients capable of ap­ preciably improving the distribution of the fruits of technical progress and eradicating situations of critical poverty. 3. A p p ro a ch es to a red istrib u tio n stra te g y In this discussion —which takes place today in every kind of international forum — there emerge th ree lines o f action an d th in kin g: one deals basically with the problem o f critical p o v e rty ; a second enlarges on this concern and extends it to the field of basic needs; and a third integrates those objectives and subordinate them to the formulation of a glo b a l stra te g y f o r ch a n g e , capable of modifying the original bases of the situations of deficiency and inequality. It is not possible to enter into a detailed examination of these positions, all of which are perfectly worthy of respect. Let us merely say that from our own point of view we see no absolute contradictions between them, but only stages of a process which should integrate them according to the material, social and political conditions prevailing in each country. We have no doubt that only a strategy which alters the structural bases and mode of operation of the global system can provide a complete answer to the complex problem we have before us. This does not mean, however, that we cannot propose and pursue more restricted and specific aims such as those linked with the campaigns against poverty or for the satisfaction of basic needs, which will help the collective conscience to clarify and mature, and provide concrete experience that LATIN AMERICA ON THE THRESHOLD OF THE 1980s / Enrique V. Iglesias 21 will facilitate the attainment of more ambitious goals. Let us examine some features of these three courses of action. ly the lirst stage of a development strategy aimed at achieving greater social equality. (a) The critic a l p o v e r ty approach A second approach, which differs from the first because of its broader objectives, the means that have to be utilized and its dynamic con­ cept, consists of the satisfaction of basic human needs. These do not refer only to the deficien­ cies found in extreme poverty, measured in absolute terms; but to corrective measures which, including that minimum stage, permit self-sustaining development through the crea­ tion of productive employment and levels of income which permit the persons concerned to be integrated in the economic, social and political life of their national societies. In other words, besides satisfying certain minimum material needs the aim is to cover needs which, although not of a material kind, constitute essential elements of a society providing great­ er participation, equality and solidarity. A first problem which arises in the satisfac­ tion of basic needs is the choice of a criterion for defining them. Obviously, no universally valid prescription can be given, but the criteria must be determined according to the conditions prevailing in each country and even within the national frontiers some of those needs will vary from one region to another. This determination depends on the sovereignty criterion of each country, a fact which must be made perfectly clear. Once a criterion for identifying the basic needs to be satisfied and the groups to be favoured has been adopted by the political authorities, the strategy should specify the direct and indirect means for attaining the objectives. In this stage it is especially im­ portant to make sure that the policies designed to increase the income of the poor are not counteracted by a rise in the prices of the goods and services they consume, or that the produc­ tivity increments are not reflected merely in monetary income. What is really needed is for the increased purchasing power in the hands of the poor to be converted into greater per­ manent well-being based on changes in the magnitude and structure of supply. In view of the limited resources of the It will take time for the permanently favourable effect of the radical changes which must be introduced in the distribution patterns to be felt by the poorest population groups. There­ fo r e , it is n ecessa ry to design specific policies w ith a v ie w to sa tisfy in g the m ost elem entary n eed s o f p o o r fa m ilie s as efficien tly as possible a n d w ith in th e sh o rte st p o ssib le tim e. Nutrition, education, health, housing and sanitary conditions are among the areas of intervention in which experience in Latin America has shown a greater or lesser degree of success. Notwithstanding the efforts made, these can be said to have been insufficient, both because of the volume of resources assign­ ed to those aims and because of the relatively limited proportion that has reached the extrem­ ely poor sectors. It is therefore necessary to revise the criteria for assigning public re­ sources, especially in the social sectors, and also to make a genuine effort to increase the taxation of those groups which have reaped most benefit from economic growth, with the object of providing the resources required to face the extreme poverty emergency. Furthermore, the prevailing institutional structure and bureaucratic and administrative practices are not the most suitable to take care of the poor population. This is because the decisions adopted in the social sectors are generally poorly co-ordinated and the “target groups” are not clearly defined. As regards the bureaucratic and administrative aspects, com­ pliance with the rules and regulations calls for educational and other conditions which are not easily fulfilled by the population ultimately meant to be favoured. These assistance-oriented policies, even if their coverage increases and their implementa­ tion improves, are not of course the solution to the poverty problem but merely help to palliate its most degrading features. The objective of overcoming extreme poverty is therefore mere­ (b) The basic n eeds approach 22 Latin American countries, the satisfaction of basic needs should be compatible with other objectives, such as the need for sustained growth, the diversification of the production system, less external dependence in terms of both products and markets, the maintenance of certain basic equilibria and the legitimate consumer aspirations of the middle income groups. (c) The in teg ra l change approach The foregoing approaches necessarily lead to a th ir d sta g e, which consists of their incorpora­ tion in a global development strategy aimed at eliminating contradictions between objectives and making the policies consistent with one another. The approaches based on the two primary objectives of eradicating poverty and satisfying basic needs must be integrated, in the dynamic and structural change approach, in a strategy which will simultaneously achieve the capital formation required to sustain the expansion of productive capacity. Experience shows that the spontaneous action of market forces tends to reproduce the inequalities of the existing dis­ tribution pattern and, of course, fails to assign the resources to the production of goods and services consumed by the poorest groups be­ cause of the small percentage of income they manage to obtain. Moreover, in many cases, private investment does not respond as quickly as it should to purely economic incentives. These considerations justify more active participation by the State, both in fulfilling the redistribution objectives and in achieving the level of accumulation and structure of invest­ ment suited to the growth objectives and the reorientation of the production structure. This in no way implies ignoring the important role of the market: it merely points to the need to recognize that the State fulfils an irreplaceable function in a strategy which assigns priority to the eradication of poverty and the satisfaction of basic needs. It is an empirically proven fact that the great social inequalities are linked with the structural heterogeneity of the productive sys­ tems, that is to say, the co-existence of big informal or traditional sectors, where technical CEPAL REVIEW N.° 9 I December 1979 progress has not yet arrived, with modem activities in which advanced technologies are used. Therefore, if it is desired to compatibilize growth with a reduction of the existing inequa­ lities, the expansion of the modern sectors should be such as to sustain a growing demand for employment, and a proportion of its sur­ pluses should be used to help to raise produc­ tivity in the backward and informal activities. Let us recapitulate, then: the greatest challenge facing the governments of the region is die need to assign preferential and im­ mediate attention to the most seriously afflict­ ed groups; to promote the creation of employ­ ment in order to make full use of the labour force at sufficient levels of remuneration to satisfy its basic needs; and to incorporate the marginalized sectors in the production process, mainly through the proper generation and channelling of investment resources. B. THE SECOND CHALLENGE AND REQUIREMENT: TO ACCELERATE THE ECONOMIC GROWTH RATE 1. The econ om ic g ro w th im p era tive The more equitable distribution of the fruits of progress and the eradication of critical poverty in a historically short time are, then, in our view, basic objectives of Latin America’s de­ velopment policy. Clearly, however, in order to achieve them the region will require not only to raise its modest rate of economic growth of the past four years, but systematically attain a very high rate of expansion. Please understand me. To propose this does not, of course, mean to subscribe to the ingenuous theory that the evident situations of lack or inequality prevailing in the region will right themselves with economic growth. Very much to the contrary. As CEPAL has always maintained, to grow is important, but growth is not enough. No less important, in fact, is h ow to grow and fo r w h om . We have therefore repeat­ edly advocated that in order to attain genuine and fair economic growth in Latin America it is indispensable that not a few of the styles of development prevailing in most countries of the region should be changed. LATIN AMERICA ON THE THRESHOLD OF THE 1980s / Enrique V. Iglesias To accept this by no means implies, how­ ever, underestimating the prime significance of the rapid and steady expansion of the production base of the economy, nor over­ looking the decisive contribution it can make towards a development strategy aimed at im­ proving the well-being and the employment opportunities and progress of the traditionally underprivileged groups. From this point of view, the rapid and sustained growth of the economy is essential in order, first, to provide productive well-paid employment for the huge contingents annually joining the labour force and, secondly, to raise the productivity and income of the consider­ able proportion of the labour force which is currently affected by the various forms of under-employment. The achievement of these two objectives constitutes, as is well known, one of the most fundamental conditions of any policy aimed at satisfying the basic needs of the population and permanently ensuring a more equitable distribution of income. But, as we have said, in the remainder of the century the region’s labour force will increase very rapidly, and at present about 30% of it suffers the effects of under-employment. Consequently, in order to satisfy the minimum but essential require­ ments of providing productive well paid em­ ployment for the whole labour force, the eco­ nomy will necessarily have to expand at a very high rate. The need for intensive and sustained economic growth is also evident if the implica­ tions of a redistributive policy are analysed from the angle of the real production structure. A more equitable distribution of income would lead to substantial changes in the composition of domestic demand in favour of essential goods, and in order that the prices of these goods should not rise out of all proportion —thus largely cancelling out the effects of redistribution of monetary income— it would be necessary to increase their production signi­ ficantly and continuously. Moreover, in order really and effectively to improve the living levels and productive capa­ city of the poorest sectors, it would be impera­ tive to increase education, health, recreation and housing services also to a marked extent. All this would in itself create important pres­ 23 sures on the production system. Added to them would be the pressures generated by increased demand for these goods and services and also by the demand for other less essential goods and services from the middle-income groups, whose importance and growing significance in the majority of the countries of the region should not be overlooked. In these circumstances, the maintenance of a high rate of economic growth is also indispensable in order to cover effectively, permanently and simultaneously the basic needs of the hitherto underprivileged groups, and the needs deriving from the legitimate aspirations of the middle-income sectors. Finally, continuous and rapid expansion of the economy would help to increase the polit­ ical viability of a development strategy aimed at eradicating extreme poverty and improving the distribution of income. These objectives, by definition, imply that the more unfavour­ able is the initial situation of the various groups, the more rapidly their levels of income and consumption must grow. In a static econo­ my or one which grows only slowly, such a re la tiv e differentiation in the growth rate of the income of the various sectors would require an a b so lu te decrease in the income of the richest groups, which would certainly contribute to their opposition to the redistribution program­ me. This political obstacle would, in contrast, be much less of a hindrance in a society in which global production expanded steadily and rapidly. In that event, the relative differ­ ence in the rates of increase in income of the various groups would be compatible with the increase in the absolute amount of income in all sectors, including the richest, and therefore the political viability of the redistribution strategy would be greater. Accordingly, whether redistribution is analysed from the angle of its employment requirements, or of the changes it assumes in the real structure of production, or its political determinants, the achievement of a high and persistent rate of growth is an indispensable although insufficient requisite of a programme aimed at eradicating extreme poverty and distributing the benefits of general economic progress on a more equitable basis. 24 CEPAL REVIEW N.° 9 / December 1979 2. P o s s ib ility o f gro w th : th e region s p o ten tia l (a) The n atu ral resource base The rapid summary I have made of some of the main reasons why the accelerated expansion of the economy constitutes an essential com­ ponent of a redistributive strategy in the Latin American context naturally leads to the ques­ tion of whether such accelerated economic growth is possible in the region. As recent experience has clearly shown, the answer to that question partly depends on factors which are external to the region and are mainly linked with the evolution of the central economies, the policies they adopt (particular­ ly in connexion with trade), and the progress made by the world community towards estab­ lishing a new international economic order which will be fairer and more favourable to the development of the economies of the Third World. Furthermore, any answer to this ques­ tion would have different meanings for the various countries of the region, whose growth possibilities and prospects are, of course, very different. Be that as it may —and taking these limitations into account— I consider that the answer to this fundamental question is essen­ tially affirmative. In my opinion, a rapid and sustained process of economic growth is not only necessary in Latin America but is also possible. This view —one of hopeful but realistic optimism— is based fundamentally on the re­ gion’s vast potentialities and on the evident —though still insufficient— progress made recently in utilizing them more fully than in the past. This vast potential—whose full realization constitutes one of the great challenges which Latin America will have to face in the remaind­ er of the century— is based on four fundamen­ tal factors: the region’s natural resources base, the magnitude and skill of its human resources, its capital goods production potential, and the size of the market. Let us briefly recall some basic data on each of these factors and formulate, also very briefly, some considerations on their signifi­ cance for the attainment of an accelerated growth rate. It is common knowledge that in the last few years, particularly since the historic oil price adjustment at the end of 1973, there has been an evident and fully justified revaluation of the role of natural resources in the development process. This has led to the rediscovery of the obvious principle —often forgotten in the recent past— that the availability of a broad and varied natural resources base constitutes a condition which, while not in itself guarantee­ ing the attainment of a high rate of growth, greatly facilitates this task to the extent that it is accompanied by policies leading to the rational utilization of such resources. From this viewpoint, and if consideration is given to the region as a whole, Latin America is obviously in a privileged position. As distinct from other areas of the Third World and the majority of the industrialized countries, Latin America possesses a realtive abundance of arable land and some countries of the region still have unexploited agricultural potential. Thus, according to preliminary calculations, it is estimated that the potentially cultivable area for the whole of Latin America is close to 575 million hectares, of which only some 170 million are cultivated at present. Naturally, these figures are subject to a wide margin of error and it would be a mistake to conclude from them that the cultivated area can expand rapidly and easily within the short term. Clear­ ly, however, the existence of a considerable area which can gradually be incorporated in the land under cultivation is a relatively exception­ al possibility in the world context, and its economic significance should not be under­ estimated. Latin America also possesses a broad and varied base of mineral resources. Although it must be borne in mind that there are huge areas of the region whose mining potential has not yet been explored by means of modem techni­ ques, the known reserves of some minerals are impressive. Thus, for example, Latin America’s reserves of copper represent one-third of the world total, those of bauxite more than onequarter, and those of iron one-fifth. At the present rate of production, the known reserves of iron are expected to last 225 years, those of LATIN AMERICA ON THE THRESHOLD OF THE 1980s / Enrique V. Iglesias bauxite nearly 200 years, those of copper one century, and those of nickel over 80 years (see table 5). M oreover, in the last few years Latin America’s position has improved dramatically as regards petroleum and gas reserves and the region also possesses an enormous hydroelec­ tric potential. Suffice it to recall that this hydroelectric potential is one-third greater than that of the Soviet Union, it is more than double the com bined potential of the United States and Canada, and it is four times the total potential of Europe, No less important, not more than 15% of the potential is utilized at present and there are therefore great develop­ m ent possibilities in this field too. (b) The new labour force The availability of abundant and diversified natural resources is undoubtedly a propitious factor for achieving rapid and stable economic growth. It is not less evident, however, that the realization of the developm ent potential impli­ cit in that natural resources base depends on the simultaneous existence of other factors, particularly the work aptitudes, skills and vocation of the population and its savings. If w e consider the world scene, we will 25 find that among the countries which have reached satisfactory levels of economic devel­ opm ent there are some which have possessed rich and varied natural resources, and others w hich, on the contrary, have had a somewhat m odest and undiversified base of primary resources. All of them, however, whatever their politico-institutional régime, have had one fundam ental feature in common, and that is that the prolonged process of economic expan­ sion and continuous increase in productivity has been preceded, or at least accompanied, by a substantial rise in educational levels and, above all, by a genuine universalization of basic education. From this standpoint, there is still much to be done in the countries of Latin America. On the other hand, it would be neither fair nor realistic to ignore the progress achieved in this field. These advances —imperceptible per­ haps if viewed within a short-term perspective and more marked in some countries than in others— have transformed and substantially improved the structure of skills of the Latin American population. As a result of this progress the labour force of the region is now radically different from that which existed, for example, barely a T a b le 5 L A T IN A M E R IC A : R E S E R V E S O F M AIN M IN E R A L S M in e ra ls B a u x ite C opper T in Iro n N ic k e l L ead Z in c L atin A m erican rese rv e s (m illions o f tons) L atin A m erica’s sh a re in w o rld total (p ercen tag es) A nnual p ro d u ctio n in 1977 (th o u san d s o f tons) (4) = (l)/(3 ) D u ra tio n o f reserves* (years) 4 360 000 150 000 1597 19 800 000 5 500 12 000 14 000 26.0 33.0 16.0 20.0 9.0 7.0 9.0 22 082 1494 40 87 834 67 440 936 197 100 40 225 82 27 15 S o u rc e: M in e ra l F a cts a n d P roblem s: M eta l S ta tis tic s 1967-1977. M e tallg ese llsc h aft A k tie n g esellsch aft. F ra n k fu r t am M a in , 1978. “A t th e 1977 rate o f p ro d u ctio n . 26 generation ago. Thus, it includes —to mention only a few striking instances— a much higher proportion of specialized workers employed in a modern and far more extensive and diver­ sified urban sector and such specialized person­ nel is beginning to be found too in the more developed strata of commercial agriculture. This new style labour force also includes the new entrepreneurs, who are more dynamic and innovating than their predecessors and are in­ creasingly often found in manufacturing, agri­ culture, mining, construction, basic services, commerce and financial activities. It also in­ cludes new professionals and technical cadres whose influence is increasingly evident in public administration and the management of State enterprises. It was largely due to this multifaceted transformation of the region’s human resources that Latin America was able significantly to raise its growth rate in the decade prior to the start of the world recession, so that, in spite of the recession’s negative effects and the grow­ ing protectionism of the industrialized coun­ tries, the region continued to expand and di­ versify its exports and increase its competitive capacity on the world markets. Recognition of these positive facts should not, of course, course us to adopt a passive and complacent attitude. On the contrary, it should lead us to emphasize the priority which ought to be assigned to measures for improving the skills and, especially, the versatility of the labour force, which are characteristics that—in a dynamic world subject to sharp changes— are perhaps the most essential conditions that must be satisfied in order to achieve rapid and persistent economic growth. (c) C a p ita l goods p ro d u ctio n p o ten tia l This qualitative transformation of the labour force has been accompanied by a continuous rise in the investment coefficient. This grew slowly but steadily from 18% in 1950 to 20.% in 1960, to a little less than 22% in 1970, and much more rapidly thus far in the present decade, to a level around 26% in the last few years. Two of the main results of this investment process have been, first, the growth and diver­ CEPAL REVIEW N.° 9 / December 1979 sification of the manufacturing sector and, sec­ ondly, the equally considerable expansion and diversification of the store of capital. Thanks to this, Latin America’s present capacity to pro­ duce its own equipment, machinery and inputs of basic importance for capital formation is much greater than in the past. Thus, for example, the steel industry —which is generally taken as a symbol of that capacity and which undoubtedly constitutes a fundamental component of any reasonably selfsufficient industrial system— produced 23.5 million tons of steel in 1978, which is 80% more than in 1970 and five times the 1960 output. In its turn, the production of cement —a product which may in some degree be consid­ ered as an indicator of the capacity to make a broad range of infrastructural investments— was also 80% higher in 1978 than in 1970, which indicates that, as has been happening regularly since 1950, it will also double during this decade. The increase in the generation of electric energy —another key factor of the capacity to support growth and structural change in the economy— has been even greater. After in­ creasing fivefold between 1950 and 1970, it has continued to expand at a very high rate so far in this decade, to the point where by 1978 it has already almost doubled the figure for 1970. Lastly, the metal manufactures and ma­ chinery industry —which has decisive signifi­ cance in the manufacture of machinery and equipment— expanded its production at an annual rate of about 10% between 1950 and 1970, and its growth was even more rapid in the first half of the present decade. As a result, its production in 1975 was 1,000% higher than in 1950 (see table 6). For a better appreciation of the strategic significance of these figures it is useful to compare them with those for some of the indus­ trial systems developed not too many years ago. Thus, if consideration is given to the group composed of the Federal Republic of Germany, France and Italy in 1960, that is, when these three economies, following their recovery from the ravages of war, had almost completed a decade of rapid growth and constituted one of the most important industrial nuclei in the LATIN AMERICA ON THE THRESHOLD OF THE 1980s / Enrique V. Iglesias 27 T able 6 LATIN AMERICA: EVOLUTION OF SOME MACROECONOMIC VARIABLES AND SELECTED INDUSTRIAL PRODUCTS Physical volume Annual growth rates 1950 1960 1970 1978a 19501960 19601970 19701975 19501975 4 8 .9 80.5 137.1 2 1 2.5 5.1 5 .7 6 .4 5 .5 9 .3 17.3 3 3 .6 57.9 6 .5 6 .9 7 .2 6 .8 1.4 4 .8 13.0 23.5 13.3 10.6 6 .8 10.9 7 .3 16.5 32.1 5 7 .7 8.6 6.8 7 .6 7.7 (1 9 7 0 - 100) 16.0 4 1 .0 100.0 1 7 3 .0 d 9 .9 9.3 Electrical energy (billions of kWh) 11.6 10.0 2 7 .0 6 7 .6 147.6 2 7 1 .7 9 .6 8.1 8 .4 8.8 Gross domestic product1 1 Manufacturing product1 ’ Production Steel ingots (millions of tons) Cement (millions of tons) Metal manufactures and machinery*1 ^ P re lim in a ry fig u res. '’B illio n s o f d o lla rs a t 1970 p ric e s a t factor cost, u sin g th e im port e x ch an g e rate. N ot in c lu d in g C u b a o r th e E n g lish s p e a k in g C a rib b e a n co u n tries. ^ E x c lu d in g b a sic m eta l in d u strie s. d 1975. world, it will be noted that Latin America's electric energy generation in 1978 was 15% greater than that echieved by those three economies in 1960, and that Latin America's cement production in 1978 also exceeded the output of that group of countries in 1960. Moreover, Latin America's output of cement, electric energy and steel in 1978 was 150, 135 and 9% higher, respectively, than that achieved in 1960 by Japan, which was already by that year another of the most important and dy­ namic industrial systems in the world. Finally, the region’s cement production in 1978 was about 30% higher than that of the Soviet Union in 1960, while its electric energy generation was only 7% less. It seems clear, therefore, that thanks in particular to the development of the region’s manufacturing sector in the past quarter of a century, Latin America has today a relatively broad and diversified industrial base which ensures at least one of the conditions for a more accelerated and autonomous process of capital formation. (d) S ize o f th e m a rk et It is a well-known fact that the existence of broad and homogeneous markets constitutes a favourable condition for growth. They enable economies of scale to be fully utilized, with a resulting reduction in production costs: a fact which is of decisive importance in the presentday scene and which has undoubtedly con­ stituted the basic economic reason underlying the regional integration systems in various parts of the world. From this standpoint, too, taking the re­ gion as a whole, Latin America's situation and prospects are most interesting. Thus, in 1978 Latin America's total gross domestic product was equal to over 80% of the combined product of the Federal Republic of Germany, France and Italy in 1960, it was only slightly lower than 28 the product obtained that year by the Soviet Union, and it was three times Japan’s total product in 1960. Furthermore, if from this year to 1990 the region were to grow at an average annual rate of 7,4% —a rate which is only slightly over that actually obtained in the period 1970-1974 — Latin America’s total product in 1990 would be 20% higher that the combined product of the Federal Republic of Germany, France and Italy in 1970,10% higher than that of the Soviet Union for that year, and 150% higher than Japan’s 1970 product. It is true that these figures relate to Latin America as a whole, which unfortunately is far from being a unified market today. However, they have a dual and far-reaching significance. On the one hand, they provide a first indication of the actual benefits obtainable in the medium term if the countries of the region were to progress decisively towards closer economic integration. In that case, the consid­ erable size of the regional market would make possible the installation in Latin America of plants which, for technological reasons, re­ quire a very high production volume in order for the goods produced by them to be able to compete on the domestic market with those imported from outside the area, given a reason­ able and gradually decreasing degree of pro­ tection. On the other hand, the figures given on the size of the regional market also serve to provide an idea of the much greater bargaining power our countries would have on the international scene if, instead of acting independently, they adopted a joint, or at least a co-ordinated, stand. 3. F our req u irem en ts f o r a g ro w th stra te g y As we have seen, the growth potential of Latin America is considerable, for the region pos­ sesses abundant and varied natural resources, has a labour force with far better qualifications than before, has succeeded in establishing an industrial sector of some size, and taken togeth­ er constitutes a market of sizeable dimensions. This potential, however, does not of itself guarantee that Latin America will in the future actually arrive at a high and sustained rate of growth. To achieve this it must conceive and CEPAL REVIEW N.° 9 / December 1979 apply a coherent set of policies which will also enable it to secure a fairer distribution of the fruits of this growth and a greater degree of autonomy. It would naturally be impossible to sum up here the essential characteristics of a devel­ opment strategy which would pursue these objectives. Obviously, they would also vary very much in the different countries of the region and would have to take into account the different political situations of each of them. For these reasons I only wish to mention what, in my opinion, are the important require­ ments for progressing towards and achieving the above-mentioned objectives. I would, how­ ever, stress that they do not in any way con­ stitute an exhaustive list, and I am also fully aware that they have very different relative importance in the different economies of the region. (a) In creasin g d o m estic savin gs A first condition for achieving rapid, equitable and autonomous development is to increase domestic savings. Although in the recent past numerous Latin American countries have in­ creased their savings coefficients, these will have to be much larger in the future in order simultaneously to boost the growth rate and reach a state of relatively less dependence on external financing. It will not be easy, of course, to comply with this requirement, for as I already said, if it is really desired to progress in the fields of the redistribution of income and the eradication of extreme poverty it will be necessary to allocate far more resources than in the past to the production of basic consumer goods and essential services such as education and health. In order to enable domestic savings to be increased at the same time, it will be necessary to cut down the rate of growth of luxury con­ sumption, improve the institutional machinery and incentives which promote private savings and increase public sector savings. This latter will in turn require an increase in taxation, the elimination or at least the reduction of nonessential fiscal spending and the efficient management of State enterprises. LATIN AMERICA ON THE THRESHOLD OF THE 1980s I Enrique V. Iglesias (b) The expansion o f exports A second basic requisite for achieving the proposed objectives is to increase the growth rate of exports. It is particularly important to fulfil this condition if faster and continuing economic growth is to be achieved in the rela­ tively smaller countries, for their exports ac­ count for a fairly high percentage of final demand and their export growth rate therefore has a greater direct impact on the growth of production. Moreover, generally speaking the natural resources of the relatively small coun­ tries are less extensive and diversified, while they also have a smaller and less varied indus­ trial base than the larger Latin American economies. In view of these two circumstances, the possibility of speeding up growth depends heavily on their capacity to import a substan­ tial variety of raw materials, intermediate in­ puts, consumer goods and particularly machin­ ery and equipment, and this capacity to import basically depends in the final analysis on their volume of exports. In these countries the export sector thus constitutes the activity which so to speak “produces” a large proportion of the capital goods they need, and for this reason the continuing and rapid growth of exports is an indispensable condition for being able to trans­ form plans for domestic savings into real invest­ ment. Although it is less direct, the influence of the rate of growth of exports on the overall growth rate of the economy is also very impor­ tant in the largest and most developed eco­ nomies of the area. The import coefficients of these countries are generally very low, and in the majority of cases the structure of imports includes only a small proportion of non-es­ sential goods. Consequently —except for rela­ tively brief periods— the growth rate of the economy tends to be limited by the rate at which the volume of imports increases, and this rate in turn depends on the speed at which exports increase. This last relationship may not, of course, apply in the short-term and even over longer periods if the net income from loans and investment makes it possible to finance imports whose value exceeds that of exports during the period. This imbalance between external sales and purchases, how­ 29 ever, can only be maintained at the cost of a growing external debt, whose adverse effect on the degree of autonomy of development is self-evident and the servicing costs of which eventually make it essential to reverse the disequilibrium in external trade, so that finally the global rate of economic growth is once again conditioned by the rate of growth of exports: hence the fundamental importance of rapid and continuous growth of exports for these economies. (c) Rural developm ent and the growth o f agricultural production The modernization of the rural sector and the sustained growth of agricultural production and productivity constitute a third basic com­ ponent of a strategy aimed at rapid, equitable and autonomous development. In the first place, rural development is indispensable in order to achieve a fairer distribution of social income, for in the majority of our countries the most flagrant gap is not that between the incomes of the capitalists and the workers in the modern urban sector, but that existing between the levels of living of the urban workers and those who live and work in rural areas. Not only is this inequality expressed in the different average incomes received by the inhabitants of urban and rural areas but it is reflected in a particularly clear and dramatic manner in the health, education and housing indicators, and in the fact that the rural population includes an extremely large proportion of the total number of families af­ fected by extreme poverty. This basic gap between urban and rural levels of living is, of course, a product of nu­ merous factors, some of which, like the very unequal distribution of agricultural property existing in many countries of the region, are structural features of the rural economy itself. To a large extent, this is also the result of the effects of economic policies which in practice have penalized the enterprises and workers of the agricultural sector. It is a fact that in not a few cases exchange, tariff and price policies have resulted in this sector receiving artifici­ ally low prices for its products while it has had to pay excessively high prices for its inputs and 30 for manufactures in general. It is also true that the agricultural sector, and particularly the smallest farmers, have received a very small fraction of the total credit available. And lastly, it is also a fact that fiscal expenditure on educa­ tion, health, housing, public works, training and technical assistance have benefited the inhabitants of the cities to a disproportionate extent, to the relative disadvantage of the rural population. It is therefore essential to rectify these discriminatory policies if the incomes of the rural population are to be improved and if a fairer distribution of national income is to be generated. Measures of this kind, aimed at striking a better balance between urban and rural levels of living, should be supplemented by activities which, like those aimed at chang­ ing the distribution of agricultural property and raising the organizational levels of the rural workers, contribute to generating a fairer distribution of income within the agricultural sector itself. The measures aimed at correcting exam­ ples of discrimination against the agricultural sector and the rural population, however, would not only be positive in that they would contribute to the establishment of a fairer distribution of national income, but would also be of value in that they would help to increase the profitability of investment in agriculture and augment the productivity of the rural labour force, thus also promoting more rapid growth of agricultural production and conse­ quently helping to achieve more rapid overall economic growth. This contribution would be particularly significant in the many countries of the region where the agricultural sector still generates the largest share of the total domestic product and where its growth rate is in the final analy­ sis decisive in determining the speed at which the economy grows as a whole. In many of our economies the agricultural sector also generates the greater part of total exports, and we have already seen the funda­ mental influence that the growth of exports has on the overall economic growth rate. Lastly, increasing agricultural production is important because the rate at which the supply of food increases depends on it to a large extent, and this in turn is one of the main conditioning CEPAL REVIEW N « 9 I December 1979 factors both for the level of real wages and the stability of price levels. (d) N e ed to secure a m inim um o f s ta b ility in p rice levels Finally, I consider that another condition for rapid and above all continuing economic growth is to maintain at least a minimum of stability in price levels. Naturally, in the present circumstances, when the economies of the region have been obliged year after year to face up to strong external inflationary pres­ sures, largely originating in the continuous rises in price levels in the industrialized coun­ tries, this minimum stability cannot be inter­ preted in absolute terms. In the light of Latin American experience, however, it is also evident that inflationary processes of any substantial intensity are es­ sentially incompatible with the maintenance of a high and sustained rate of economic growth. These inflationary processes may perhaps stimulate the apparatus of production during short periods and with apparent ease, but after a short time this spurt in growth initially gen­ erated by inflation tends to fade out, while the price increases simultaneously reach unac­ ceptable levels. The need to apply policies aimed at easing inflation then becomes un­ avoidable, and as is evident from several in­ stances of regional experience, the stabiliza­ tion policies applied for this purpose tend to depress the rate of economic growth for several years and even cause considerable drops in the level of overall production and particularly in investment. Finally, when the cycle comes full circle and inflation is reduced to more normal levels, the average rate of growth achieved during the period is seen to be very low and the accumulation of production capital minimal, thus adversely affecting the possi­ bility of substantial growth in the future. Both at the stage of the acceleration in the raté'of inflation and in the initial phases of the stabilization programmes, real wages tend to decline notably, so that income distribution is also adversely affected. This is why we are convinced that the maintenance of a modicum of stability in price levels constitutes another basic requisite of a LATIN AMERICA ON THE THRESHOLD OF THE 1980s I Enrique V. iglesias strategy aimed at achieving rapid, sustained and equitable economic growth. C. THE THIRD CHALLENGE AND REQUIREMENT: STRENGTHENING THE AUTONOMY OF GROWTH The experience of recent years shows that Latin America has pursued a more open form of development, more closely linked with the international economy. This is nothing new, as we are all aware, for the influence of external factors has been a historical constant in the region and in the developing countries in general. What is new are the forms this phenomenon has acquired, we shall now go on to discuss. To avoid misinterpretation, let us say that we consider this evolution to be positive and necessary for the internal development process in so far as it enables activities requiring more wide-ranging markets to be projected out­ wards, and the way ultimately opened for another scheme of international division of labour. We must also recognize that not all the effects of this relationship with the interna­ tional economy are positive, however. There are also risks to be identified, and an attempt must be made to lessen them. These risks are manifested, on the one hand, in the condition­ ing factors which this relationship implies for our development, and on the other in the un­ desirable fluctuations caused in our economies by the course of international events. Overcoming these two major liabilities constitutes one of the essential tasks of eco­ nomic policy. This should foster the active insertion of our economies into the interna­ tional economic scenario and at the same time reduce the vulnerability and perils involved in international interdependence. To the ex­ tent that these objectives are achieved, the autonomy of Latin American growth will be correspondingly strengthened. What should we understand by “active” insertion in the international economy? I think we should understand it as the kind of insertion which is fostered and selectively oriented by the national authorities in keeping with the objectives of national development. This does not, of course, mean ignoring the role which 31 the forces of the market can and should play in this selection. We do not, however, believe that these forces should be the only factors deter­ mining the process. The linkage between the region and the international economy condi­ tions domestic development right from the start. It must therefore be oriented so as to uphold the main objectives of the community. Consequently, the linkage with the interna­ tional economy should not be entirely subject to the forces of the domestic market or those of the growing power of the transnational cor­ porations. In other words, Latin America should make the maximum possible use of the advan­ tages stemming from closer links with the rest of the world, but without renouncing a form of development defined in an autonomous man­ ner. Just as each of our societies has some form of national development project, so also should we set ourselves a national project for our insertion in the international economy on a selective basis in keeping with our own inter­ ests. There is no single way of doing this, of course. In the last analysis, the forms of inser­ tion which each country selects will be deter­ mined by the degree of development it has achieved, its size and geographical location, its traditional trade and financial relations and its own economic or political ideology as regards the development of its forces of pro­ duction and its social objectives. The second basic objective in this area is to lessen external vulnerability. In order to analy­ se the implications of this, it is essential first of all to examine the new forms of the interna­ tionalization of the region. 1. The new form s o f Latin America’s insertion into the international sphere I have already referred to the deep-seated change which Latin America has undergone during the last thirty years, and particularly during the present decade: a change which has substantially altered the forms of the re­ gion’s insertion into the international sphere in at least four basic aspects. The fir s t o f these changes occurred in the structure o f Latin American exports . In the 32 1950s, more than 95% of these exports con­ sisted of primary commodities. Today, how­ ever, industrial goods account for nearly 20% of the region's total exports and are worth around 10 billion dollars. These figures clearly show that the Latin American countries have learned to export, by placing their manufac­ tures —some of which have a high level of technological sophistication— in their tradi­ tional markets and diligently seeking to open up others. The growth and diversification of exports thus constitutes a novel and basic feature of the new Latin America. CEPAL REVIEW N.° 9 / December 1979 include nuclear technology for peaceful pur­ poses. This trend has become progressively more pronounced as the bases of the system of production have been expanded and diversi­ fied and the region has begun to produce in­ creasingly sophisticated industrial goods. These facts show the profile of the new forms of Latin America's insertion in the world economy and reveal how its links with it have become progressively stronger, with all the advantages but also all the contradictions which this involves. It is therefore more than ever imperative The sec o n d change relates to the origin o f to answer the question we asked earlier: how th e ex tern a l fin a n c in g received b y the region. can we lessen the vulnerability which the During the 1950s, the bulk of the capital en­ growing internationalization of the region cre­ tering Latin America was of public origin and ates in us? only a small proportion came from private sources. Nowadays, however, the percentages 2. L essenin g external vu ln erability: have been inverted. Four-fifths of the capital the tasks o f the region inflow is of private origin and only one-fifth of public origin. Owing to the abundant financial Faced with this question, a clear distinction resources flowing into the region, the external must be drawn between what the region should debt increased from 10 billion dollars in 1965 do and what is incumbent on the international to more than 60 billion dollars in 1975 and then community —mainly the group of the indus­ continued to escalate until it reached an esti­ trialized economies. mated 100 billion dollars in 1978. Latin Amer­ As regards the first responsibility, we have ica has thus become an active seeker of capital already stressed that much of the action taken in the private banking markets —a situation in recent years has worked towards strength­ practically unknown in the past. ening Latin America's defence capacity vis-àT h e th ir d change concerns the p a rticip a ­ v is the international economic conjuncture. tio n o f th e tran sn ation al corporations. The This is why our countries must keep up the increasingly powerful presence of these cor­ process of the diversification of production; porations in the countries of the region is increase and diversify their exports, both in another manifestation of the transnationaliza­ terms of the number and variety of the goods tion of the Latin American economy. It is exported and the markets on which they are estimated that in 1975 the accumulated invest­ sold; implement domestic policies of readjust­ ment of the OECD countries in Latin America ment so as to be able to cope with the trends came to nearly 40 billion dollars, while the indicated by the international conjuncture in overall sales by transnational corporations in such important aspects as the price structure; the region amounted to some 80 billion dollars and define policies for dealing with the trans­ —nearly twice the total value of Latin Amer­ national corporations so as to adapt them to ican exports for that year. national interests. We must also regard ques­ The fo u rth change concerns the in ten sity tions of regional co-operation and policies a n d th e n atu re o f L atin A m erican dem an d f o r aimed at closer links with and concertation of tech n o lo g y. As a result of the diversification of our conduct vis-à-vis the international com­ the apparatus of production and the progress munity as matters of interest falling within our of industry, regional demand for new technolo­ competence. gies has gone up enormously and its nature has For many years CEPAL has stoutly main­ changed. This demand now covers the most tained that regional co-operation should con­ varied fields and in recent years has come to stitute a basic element of our development. We LATIN AMERICA ON THE THRESHOLD OF THE 1980s I Enrique V. Iglesias consider that while this assertion continues to be as valid as ever, such co-operation should now play the additional role of serving to offset and defend against the vicissitudes of the in­ ternational economic conjuncture. This does not mean, of course, that we should reduce our efforts to achieve an active insertion in the world economy. It does, how­ ever, mean recognizing that regional co-opera­ tion is nowadays called upon to play a more important role than in the past, in so far as Latin America makes an effort to achieve the double objective of reaping the benefits of its active integration into the world economic system on the one hand and maintaining the autonomy of its growth process on the other. There are, it is true, indications that re­ gional integration is passing through a period of crisis or stagnation. Of the four formal inte­ gration schemes in existence, the Andean Group has stood out during the present decade on account of its greater dynamism, while the Central American Common Market (CACM) and the Caribbean Community (CARICOM) continue to face major problems and the Latin American Free Trade Association (LAFTA) is approaching the end of the period of transition set by the Caracas Protocol without having achieved any revitalization of the integration process. Despite these circumstances, the relations among the countries of the region have not ceased to grow during recent years, both through the increase in reciprocal trade and through joint activities of specific types. Between I960 and 1977, intra-regional exports grew nearly three times more rapidly than exports to the rest of the world, so that their share in total exports increased from 8% in 1960 to 17% in 1977. The importance ac­ quired by regional trade is even greater if one looks at its structure, in which manufactures carry a far greater weight than in exports to the rest of the world. Moreover, the relative weakening of some of the formal integration schemes has been offset by a definite tendency towards the ex­ pansion of economic co-operation among the countries of the region through partial activi­ ties of a specific nature. Thus, the integration 33 of the physical infrastructure has experienced sustained and noteworthy progress both in the field of transport and in that of communications and energy (especially hydroelectric energy). The Latin American countries have also given considerable impetus to the complementation of their production sectors, not only through an increasing flow of intra-regional investment, but also through transfers of technology from the countries which have reached relatively advanced stages of development. In this regard, the growing heterogeneity existing among the Latin American countries from the standpoint of the size of their econo­ mies, their degree of development, the natural resources they possess and other factors would appear to be a stimulus for undertaking joint action, in that it makes it necessary to combine the markets, natural resources, technological capacities and financial surpluses of the dif­ ferent countries. Although it would be prema­ ture to evaluate the impact of this type of activity on the economic development and complementarity of the countries of the region, its dynamism is certainly notable. What is perhaps even more important is the fact that the increase in mutual trade has contributed very effectively to mitigating the impact of the profound disturbances which have affected the international economy in recent years. At the same time, greater economic com­ plementarity among the Latin American coun­ tries would seem to be a necessary condition for them to reach new levels of efficiency and competitiveness in the world markets, particu­ larly in activities which, for reasons of scale, the origin of their raw materials, technological sophistication or the volume of financial re­ sources required, demand a joint effort by two or more countries. I am therefore convinced of the need to rethink the role which regional economic complementarity is called on to play in the future development of the countries of Latin America. This is also why we are watching with great interest and concern the progress which may be expected in some of the ongoing negotiations on the integration schemes. I refer particularly to those which are to take place this year within LAFTA and the continuation 34 of the negotiations taking place in the Central American Common Market. 3. Reduction o f external vulnerability: areas in w hich the co-operation o f the international com m unity is required It must be acknowledged, however, that the individual efforts of our countries and even their possible concerted action at the regional level will not be enough to achieve a significant increase in the degree of autonomy of our domestic development, for this will continue to be strongly influenced by what the indus­ trialized countries do or fail to do. This is why the Latin American countries have a vital interest in the future evolution of the interna­ tional economy and the process of negotiation of the New International Economic Order. I will begin by repeating that the great hopes of the region must continue to be firmly placed in this process of negotiation. When we look at the agonizing slowness of the progress made in this matter so far, however, we cannot feel too optimistic. Moreover, it is also true that the profound economic transfor­ mation of the region in the last few decades, and especially the new forms of our interna­ tional relations, are changing the priorities as regards the objectives which Latin America must pursue through the establishment of a New International Economic Order. Does this mean that we should take less interest in this new Order? The answer is most definitely no. It is only necessary to look at some of the great areas of international discussion to see that even though the relative emphasis may have changed, the region continues to be deeply interested in what goes on in the forums where the international dialogue is taking place. Let us look, for example, at some of the topics which are under discussion in various interna­ tional forums today. (a) A new international fram ew ork in the field o f basic commodities A first example is that of basic commodities. As I already noted, these continue to represent 80% of the total value of the region's exports. CEPAL REVIEW N.° 9 i December 1979 Traditionally, Latin America’s main concern in this field has been regarding the proportion of the value of total sales which returns to our countries in the form of taxes on the profits of the big foreign commodity-exporting firms and the expansion of their investments. Now, however, the ownership of these enterprises has changed in many cases and the concern of the Latin American countries is centred more on the stabilization and improve­ ment of prices and the increasing of income from their exports of commodities. This is quite logical, since commodities will continue for many years to be a fundamental item in our foreign exchange income. It is therefore a matter of special and disquieting concern that in the last few decades Latin America has been losing relative importance in the world food and commodity markets both to the other two developing regions and to the industrialized countries. Thus, for example, between 1960 and 1977 Latin America’s share in world exports has dropped from 47% to 26% in the case of bauxite, from 70% to 52% in the case of coffee, from 58% to 46% in the case of sugar, and from 23% to 12% in the case of meat. It is easy to see the unfavourable repercus­ sions of these figures for the majority of the countries of the region, which still depend mainly on exports of these products. The loss of opportunities to increase our foreign exchange earnings implicit in the above figures gives grounds for reflection as to why the efforts made and the successes achieved by the Latin American countries in the field of exports of manufactures have not been accompanied by similar advances in ex­ ports of commodities. This is why the region must continue to take an active part in the discussions aimed at establishing a more equitable framework for commodity trade. It should be noted in this connexion, however, that the criterion of price stabilization is not enough, and may even be highly dangerous in periods of inflation like the present. The important thing is to secure stabilization of commodity trade in such a way that these products receive fair prices on international markets. It is necessary to advance with equal LATIN AMERICA ON THE THRESHOLD OF THE 1980s / Enrique V. Iglesias determination in the fields of the marketing, transport and local processing of these goods. The recent progress made regarding the Com­ mon Fund represents a positive albeit timid step towards what ought to be an authentic new order in this field. (b) E x tern a l fin a n c in g A second important aspect is that connected with external financing, for in the future Latin America will continue to need large flows of capital to supplement its domestic saving and its import capability. Although there have been times when it may have seemed that the improvement in the region’s terms of trade had reduced the importance of external fi­ nancing, the last few years have demonstrated how important the provision of external re­ sources has been for the maintenance of Latin America’s growth. There are also other important changes which should be taken into account in this connexion. During the years following the war, both Latin America and the industrialized countries attached great importance to official development aid and especially the conces­ sionary nature of the terms of credits. Today, our concern is centred on three factors directly linked with the transfer of re­ sources from the industrial countries to the developing countries, namely: (a) the progressive elimination of Latin America from the flows of transfers of public resources, both bilateral and multilateral; (b) the real or potential limitations on the region’s access to capital markets and possible restrictions which might arise in the future; (c) the lack of suitable machinery for facing up to the new-style balance-of-payments crises. In one form or another, and with different degrees of severity, the Latin American coun­ tries have been suffering from all these prob­ lems, as they have made known in interna­ tional forums. The progressive elimination of Latin America from among the recipients of official development assistance is very well known. Of course, there is no denying that it is permissible and necessary for the interna­ tional community to provide support to the 35 relatively less developed countries of the Third World in the form of generous credits on concessional terms. What is open to dispute, however, is the justice of excluding Latin America from access to public sources on the pretext that it can manage on its own by making use of the private capital markets. We believe that Latin America should share in public flows both of capital and of technical assistance —and not only in the case oí the relatively less developed countries, but also in the case oi the remainder, inasmuch as certain types of credit required to finance the development of the region can only be secured through public channels. In this context I should like to emphasize that the region’s external savings requirements are large today and will be much larger in the future, and that private sources are not capable of meeting these needs on the terms and for the periods which are often required. Accordingly, it is essential that the international community should continue to support such institutions as the Inter-American Development Bank, the World Bank and the regional financing agen­ cies. These observations lead me to the second issue of concern in this field; the need to maintain the region’s access to private finan­ cial markets and to sustain the substantial flow of private capital currently being directed towards the region. Regrettably, these flows largely consist of short-term and medium-term capital, and many Latin American countries have still not secured full access to sources of long-term finance, which is so necessary in order to maintain an adequate rate of growth. Finally, some countries of the region are concerned at the lack of resources to deal with the new types of balance-of-payments crises. As was pointed out in the report referred to above prepared recently by the UNDP/ UNCTAD project on the balance-of-payments adjustment process in the developing coun­ tries, “it is important to distinguish between those components of a balance-of-payments deficit for which a developing country is directly responsible and those which are due to factors outside its control”. And it is no less important to recognize that, as the report also indicates, “to the extend 36 CEPAL REVIEW N.° 9 I December 1979 that such deficits are merely the counterpart of structural surpluses in other parts of the system or reflect substantial price movements of external origin, the adjustment must take place over extended periods of time”.6 Even though limited efforts have been made to meet these financing requirements generated by the international economic situa­ tion in recent years, much remains to be done. For that reason the existence of sources of resources provided on terms appropriate to the new critical balance-of-payments situations should constitute one of the principal objec­ tives of the international community. It is therefore natural that the region is keenly interested in the international nego­ tiating machinery through which attempts are being made to establish a new international monetary system and to assist the developing countries with their balance-of-payments problems and external resource requirements. corporations’ activities with their own national development objectives. This has led to the emergence of links and relations with such corporations which range from co-production and specialization agree­ ments to agreements limited to the provision of technological inputs or marketing services. At the same time regulations have been drawn up to ensure that the corporations enter into association with local public or private capital, thus achieving a fairer distribution of the benefits derived from their activities. Nevertheless, concern remains regarding other problems, such as the role of the trans­ national corporations in generating balanceof-payments deficits, their low level of invest­ ment from external sources, the high import content of the goods they produce or the ways in which prices are established in transactions within the companies. All this naturally calls for appropriate decisions as regards national regulation. However, it is already well established that (c) Relations w ith the transnational this is not enough, and that to some extent corporations there is an additional need for general rules, The relations of the Latin American countries jointly adopted by the countries, to govern the with the transnational corporations —and the activities and policies of these firms. flows of investment and technology which are usually channelled through them— constitute (d) Control o f the new protectionism, in the industrial centres another issue of major importance. For that reason the region has a strong interest in international negotiations on this subject and While laborous progress is being achieved in this and other areas of international negotia­ especially on the Code of Conduct. Latin America has become one of the most tions, certain actions are being taken in some attractive regions of the world for the opera­ industrialized economies which, because of tions of the transnational corporations, as a their magnitude, give rise to serious concern result of a set of factors including the growing in the countries of the region and throw a size of its markets, the abundance, skills and shadow over their domestic development relatively low cost of its labour force, its degree efforts. I refer to the recent and marked recru­ of institutional development and the abun­ descence of protectionist tendencies in the major industrial countries. I have already dance of its natural resources. mentioned that one of the most positive factors This has sharply increased the bargaining in Latin America’s economic development has power of the countries of the area, and as a been the vigorous effort to export manufac­ result they have come to take a more active tures, as a result of which exports of industrial stance vis-à-vis the transnational corporations goods have become a factor for growth and and have sought better ways to reconcile the stability for the countries of the region. 6UNDP/UNCTAD, The Balance o f Payments Adjust­ m ent Process..,, op. cit., p. 5. Just at the time when this favourable trend is occurring, however, protectionist tenden­ cies are arising with increasing force in various LATIN AMERICA ON THE THRESHOLD OF THE 1980s / Enrique V. Iglesias industrial countries, with a consequent adverse impact on our exports. Thus, an estimate based on CEPAL ana­ lyses of 75% of Latin America’s trade with the United States, Japan and the European Eco­ nomic Community shows that the protectionist measures applied in those three markets caused the region to lose 2,800 million dollars in 1976 in terms of goods not exported because of the measures. That sum was equivalent to about 15% of the total exports considered. It should not be said that we are facing a new problem. It is well known that protec­ tionism —especially in agriculture— has a long history in international trade. What is worrying is that this phenomenon is now assuming different characteristics, forming a much more subtle and complex picture and tending to create a permanent system behind a screen of exceptional, temporary measures. Thus, the introduction of quotas, voluntary agreements, non-tariff barriers and other protectionist measures is tending to increase. Their importance is undoubtedly much greater as a potential threat than as a present reality, but there are already signs which give grounds for concern and reflection. The new protectionist measures contain blatant contradictions which have been point­ ed out repeatedly not only by spokesmen for the developing countries but also by far-seeing personalities of developed world. Firstly, there is a flagrant contradiction between such actions and the traditional eco­ nomic theory originated in the industrialized countries themselves, and also between ac­ tions of this native and the recommendations made by the latter countries over a long period to the developing nations, to the effect that they should open up their economies to in­ ternational competition and become more fully integrated in the world economy. This manifest contradiction is without doubt a special source of frustration and resentment for the countries of the Third World, and one whose consequences should not be under­ estimated. A second contradiction arises within the industrial countries themselves, and concerns the difference between the cost they would incur in opening themselves up fully to in­ 37 ternational competition (and reorganizing their internal structure of production to that end) and the cost of the new protectionism. In fact, the real cost of a policy of free trade in the industrialized countries cannot be compared to those of the protectionist mea­ sures they have proposed or adopted. Thus, for example, a recent study carried out for the United Kingdom revealed that while between 1970 and 1975 134,000 jobs were lost in 24 industrial sectors as a result of increased imports of competing products, only 47,000 of the losses were attributable to im­ ports from developing countries. This latter figure is equivalent to less than 2% of the labour force employed in the sectors covered in the report. Moreover, the net drop in jobs related to trade with the developing countries was even lower, since account must be taken of the rise in employment due to the increase in British exports to those countries. These and other similar data would appear to show that the impact on the industrialized economies of competition from the developing countries is much less than is claimed in attempts to justify the current growth in pro­ tectionism. Protectionist reactions to imports of manu­ factures from the developing world also usually forget that in their trade in manufactures with the developing countries in 1976 Europe and North America recorded a positive balance of 100 billion dollars — corresponding to the net creation of 10 million jobs in those industria­ lized economies taken as a group. Moreover, the recent World Development Report of the International Bank for Recon­ struction and Development indicates that in 1977 the developing countries absorbed 33% of North America’s exports of manufactures, while Western Europe bought only 20%. Furthermore, the developing countries purchased 25% of the total exports of Western Europe, while North America took only 7%. 4. A b a sic requ irem en t: th e restru ctu rin g o f th e ce n tra l cou n tries' econom ies The trade trends recorded in recent years have once again shown that the past interna­ tional division of labour is becoming obsolete. 38 Only a genuine restructuring of the productive forces in the industrial countries which recog­ nizes this fact can lead to healthy and sustained development of the world economy. In the last few years, the realities of interdependence have been as notable for the industrial countries as for the developing coun­ tries, which have long been acquainted with them. In this field, the conspicuous case of energy resources is certainly not the only one. As clearly pointed out by the Economic Commission for Europe, it should not be overlooked that the proportion of the gross product which Western Europe as a whole obtains from external trade has grown from 10% to 20% in the past two decades. One out of every seven industrial workers in that region works for export. In the United States, one out of every three hectares of agricultural production serves international trade. Indeed, it might be affirmed that at the present time the old saying could be inverted: whatever is good for the developing world is also good for the industrial world. On the basis of that principle it would be relatively easy to infer that mutual interest should be found in a genuine restructuring of the economy of the industrial countries, which would generate situations of prosperity that would be reflected in the economies of both the developing and the industrial countries. As Mr. Janez Stanovnik, Executive Secretary of the Economic Commission for Europe, stated very clearly in February 1979, in announcing the results of a study by the secretariat of that Commission on the structural changes and trends in European industry in the past two decades: “Growth and structural change are twins. Dynamic industrial sectors invariably are also the sectors which have been undergoing the most dynamic structural change. Or, if you wish, the countries which have been most flexible in adapting their economic structures towards the sectors of high growth and high technological innovation have also been at the same time the countries of highest economic growth. One lesson there­ fore comes very clearly from the past: namely that we cannot consider structural adaptation and change in conditions of economic stagna­ tion”. CEPAL REVIEW N.° 9 / December 1979 Mr. Stanovnik went on to say that we find ourselves today in a completely anomalous situation in which the total resources that the governments of the industrialized countries spend on subsidies are equivalent to the total value of their imports of manufactures from developing countries. Today they are spending about 2% of their gross domestic product on imports of manufactures from developing countries, and approximately another 2% on different types of subsidies: an anomalous situation which is also closely linked with inflationary trends. In the light of these facts it is perfectly clear that the solution does not lie in closing the door to trade but in a genuine economic restructuring of the industrial countries which would involve recognition of the new interna­ tional division of labour which is a primary factor in the construction of a New Interna­ tional Economic Order. 5. S tren g th en in g L atin A m e ric a s bargain in g ca p a c ity Finally, I wish to make some observations on what I believe is an urgent imperative: the improvement of the bargaining power and attitude of the developing world, in particular of Latin America. This bargaining power today faces new challenges and increasing dangers. The challenges derive from the new atti­ tudes prevailing today on the international scenario which are progressively tending to differentiate between the special situation of the so-called “intermediate countries” —of which most of the countries of the region form part— and that of the rest of the developing countries. As a result, d e fa c to situations are being created which, as I have already said, are reflected in the growing exclusion of Latin America from official development assistance, in the tendency to discriminate between coun­ tries and groups of countries in trade matters, in attempts to reduce the resources assigned to Latin America by multilateral financing institu­ tions, in policies aimed at reducing the funds earmarked for multilateral and bilateral LATIN AMERICA ON THE THRESHOLD OF THE 1980s I Enrique V. Iglesias technical assistance, and, lastly, in the segrega­ tion of what have been called the newly industrialized countries from the rest of the Third World economies, as in recent reports of national and international development agencies. A kind of abandonment of the region to its own forces is thus being brought about, precisely when the symptoms of crisis and instability are predominant in the world eco­ nomy. What is more, the slow progress in the negotiation of the New International Economic Order has prevented the adoption of concrete measures to deal with the specific and fre­ quently urgent problems of the Latin American countries. The result of these policies and trends and what they might mean in the future has not yet been analysed in sufficient depth by our coun­ tries, save for their emphatic rejection in international negotiating forums of any attempt at exclusion or differentiation. We believe that the subject merits detailed consideration in order to deal with it frankly in world discus­ sions and take a stand against the risks which these differentiation policies involve. These risks arise both in the attitudes of the industrialized countries and in those which might be generated within the developing countries themselves. In the attitude o f the industrialized coun­ tries, there are in my opinion two serious danger. The first and perhaps the most serious danger is that it may be believed that the inter­ mediate countries have passed the stage at which they need international eo-operation. The facts clearly show that this is not the case. Latin America needs international co-opera­ tion and will continue to need it for many years. Its heavy dependence on the interna­ tional situation, its increasing investment needs, its eagerness to incorporate technology, to mention only a few significant items, are some reasons why the region must have the support of the international community to continue to play the dynamic role it has already assumed, which could be spectacularly ex­ panded in international trade and investment. The second and equally obvious risk deriving from these attitudes, which is accen­ tuated as the international negotiations fail to 39 advance at the desired rate, is that of falling into the temptation of thinking that the pro­ blems of the New International Economic Order can be negotiated separately or sectorally, both by topics and by groups of in­ terested countries. This would mean renouncing one of the essential principles of the New International Economic Order, that is to say, its universal and global character. In our opinion, the pro­ blems which this New Order is intended to solve cannot be dealt with in watertight com­ partments. If there is one fact which demons­ trates the true situation in the last few years it is the close relationship between the fields of trade, financing, investment and technology. Therefore, it is impossible to deal with one independently of another, and to break that unity of treatment would be equivalent, in our view, to ceasing to deal with the integral essence of the situation and falling into piecemeal approaches which, in the long run, would not lead to the establishment of a fairer and more equitable order in international relation but would merely postpone the real solution to the problems, thus sawing the seeds of future controversy. Similar risks may be identified in the attitudes o f the developing countries. The first is that, owing to the discourage­ ment in the face of the slow progress being made in the international negotiations and the differences in level of development or relative positions vis-à-vis the international situation existing among the Third World economies, the unity of the Third World might be weak­ ened or even shattered. This unity must be recognized as of fun­ damental importance, for in a world w ith such unequal negotiating powers, the negotiating unity o f the weakest is essential. The develop­ ing countries, however large, count for very little at the negotiating table if they participate on their own. Furthermore, the developed countries should see in that negotiating unity the assurance of sound and lasting results of such negotiations. This, of course, does not rule out recogni­ tion of the existence of special interests of certain countries or groups of countries in the discussion of the complex and wide-ranging 40 CEPAL REVIEW N.° 9 I December 1979 problems of the New International Economic Order. But such •special interests should be identified by the developing countries them­ selves and dealt with on the basis of the principles of solidarity which should prevail within the group, as well as being claimed in the relations with the central economies. It is therefore in the appropriate identifica­ tion of those diversities and in the search for mutual support for the interests of each country that the negotiating unity of the Third World should be found. The other equally evident risk is that some of the countries of the developing world might fall into the temptation of “going it alone” and might choose to navigate the stoomy seas of the international situation on their own. We believe that such an attitude has evident disadvantages and that it would be highly negative both for the construction of a new order and also for the permanent interests of any countries unwise enough to succumb to that temptation. All this leads us to the conclusion that it is necessary both to strengthen the bargaining power of the developing world, and to provide renewed impetus to the machinery for interna­ tional dialogue. Mutual interest should be a realistic source of inspiration, but the ethical compulsion generated by the existing inequali­ ties should be the great challenge for the construction of a better world. Latin American unity is essential for these purposes, as much for the international dialo­ gue as for progress within the frontiers of the region itself This is the true meaning of collective self-reliance which, with good rea­ son, is being called for in the developing world. F or us, co llec tive self-relian ce is in teg ra ­ tio n . We sincerely believe that the road to regional co-operation has scarcely begun to be travelled. The results I have referred to in the field of formal and informal integration are thus only the first steps. There are, in fact, a great many opportuni­ ties for regional co-operation in the fields of investment, trade, technology and financing. Whether that powerful engine of our growth —regional co-operation— will play an increas­ ing role in our development strategies or not depends on our ability to see clearly where the common interest of each country lies. A similar comment applies in respect of the possibilities of co-operation between Latin America and the rest of the developing world. The initial contacts we have made with Africa and Asia have caused us to view with renewed optimism the co-operation potential existing between those regions and Latin Ame­ rica, although taking advantage of that potential undoubtedly requires firm and decisive poli­ tical support and also a technical information base for the establishment of which CEPAL is prepared to lend its assistance to the govern­ ments of the region. HI Final reflections In all areas of life in the region, whether economic, social or political, time has not passed in vain for anybody. The region’s best asset is perhaps its fund of experience —both successful and unsuccessful— which has been the fruit of long years of travelling the difficult paths of development. Taking stock of that experience over the last three decades leads to three major conclu­ sions: The first is that during this period the Latin American economies have undergone a dy­ namic process of growth and transformation. Although varying in intensity in the different economies of the region, this process has brought about substantial changes in the great majority of them. As a result, the economies of Latin America are today very different both in size and in other structural features from the economies of thirty years ago, when CEPAL began its activities. The second is that in the majority of cases the benefits of this significant economic growth have been distributed most unevenly among LATIN AMERICA ON THE THRESHOLD OF THE 1980s / Enrique V. iglesias the different groups of society and conse­ quently extreme poverty still affects vast sectors of the Latin American population. The third is that during this period the forms of Latin America’s insertion in the world seeting have changed greatly, which, as I pointed out earlier, has brought some favoura­ ble consequences, and others less favourable. Furthermore, it is important that it should be clearly understood that the substantial changes in the political and economic sce­ narios and in the workings of the international economy which started to take place at the beginning of the current decade and which reached a peak the mid—1970s with the most profound and protracted crisis the industrial­ ized market economies have known since the Great Depression, have radically altered the external factors conditioning our development. The world economic setting of the closing years of this decade is indeed qualitatively and substantially different from that which existed at the beginning of the decade, and therefore to the foregoing conclusions we must add some further points which need to be better defined. The first of these is that the three processes mentioned earlier have taken on new features, almost all of them unfavourable. The wides­ pread instability of the international economy and the sluggishness of the central economies have been reflected since 1975 in lower growth rates in most of the Latin American countries and a considerable rise in their foreign debt. The simultaneous rise in external inflationary pressures has also meant that at the same time the problems of income distribution have worsened in many of our countries. A second fundamental point which should be borne in mind concerns the transformations which have occured in recent years and which are still occurring in the industrialized market economies. The capacity of the central coun­ tries to respond to the substantial changes in the international monetary system, the struc­ ture of world trade and the supply of certain strategic raw materials has proved to be much more flexible and effective than that of the peripheral countries, and has taken the form of the adoption of measures and the creation of machinery of a defensive nature. As a result of 41 these responses —whose high degree of co­ ordination has contrasted with the dispersed efforts of the countries of the Third World— the influence of the central countries in the bodies responsible for establishing the modali­ ties and machinery which will provide the framework for the workings of the New Inter­ national Economic Order has remained very great. A third major event of the present decade, and one of particular importance to the coun­ tries of the periphery, was the raising of the price of petroleum. This changed radically —and probably definitively— one of the essen­ tial elements on which international trade and the development of the industrialized econo­ mies had been based since the war. No less significant for the countries of the Third World, however, was the fact that this was a clear demonstration of the advantages which they could gain by taking joint action to secure better earnings for their primary commodity exports. Nevertheless, as a result of the rise in the price of petroleum and other changes which occurred in the international economy, as well as the development of the countries them­ selves, the Latin American countries have tended to differ increasingly in the extent and forms of their insertion in the world economic system. The importance of this fact must not be neglected, since it represents a possible difficulty for the renewal and strengthening of economic co-operation within Latin America at a time when the adverse circumstances deriving from the slow and unsteady growth of the central economies make joint action by the countries of the region more necessary than ever. It is against this background of the eco­ nomic and social development trends of Latin America over the long period of growth which came to an end in the midle of the present decade, and of the many profound changes which have occurred in the world economic picture in recent years, that I would ask you to consider the following three major concerns. 1. H ow can th e g rea t m ass o f th e L atin A m erica n p o p u la tio n catch up? The first problem is to improve the distribu­ 42 tion of the benefits of economic growth. This, as I m entioned before, is a fundamental moral im perative of developm ent policy. The con­ tin u ed existence of situations of extreme poverty and even indigence affecting a large proportion of the Latin American population constitutes in my opinion the clearest and most unacceptable shortcoming of the style of developm ent, which has prevailed in the region. An equally important consideration is that the eradication of extreme poverty, in most of the countries of the region, is now a perfectly feasible objective from an economic standpoint. O nce again, as I pointed out earlier, achieving this objective satisfactorily calls for the applica­ tion of systematic and coherent policies of redistribution accompanied by a high, steady econom ic growth rate, so that the reduction of social inequality goes hand in hand with a considerable expansion of the domestic market. 2. How can new ideas be introduced into economic relations w ithin Latin America? This expansion of the domestic market and the foreseeable drop in the economic growth rates of the industrialized countries highlight the need to introduce new ideas into all levels of econom ic relations w ithin Latin America. In the present circumstances, these have tended to becom e defensive, in the face of the un­ favourable trends stemming from the interna­ tional economy, so that they constitute a poten­ tial on which faster, steadier growth of the Latin American economies could be based. It is im portant to realize that this fostering of bilateral, subregional and regional interrela­ tions in Latin America should be viewed as a com plem ent to, rather than a substitute for, the growth of national markets. Thus, the second major concern which I ask you to consider —one with which CEPAL has been closely associated since its incep­ tion— is that of finding the machinery and m ethods for attaining this objective. 3. H ow can Latin A m erica’s passive insertion in the international economy be transformed into dynam ic interdependence? In a world of increasing economic interde­ pendence, it would be unrealistic for a region CEPAL REVIEW N.° 9 / December 1979 w hose performance has depended heavily upon trends in international trade and finance to set its sights on autarky. Neither the expan­ sion of domestic markets nor a greater degree of economic interrelation in Latin America should be seen as means of reducing their degree of insertion in the world economy. Q uite the opposite. The export capacity of the countries of the region should increase and the vigorous process of growth and diversification of exports should be pursued. At the same time, the rising level of income of the Latin American population will swell the volume of imports. The challenge lies precisely in thinking out how to enable the countries of the region to make maximum use of the opportunities offered by their position in world economic flows while minimizing their negative effects; how to play an active role in the design of the rules of the game governing trade and financial flows, instead of being relatively passive participants; and how to reconcile the eco­ nomic policy requirements needed to attain these objectives with those required to achieve the growth and redistribution targets. The dialogue on the New International Economic Order begun some years ago points in this direction, and we must continue to em phasize the set of topics it comprises, and devote all our powers of imagination and negotiation to developing it. I have ventured to single out only these three fundamental concerns. Neither their num ber nor the order in which I have men­ tioned them are the result of an intellectual whim. On the contrary, they represent the secretariat’s conviction that there is a deep interrelationship and interdependence be­ tw een them. An expansion of national markets w hich is not accompanied by joint regional and subregional action and lacks a proper insertion in the world economy could result in a state of technologically backward semi­ autarky, while an external insertion lacking these national and regional dimensions could represent an extremely vulnerable and depen­ dent style of development. Finally, I wish to pause for a moment to examine the implications for CEPAL of the identification of the three major concerns to which I have referred. The fact that I have LATIN AMERICA ON THE THRESHOLD OF THE 1980s / Enrique V. Iglesias limited myself to stating them and have not attempted to suggest ways of solving them is deliberate, since my main purpose is to elicit guidelines from you for our future activities. Naturally, the secretariat has some ideas in this respect, and these are contained in the documents which we have submitted for consideration at the session. We are, however, far from understanding all the consequences and implications of the topics which I have ventured to cover in this report. Still less do we have all the answers about how the region as a whole and each country in particular can face up to these challenges in the new and everchanging conditions characteristic of the present world economic picture. This is, in my opinion, one of CEPAL’s principal tasks in the immediate future: to re­ examine our thinking on Latin American eco­ nomic development and adapt it to the context of a rapidly-changing world and of a growing variety of options within the region itself. This is the challenge which the secretariat must tackle in the future, and whose dimen­ sions and implications we hope to be able to begin to examine —at least roughly, to begin with— when working out a new International Development Strategy for the region. We know what disappointment many oí these exercises have caused in the past, but it is important to renew our interest, by up­ dating the approaches to the preparation of a new strategy. The opportunities opened up to us by the dialogue on the strategy are many and varied. On the one hand, we are encouraged to reflect on our own internal problems, and while this exercise of course constitutes a sovereign task for each country, the dialogue can stimulate 43 that reflection and enrich it with the cumula­ tive experience of each and every one of our countries. On the other hand, the discussion of the strategy can explicitly include a constructive debate on the possibilities and limitations of regional co-operation, so that it can thus be converted into support for the political task which must be carried out in order that regional co-operation may be renewed and hence accentuate its dynamic role in our develop­ ment process. Lastly, the discussion of the strategy will provide a further opportunity both to place the problems of the New International Economic Order within the context of a broader perspec­ tive, and to establish specific goals for inter­ national action by the governments of the region. Understood in those terms, the Interna­ tional Development Strategy should not be, as it was in the past, an exercise conceived only at the world level and from the centre of the United Nations system. Such an exercise, though undoubtedly valuable, should be supplemented by a regional view which, trans­ lating the global goals into regional objectives, will stimulate dialogue and co-operation among us. CEPAL has always been intimately committed to this task. Today we wish to renew this commitment, placing ourselves at the governments’ disposal in this enterprise. It is in this spirit, and conscious of the positive contribution which this discussion could make, that I venture to suggest to you that the Commission should proclaim as one of its great tasks for the future the prepara­ tion of the S tra te g y f o r the T h ird D evelo p ­ m e n t D eca d e for the region. a) A b r ie f h isto rica l sketch CEPAL REVIEW D ecem ber 1979 T he periphery and the internationalization o f the world econom y Significance and consequences Aníbal Pinto* It is an a c ce p te d fact th at th e process o f internation­ alization o f th e w orld econom y has expanded con­ sid erab ly in th e last few decades. T h e author begins by exam ining th e historical background o f this process, a n d after em phasizing that it is not lim ited to th e econom ic sp h ere —since it is also seen in the intern atio n al dissem ination o f ideas, institutions and w ays o f life— h e goes on to analyse in particular th e econom ic internationalization recorded since th e Second W orld W ar. After thus defining his subject, h e review s various expressions o f interna­ tionalization in trade, capital m ovem ents, invest­ m ents, th e activities o f transnational enterprises, and so on, w ith special attention to th e way in w hich this process has in flu en ced th e periphery. T ak in g th is analysis as his basis, he concludes th a t intern atio n alizatio n has continued to be cen ­ te re d aro u n d th e d ev elo p e d countries, an d that the p e rip h e ry has only particip ated in it in a partial an d selectiv e m anner, thus prev en tin g it from being transform ed into th e im age an d likeness o f the d e v e lo p e d capitalist countries. This has b een largely d u e to th e fact th at th e internationalization process has taken place in an international econom ic struc­ tu re in w h ich th e cen tres set th e ir stam p on the system as a w hole a n d im part th e ir ow n type of dynam ism to it. In th e se circum stances, it is clear th a t th e long-lived system o f centre-periphery rela­ tions can n o t change through th e expansion o f the p re s e n t in ternationalization process and that this can only b e ach iev ed by m aking substantial changes in th e m a n n e r in w hich th e p eriphery is incorporated in th e w o rld econom y. 'D irector of the Economic Development Division of CEPAL. Among the waves of interest in particular subjects which periodically arise and predomi­ nate in the general discussion, few in recent times have been more vigorous and wide­ spread than that regarding the “internation­ alization” of the world economy. As usually happens, it was a few traumatic episodes —the world monetary crisis which burst upon us at the beginning of this decade, the parallel rapid increase in the prices of many primary commodities, followed a little later by the radical change in the price of oil, together with the beginning of a phase of “stagflation” in the central countries which has cast its shadow over the entire world scene —which gave rise to general awareness of this harsh underlying reality. Although this matter clearly goes beyond the scope of the present modest study —as is shown by the mountains of documents written about it— it might be worth identifying and systematizing some of its main aspects in order to understand it better.* In order to place this study on a systematic basis, the general features of the phenomenon will be examined and an attempt will be made to bring out their continuity and the elements of change and novelty with regard to tenden­ cies which have old historical roots. The aim is to see if they have modified the basic structure of the centre-periphery system and, in particular, if there has been a change in the links between the two spheres and in this system's representation of the world economy. We will not go into the question of this inter­ dependence in depth, however, except in a few special aspects and in drawing up the final balance. Further on, we shall examine in greater detail the progress of Latin American internationalization since the war, the pro­ blems it raises, and the options which are to be glimpsed for the future. The primary sense of the process under consideration could not be clearer and goes back, as everyone knows, to a past which is now far removed, at least from the viewpoint of present-day society. It corresponds to and *It should b e n o ted th a t a necessarily selective cri­ te rio n has b e e n a d o p ted w ith regard to th e background inform ation an d bibliography used. 46 is expressed through the gradual and manyfaceted process of assembly of the various local, regional, national, continental and other components of the world jigsaw puzzle. Origi­ nally set in motion by the great imperial structures of yore and of more recent times, the exploits of sailors, explorers and colonizers, the progress of science and technology and the dissemination of religious and political beliefs, it took an important leap forward with the advent of commercial and industrial capita­ lism, By way of technology, trade, the profit motive and competition and —when neces­ sary— the undisguised use of force, this histo­ rical formation assails either directly, indi­ rectly or surreptitiously all the secluded areas, particular features and enclaves of whatever type, unleashing pressures which tend towards a growing interlinkage and —within certain limits and characteristics to which we shall refer later— homogenization of the various pieces making up international society. The two great nineteenth century currents of thought in this field, the classical liberal and the Marxist approaches, shared to a con­ siderable extent some basic assumptions regarding these tendencies and consequences, although they differed radically in their critical appraisal of these.2 2Sum m ing up th e criterion o f th e first group, Professor R osenstein-R odan n o ted in an adm irably lucid study that: “T h e classical d o ctrine was based on th e principle of com petitio n a n d th e m obility o f capital. T h e poor countries h ad ab u n d an t labour b u t w ere short o f capital. W ages w ere low , an d it w as o f advantage for capitalists to invest in th e se countries an d take advantage of this fact. Interna­ tio n al m o v em en ts o f capital w ou ld b e o riented towards areas w h e re th e re w as ab u n d an t ch eap labour, and so, in th e long ru n , th ey w ou ld te n d to reduce th e differences in real w age levels” (“ Las razones d el atraso económ ico” , in Panorama económico (Santiago, C hile), N.° 94, F eb ru ­ ary 1954). T h e founders o f Marxism, for th e ir part, in one of the m ost w id ely d isse m in a te d docum ents o f that ideology, saw th e w o rld repercussions o f capitalist dynam ics in different term s: In exploiting th e w orld m arket they said, the bo u rg eo isie has im p arted a cosm opolitan nature to the pro d u ctio n a n d consum ption o f all countries, so that in stead o f the old system w h ereb y n eed s w ere satisfied by th e c o u n trie s’ ow n production, new needs arise which h av e to b e satisfied w ith products from th e rem otest regions an d clim es. In th e p lace o f th e old isolation and local an d national autarky, u n lim ited traffic and the CEPAL REVIEW N.° 9 / December 1979 To a certain extent, these visions did materialize, but the manifest and significant internationalization which took place was very far from disseminating to all points in the globe the logic and structures of industrial capitalism, and still less did it promote the homogeneization of production systems and social condi­ tions. Rosenstein-Rodan summed up the balance sheet of this opening phase of the centre-periphery complex in the following terms:3 “Between 1815 and 1914 we had an excep­ tional century of peace, which is quite a long time even for classical economists and during which technical and economic progress was stupendous. During this century all the pos­ tulates of the classical economists were com­ plied with: minimal government intervention, free trade, high international investment and, what is more, not only the free movement of capital but also great mobility of the labour factor in the form of international migrations. “The first part of the predictions of the classical economists was fulfilled, in that the century did witness a great increase in wealth. The second part proved blatantly unfounded, however, since most of the increase in wealth was enjoyed by only 30% of the world popula­ tion, with the other two-thirds remaining as poor as before.”4 This period, which coincides with the rise and fall of the so-called “Pax Britannica”, ended with the First World War and the Great Depression, which involved —among other things— the paralyzation and subsequent retreat of the tendencies towards integration as well as of those towards fragmentation into different more or less exclusive areas of in­ fluence of the great capitalist powers. b) The in tern a tio n a liza tio n o f the p o st-w a r p e r io d After the prolonged interregnum which began with the First World War, was accentuated with in te rd ep e n d en c e o f th e nations have b e e n introduced (Com m unist manifesto, 1848). 3Rosensbein-Rodan, op. cit. T his analysis forms part o f his con cep t o f th e so-called “ big p u sh ” . See in this re sp e c t H. E llis (ed.), Economic Development fo r Latin America, N ew York, St. M artin’s Press, 1961. 4It hardly seem s necessary to note th e similarity THE PERIPHERY AND THE INTERNATIONALIZATION... I A n íbal Pinto th e G reat D e p r e ssio n — after the b rief recovery during part o f th e 1920s— and closed with the d a w n in g o f p eace in 1945, the process of internationalization began again on a moie e x te n siv e and dynam ic lev el, covering the p eriod up to the m id-1970s, w h en the traumatic ev en ts referred to earlier checked its further progress and gave rise to serious uncertainty as to th e nature o f its su bsequ en t developm ent. T h e resum ption of this historical tendency took various paths and operated at all levels. As in the past, w h ile tending towards the horizontal articulation o f the m ost developed eco n o m ies it d id the sam e thing in a vertical d irection, draw ing the periphery into this p rocess, and w h ile nation-States are obviously its m ain protagonists, there are other actors — su ch as transnational enterprises— w hich play roles o f grow ing im portance in w hich they back up and som etim es, as has happened more recen tly , e v e n surpass or take the place o f the first-nam ed actors, all of this in a dynam ic and contradictory play o f congruences and con­ flicts. Furtherm ore, this historical tendency d ep lo y s its e lf through the m ost varied chan­ n e ls. Although a sound case can b e put forward for claim in g that its m ain fulcrum was formed by th e changes in the system o f production and th e corresponding international linkages, it is also true that there are other important circum stances con n ected w ith this, which warrant a quick glance before devoting our­ s e lv e s to our real field o f analysis. (c) T he p o litic a l an d ideological fa c to r O n e o f these circum stances, although not alw ays prized at its true value, is the political d im en sio n and, more sp ecifically, the m ultiple in c id e n c es o f th e so-called “cold war”. T his p henom en on is, it is true, apparently contradictory. V iew ed from the m ost usual a n gle, it appears as a factor o f division and d isp u te b etw e en b asic segm ents o f the world b e tw e e n th is re a so n in g a n d th a t se t forth by R aúl P rebisch in th e E conom ic S u rvey o f L a tin A m erica, 1949 (U n ited N a tio n s p u b lic a tio n , S ales N.°: E .5 1 .II.G .1 ) re g ard in g the slo w a n d irreg u lar p ro p a g a tio n of te c h n ic a l pro g ress from th e c o u n trie s w h ic h g e n e ra te it to th e re s t o f th e w orld. 47 conglom erate, but at the sam e tim e it plays an und ou bted role as an agglutinating factor, both o f the blocks w h ich are in dispute and w ith in them (for exam ple, the formal and d e f a c to integration o f W estern Europe and the corresponding situation on the Eastern Euro­ p ean socialist side),5 to say nothing o f other repercu ssions along the sam e lin es such as the grouping o f the “non-aligned countries” . A m ong th e few w h o have correctly eval­ uated th e significance o f this situation and o f th e p ossib le im plications o f su bsequ en t d éten ­ te is that great thinker José M edina Echavarria. T herefore, in sp ite o f its length, it is worth reproducing one o f the propositions that he s e t forth in a ch allen gin g work published shortly before his lam ented death:6 “T hus, the w ay the cold war fitted together is a p henom enon w h ich is easily visib le and can b e grasped w ith the greatest clarity. And th e sam e is true both for the main protagonists and for th e third parties involved. A situation arose in w h ich , just as in the lasting social stratification o f the A ncien R égim e, everybody w as perfectly conscious o f the place he should and in fact did occupy. All the forms o f internal or external, national and international conduct on ly exist and can b e understood as obvious in th e ligh t o f the inevitably present antagonism. T his is so up to the point that w hen in certain years som e countries d efin e th em selves as nonalign ed , they do not n eed to declare the m eanin g o f this nor ask what it m eans to abandon th e ranks. T h e clear, sharp confronta­ tion b etw e en the two superpowers brought w ith it a sim ilar clarity or ab sen ce of doubt in th e positions o f allies and satellites, although som etim es am ong the latter there w ere those w h o w ere neither b elo v ed nor sought. For this reason, it is necessary to bear clearly in mind th e lin ea l expression o f the profiles o f the socio­ p olitical structure o f th e cold war in order to understand im m ediately the confusion pro- 5T h e C h in e s e -S o v ie t c o n flict re p re s e n te d a su b sta n tia l in v e rs io n o f th is p ro c ess, b u t a t th e sam e tim e it im p lie d the .d e v e lo p m e n t o f o th e r lin k s by C h in a, now w ith th e W e s te rn p o w e rs a n d J a p a n , a n d p e rh a p s in th e fu tu re w ith S o u th -E a s t Asia. 6Jo sé M e d in a E c h a v arria , “ L a tin A m erica in th e p o s s ib le scen ario s o f d é te n te ” , in CEPAL R eview , N .° 2, s e c o n d h a lf o f 1976, p. 22. CEPAL REVIEW N.° 9 / D ecem ber 1979 48 d u ced w h en attempts to elim inate it or dim in­ ish it lead to the introduction o f shades o f colou r in th e d ep iction o f its fea tu res/’ L et us repeat in passing —b ecause o f the im portance w h ich this has for the analysis b e lo w — that the p henom enon o f the “cold w ar” is an essen tial ingredient for the dyna­ m ism and th e unity o f the central ecohom ies, sin c e it relegates to a minor position obstacles and disp u tes w h ich w ere previously of great im portance.7 An inevitable concom itant o f this political situation has b een what m ight b e called “ide­ o lo g ica l internationalization” . O f course, this is n ot a co m p letely n ovel phenom enon, and it w o u ld b e im possible to ignore, for exam ple, the d istant reflection s o f the E nlightenm ent and of th e F rench and Russian revolutions. Its mod­ e m version , h ow ever, has acquired such scope and ex ten sion —both geographical and social— that it dwarfs everyth ing that w en t before it. T h u s it was that ev en in the furthermost and darkest corners o f the earth, with p eop les and eco n o m ies at various pre-feudal stages and structures, the ruling circles and sometimes also th e m asses began to unite and struggle for categories historically rooted in European so­ ciety , su ch as liberal democracy, socialism , or th e dictatorship o f th e proletariat This subtle b u t in cisive form o f im perialism , responsible for so m any errors and distortions on the periphery, represents a chapter o f the present state o f affairs w h ich has b een little studied, in sp ite o f its enorm ous importance 7W ith r e fe re n c e to th is m a tte r, H e rb e r t M arcuse p u t fo rw a rd th e s h re w d a n d p ro v o c a tiv e th e s is th a t w h ile it is e v id e n t th a t th e r e a re m a n y c o n tra d ic tio n s b e tw e e n th e im p e r ia lis t p o w e rs w h ic h it is n o t n e c e ssa ry to lis t in detail, it is n o t lik e ly th a t th e s e c o n tra d ic tio n s w ill giv e rise to w a rs b e tw e e n th e c a p ita lis t c o u n trie s in th e fu tu re. T h is is o n e o f t h e re s p e c ts in w h ic h c o ex isten c e show s h o w d e c is iv e ly im p o rta n t it is for th e sta b iliz a tio n o f capitalism . U p to a c e rta in p o in t, it c an b e m a in ta in e d w ith o u t th e s lig h te s t c y n ic ism th a t in re a lity C o m m u n ism has becom e t h e d o c to r sittin g a t th e b e d s id e o f c ap italism (alth o u g h it r e m a in s to s e e e x a c tly in w h a t se n se ). W ith o u t C om m u­ n is m , it w o u ld b e d iffic u lt to e x p la in th e e co n o m ic a n d p o litic a l u n ific a tio n o f th e c a p ita lis t w orld: a unification w h ic h m o re o r le s s se e m s to b e th e m a te ria liz a tio n o f th e o ld M a rx ist s p e c tre o f th e w o rld w id e c artel. I t s h o u d be n o te d , m o re o v e r, th a t th is in te g ra tio n o f th e c ap italist w o rld is n o t s o m e th in g s u p e rfic ia l b u t re sts o n a n extraordinarily re a l e c o n o m ic b a s e (from In d u stria l society a n d Marxism). ^ C h in a ’s “ o w n w a y ” , w h ic h c la im e d to b e d iffe re n t (d) The tm n sm issio n o f the con su m erist w a y o f life A nother aspect w hich enters into the present d iscu ssion and is familiar to all is the dissem i­ nation and cop yin g o f the ways of life, the m o res, o f the central societies. More specifi­ cally, this m eans the transfer and absorption o f their consum ption patterns, w hich b ecom e the suprem e objective o f those enthralled by their in flu en ce. In other words, this concerns the recurring th em e o f the demonstration effect and th e giddy “consum erist” spiral w hich is its m ost striking result. T his internationalization o f habits and aspirations, as w e ll as constituting another b asic ingredient in the overall process, is re la tiv e ly ind ep en d en t, it should be noted, o f the production substrate and the lev els and ch an ges o f the econom ic structure. Although th e m otive force and the effective social inci­ d e n c e are naturally different, the w inds w hich carry this p henom en on blow just as strongly in a sm all Central American country as in Argen­ tina, Algeria, th e P h ilip pin es or Nigeria, and th ey e v e n reach the socialist world, although o f course only to a lim ited extent. In short, as we shall s e e later on, the internationalization o f consum ption patterns advances much more rapidly than that of m odes o f production.9 As Raúl Prebisch recently noted: “...The periph­ ery is by no m eans backward in the propagation from th e w ays o f b o th th e c a p ita lis t W est a n d th e USSR, a c tu a lly fe ll — d e s p ite th e o rig in a l c o n trib u tio n s o f M ao T s e -T u n g — w ith in stric t M arxist orth o d o x y , a lth o u g h the a c tu a l so cio ec o n o m ic p ra c tic e w as m ore o r less h e re tic a l in fu n d a m e n ta l a sp e c ts in c o m p a riso n w ith th e E u ro p ea n s o c ia list or c ap italist e x p e rie n c e s. T h e n e w c irc u m s ta n c e s o f C h in a ’s e x te rn a l lin k s and in te rn a l “ m o d e rn iz a tio n ” h a v e n a tu ra lly c o n sid e ra b ly m o d ifie d th is p ic tu re . S e e in th is re s p e c t th e re fle c tio n s o f C e lso F u rta d o in C rea tw îd a d e e D ependencia, R io d e Ja n e iro , E d ito ria l Paz e T e rra , 1978. 9T h is is n o t th e p la c e to go in to th e im p lica tio n s a n d p ro b le m s o f th is d isso c ia tio n , w h ic h in a n y c a se has been d e a lt w ith on a n u m b e r o f occasions in C E P A L stu d ies. In th e s e , e m p h a sis h a s b e e n p la c e d o n th e g re a t c o n trad ictio n u n d e rly in g th e a tte m p t to re p ro d u c e th e c o n su m p tio n stru c tu re c h a ra c te ris tic o f th e c e n tra l e c o n o m ie s in coun­ trie s w h o s e low a v era g e le v e l o f in co m e (and p ro d u c tiv ity ) is o n ly a sm a ll frac tio n o f th a t w h ic h is u su a l in th e former. H e r e in lie s o n e o f th e m ain c au ses o f th e te n d e n c ie s to w a rd s c o n c e n tra tio n o f in co m e a n d th e in e v ita b le passing o v e r o f th e b a sic n e e d s o f th e m ajority. TH E PERIPHERY AND THE INTERNATIONALIZATION... / A níbal Pinto and irradiation o f the more and more techni­ ca lly m ore advanced patterns o f consum ption. C on sum ption — the consum er society— is therefore b ein g rapidly internationalized, w h erea s in contrast form idable obstacles aie en cou n tered by the internationalization of production from th e standpoint o f foreign trade.”10 Paraphrasing a w ell-k n ow n statem ent, it co u ld b e said that som ethin g similar is happen­ in g at th e international le v e l to what is taking p la ce in national circles, in the sen se that the lea d in g society —not the leading class any lon ger— san ctifies and im poses its values and habits beyond its ow n frontiers, w ith greater or le sse r force d ep en d in g on the perm eability of th e local situations. T his is not a n ew question, either. In Latin A m erica, for exam ple, this topic has been freq u en tly d iscu ssed ever since last century, lea d in g to th e coin in g o f the w ell-know n saying that “w e are c iv iliz ed for consum ing but primi­ tiv e for producing” .11 Its present proportions and sig n ifican ce, how ever, show a qualitative ch a n g e w ith regard to th e situation w h ich used to exist. A significant factor in this, o f course, has b e e n th e form idable progress o f the means of com m unication and th e part played by the transnational enterprises. N o further comment is ca lled for on this, as it is already sufficiently w e ll know n, but there are som e other factors, su ch as the change in the origin o f the centres of irradiation and the nature and social destina­ tion o f a con siderab le part o f the types of con su m p tion d issem inated , w h ich have re­ c e iv e d less attention. U n til probably about the tim e o f the First W orld War, it was Great Britain and France w h ich set the patterns o f selectiv e consum p­ tion transm itted to th e m on eyed classes on the periphery, but filtration o f th ese patterns to the sm all m id d le classes and the great m asses was m in im al or n o n -e x iste n t12 T he em ergence of 10D r. Raúl P re b isc h , “ S o c io ec o n o m ic s tru c tu re a n d c ris is o f p e rip h e ra l c a p ita lis m ” , CEPAL R eview , N .° 6, s e c o n d h a lf o f 1978, p. 183. ^ T h e s e w o rd s w e re sa id b y E n riq u e M o lin a, th e late re c to r a n d fo u n d e r o f th e U n iv e rsity o f C o n c ep c ió n in C h ile , b u t th e sam e id e a is r e p e a te d in m any c o u n tries. 12T h e le a d in g p ro d u c ts in th is “ é lite ” ty p e o fc o n su m p - 49 th e U n ited States as the lead ing pow er radical­ ly changed this picture,13 and the “é lite ” types o f consum ption w ere forced into the back­ ground by the consum ption o f goods o f general­ ized and m assive u se, this b ein g m ade possible by th e high le v e l o f average incom e, its more eq u itab le distribution (more equitable, that is to say, com pared w ith the more highly strati­ fied E uropean so cieties o f the pre-war era), the size o f the market and its vigorous rate of expansion. T h e nature and sm aller unit values o f a large part o f th ese goods are associated with the grow ing social diversification observed in the peripheral econ om ies, w h ose growth rates w ere increased and changed by the increase in primary exports and com plem entary activities, th e expansion o f the State machinery, and su b seq u en tly th e advance o f industrialization. W h ile the higher-incom e groups continue to b e the m ain recipients o f this irradiation of consum erism — and generally the only ones as far as th e goods o f higher unit value are con cern ed — the n ew circum stances described m ean a con siderab le expansion of the social field involved .1 4 T hus, the internationalization o f consum p­ tion patterns is founded upon and expands from th e basis of a myriad o f com m on goods w hich are repeated in different d egrees even in the furthest-flung corners o f the world and are prom oted primarily by the great U n ited States sales m achine, increasingly accom panied by sim ilar m achines o f other countries.18 tio n w e re a n u m b e r o f w e ll-k n o w n goods ra n g in g from L im o g e s or R o se n th a l c h in a , B accarat g lassw are o r S h ef­ fie ld c u tle ry to E n g lis h te x tile s, Ita lia n silks a n d H avana cigars. 13S e e in th is r e s p e c t D . F e lix , “ C h a n g in g c o n su m e r p re fe re n c e in e c o n o m ic g ro w th ” , St. L ouis, W ashington U n iv e rsity , 1978. 14S e e C . F ilg u e ira , C onsum o y estilos de desarrollo, C E P A L , D S /P re lim in a ry V e rsio n /1 9 0 (m im eo), M arch 1979. 15T h e s e goods in c lu d e su ch item s as b lu e je a n s, CocaC o la a n d ra zo r b la d e s; c o m m o n h o u se h o ld s app lian ces, c h e w in g gum a n d d e o d o ra n ts; ice crea m , c ig a re tte s, tra n ­ sisto r ra d io s a n d T -sh irts. In a d d itio n , w ith in th e m ore r e s tric te d circle re fe rre d to e a rlie r, th e re a re su c h p ro d u c ts as m o to rc a rs , te le v is io n se ts, etc.: i.e., th e costly d urables w h ic h a re m ainly r e sp o n sib le for th e c o n tra d ic tio n re fe rre d to e a rlie r in th is stu d y . F in a lly , in th e “c u ltu r a l” sp h e re , t ie m ain h a rb in g e rs o f th is tre n d h a v e b e e n su c h item s as c o m ic s, jaz z, th e c in e m a a n d th e b e s t-s e lle r in d u stry . 50 A lthough th ese are the m ost visible and ubiquitous m anifestations o f this phenom enon, care sh ou ld b e taken to avoid a pejorative uni­ lateral appraisal o f the nature o f the phenom ­ en a, as som etim es happens in certain circles. Internationalization also makes it possible to share in the scien tific, technological and cul­ tural riches o f the more advanced countries. T h e p o sitiv e nature o f th ese im pulses towards hom ogen ization is to be seen at the m ost varied le v e ls , from th e heights o f pure scien ce to the progress in everyday technical and produc­ tiv e activities, to say nothing o f the fundamen­ tal contribution to the preservation o f life and health . T h e h um ble aspirin, p en icillin or anti­ p o lio vaccine are vivid illustrations o f the historic revolution w hich has taken place in th is fie ld .1 6 W e must now en d this b rief digression on so m e o f the less w id ely covered aspects o f this q u estio n in order to analyse the outstanding eco n o m ic effects o f this phenom enon and its gen eral significance for the centre-periphery system . CEPAL REVIEW N.° 9 / D ecem ber 1979 From th ese tw o main angles, it is easy to se e h ow the ten d en cies towards international­ ization w ere in ten sified in the period after the S econ d World War. W ith regard to the first elem en t, let us look at som e interesting details from various points o f view . Taking a global view , table 1 show s that w orld exports grew more rapidly than the sum o f the dom estic products and industrial activity b e tw e e n 1950 and 1970. South America is a con sp icuou s exception to this, since in its case th e first o f th ese factors shows a smaller expansion than the other two. It w ould there­ fore appear that in this period it represented the m ost typical case o f “inward-oriented d e­ v elo p m en t” . It may b e noted that ev en in the S o v iet Union, w h ere exports w ere m ostly d i­ rected to its ow n sphere o f influence, they e x c e e d e d the perform ance of the other item s, w h ile in the case o f Asia exports at least exceed th e increase in the dom estic product. T a b le 1 (e) T he econom ic dim en sion s: in te rn a tio n a l trade T h e course o f w orld trade and its performance v is-à -v is national products, on the one hand, and th e evolu tion o f investm ents and loans on th e other, are usually considered as the most significant p henom en a regarding the topic u nd er exam ination, w ithout prejudice to the also im portant role o f migrations and o f the incorporation o f th e labour force into the world system , w h ich w e referred to earlier and to w h ich w e w ill return at a later point. 16R adical th in k e rs o f th e p a st, u n lik e c e rta in p re se n td a y c ritic s , h a d a v e ry c le a r p ic tu re o f th e contradictory in c id e n c e s oí in te rn a tio n a liz a tio n as e ffe c te d u n d e r th e a e g is of in d u stria l cap italism . A m ong m any o th e r referen­ c es, w e m ay recall a w e ll-k n o w n re fle ctio n o f L eo n T rotsky in h is H istory o f th e Russian R evolution: “T h e p riv ile g e o f lo n g -sta n d in g b a c k w a rd n e ss — a n d th is p riv ile g e does e x ist— p e rm its a n d e v e n forces th e a d o p tio n o f an y ad vance w h ic h is a v a ila b le ... w ith o u t go in g th ro u g h an y o f the in te rv e n in g stag es. T h u s, savages c h a n g e d th e ir bo w s and a rro w s fo r rifle s, w ith o u t fo llo w in g th e long p a th w hich e x is te d b e tw e e n th e s e arm s in th e p a st’'. A lth o u th th e im a g e u s e d is n o t p e rh a p s th e m o st felicitous o n e for e v o k in g th e c o m p re h e n s iv e n a tu re o f th is p h e n o m e n o n , it d o e s su g g e st its m ain fe atu res. IN D E X E S O F E X P A N S IO N O F T H E W O R L D E C O N O M Y , 1970 (1950 = 100) G ross d o m e stic In d u stria l E x ports p ro d u c t p ro d u c t W o rld N o rth A m erica E u ro p e S o v ie t U nion S o u th A m erica A sia A frica 270 210 260 435 250 325 - 280 250 310 700 300 820 - 385 295 470 740 195 440 305 Source: C E P A L , E conom ic S u rvey o f L a tin A m erica, 1971 (U n ite d N a tio n s p u b lic a tio n , Sales N.°: E .73.II. G .l). From another point o f view , table 2, w hich covers periods coin cid in g w ith the intensi­ fication of this kind o f behaviour (1965-1970 and 1970-1973), reveals that the rate o f expan­ sion of exports as a w h ole with respect to the com pon en ts in question was considerably h igh er than that o f production as a w h ole. T he 51 TH E PERIPHERY AND THE INTERNATIONALIZATION... / A n íbal Pinto gap is sm aller in the group o f developing countries (although it does increase som ew hat in 1970-1977), the situation b ein g most marked in th e case o f Latin America, w hich registers th e relatively lo w est rates o f increase of exports. sectors considered (agriculture, m ining and manufacturing) sh ow the sam e tendency, but manufacturing is far ahead in the growth o f exports, for b etw e en 1960 and 1977 th ese grew by 326% w ith respect to the base year, whereas agricultural exports only grew by 81%. T a b le 2 T a b le 3 W O R L D G R O W T H A N D T R A D E , BY M A IN E C O N O M IC G R O U P IN G S ( A n n u a l g r o w th ra te s, a t c o n s ta n t prices) W O R L D P R O D U C T IO N A N D E X P O R T S , BY S E C T O R S , 1960-1977 A nnual g ro w th ra te 1965-1970 1970-1973 1. W o r ld as a w h o le 5.4 P ro d u c t E x p o rts 9.1 2. D e v e lo p e d m a r k e t ec o n o m ies 4.6 P ro d u c t 9.5 E x p o rts 3. U n ite d S ta te s P ro d u c t 3.1 6.5 E x p o rts 4. E u r o p e a n E c o n o m ic C o m m u n ity 4.8 P ro d u c t 11.2 E x p o rts 5. J a p a n P ro d u c t 11.5 14.9 E x p o rts 6, D e v e lo p in g c o u n trie s 5.9 P ro d u c t 6.8 E x p o rts 7. L a tin A m e ric a 5.9 P ro d u c t 4.5 E x p o rts 6.0 9.4 5.1 9.5 4.8 10.3 4.2 10.0 8.9 10.5 A g r ic u ltu r e a n d sto c k -ra isin g P ro d u c tio n E x p o rts M in in g 0 P ro d u c tio n E x p o rts M a n u fa c tu r in g P ro d u c tio n E x p o rts V ariation 1960-1977 2.5 3.6 51 81 4.3 5.0 103 129 6.0 8.9 170 326 Source: F ID E , B u e n o s A ires, C oyuntura y D esarrollo, N .° 5, J a n u a ry 1979, o n d ie b a sis, o f d a ta from G A TT . " I n c lu d in g fu e ls a n d n o n -ferro u s m etals. 6.3 8.9 6.7 6.3 Source: U n ite d N a tio n s, W orld E conom ic Survey, 1977 (U n ite d N a tio n s p u b lic a tio n , Sales N.°: E .7 8 .II. G .l) a n d U nited N ations Sta tistica l Yearbook, 1976 (U n ite d N a tio n s p u b lic a tio n , Sales N.°: E /F , 77.X V II.1). (f) I n d u s t r i a l i z a t i o n a n d t h e c e n t r a l i z a t i o n o f flo w s ■Similar ten d en cies are observed w h en the problem is con sid ered from a sectoral view ­ p oin t, but this has the advantage o f bringing in a q ualitative asp ect o f the overall evolution w h ich is o f prim e im portance for the analysis. As w ill b e n oted from table 3, the three main I f w e take a broader tim e horizon, this ten d en cy appears ev en more clearly (see table 4). In th e course o f the long and irregular cycle b e tw e e n 1900 and 1950, world manufacturing production expanded at an average rate of 2.8% p er year, w hereas external trade only increased by 1,7% per year. B etw een 1950 and 1975, in contrast, manufacturing grew by 6.1% and external trade by 8.8% per year; over the same period, industrial exports rose from 43.2% to 64.4% o f total trade, and if fuels, w h ose share increased notably after 1973 are excluded, the increase is from 48.5% in 1950 to 76% in 1975.17 17C E P A L , A nalysis and prospects o f L atin A m erican in d u stria l developm ent, S T /C E P A L /C onf. 69/L .2 8 A u g u st 1979. 52 CEPAL REVIEW N.° 9 / D ecem ber 1979 T a b le 4 W O R L D G R O W T H O F IN D U S T R Y A N D T R A D E IN M A N U F A C T U R E S (P e rc en ta g e g r o w th ra tes) 1900-1950 1950-1975 P ro d u c tio n of m a n u fa c tu re s T ra d e in m a n u fa c tu re s 2.8 6.1 1.7 8.8 S o u rce: C E P A L , A ná lisis y estru ctu ra s del desarrollo industrial latinoam ericano, op. cit. T h e preferential action o f international­ ization through manufacturing has an obvious and w ell-k n ow n result: the grow ing role of the ind u strialized econ om ies in world trade and th e increasing im portance o f the links within that group o f countries. W e thus arrive at a clear expression o f the a sp ect w h ich is perhaps fundam ental in the ch a n g e o f structure b etw een the tw o scenarios u nd er consideration: that before the great d ep ression (or before the First World War, if preferred) and that su bseq u en t to 1945, In d ealing w ith this q uestion, Aldo Ferrer n otes that th e grow ing integration o f interna­ tional trade, the m ovem en t o f capitals and em igration w ere exp ressed through three main channels; th e exchange o f primary com m odi­ ties for m anufactures b etw een the centre and th e periphery; the trade in primary com m od­ ities b e tw e e n the industrialized econom ies, and th e trade in manufactures b etw een the sam e countries.18 In th e first period, exten din g up to the First W orld War, th e first tw o channels predomi­ n ated to an overw h elm ing extent, the main p o sitio n , particularly in the field o f tropical and m ineral products, b ein g occup ied by the centre-periphery flow s.19 In the stage after the 18A ld o F e rre r, “A m é ric a L atin a y los p a íses c ap italistas d e sa rro lla d o s : u n a p e rs p e c tiv a d e l m o d elo cen tro -p erife­ r ia ” , in E l Trim estre E conóm ico (M exico C ity), N .° 169, 1975, 19As A. F e r r e r says in th e stu d y re fe rre d to above: “ In th e s e v e n ty o r e ig h ty y e ars b e fo re th e S eco n d W orld War, tw o -th ird s o f w o rld e x p o rts w e re m ad e u p o f foodstuff's a n d S econ d W orld War, how ever, it was the third form o f expansion w h ich predom inated. In other words, internationalization through external trade leads to in d u stria liza tio n on the on e hand and ce n tra liza tio n on th e other. Som e illustrative details w ere already giv en regarding th e first o f these. W ith regard to the second o f th ese p h e­ nom ena, it sh ould b e borne in m ind that at the b eg in n in g o f the 1970s (1970-1972) trade b e­ tw e e n th e central econ om ies represented 77% o f th e total (this figure w en t down slightly in su b seq u en t years). At the same tim e, they receiv ed around 73% o f the exports from the periphery and 24% o f those from the centrally p lan n ed econom ies, the latter figure rising to 29% in the years 1976-1977.20 T able 5, for its part, show s the changes in th e shares o f the main groups o f countries in w orld trade b etw e en 1950 and 1975, the most notable features b ein g the increase in the share o f the central econ om ies from 62 to 66% and the drop in the share o f the non-oil-exporting peripheral countries from 24 to 10%. This table also reveals th e change among the central countries to the detrim ent o f the U nited States and to the advantage o f the European E conom ­ ic C om m unity and Japan, although this is d ou b tless in flu en ced by conditions in the base year, w h en the post-war reconstruction process w as hardly b eginning. T his confirm s what was already pointed out regarding the centripetal tendency o f world trade and the loss o f relative significance o f the periphery during the period under consid­ eration. At the sam e tim e, how ever, it is essential to m ake a distinction b etw e en this structural variation and th e appreciable and generalized grow th o f trade already referred to. E ven in the case o f the u nderprivileged periphery, the ra w m a te ria ls. T h e p e rio d o f fa stest e x p an sio n w as b e tw ee n 1870 a n d 1913 ... w h e n ... a ro u n d 70% o f E u ro p e a n im ports w e re m a d e u p o f p rim a ry co m m o d itie s a n d n e arly twoth ird s o f th e to ta l im p o rts o f th e U n ite d S tates — d e s p ite its fo rm id a b le e n d o w m e n t w ith n a tu ra l re so u rce s a n d capaci­ ty for c o m m odity p ro d u c tio n — c o n siste d o f foodstuffs a n d ra w m a te ria ls” . 20C E P A L , E conom ic Survey o f L atin Am erica, 1977 (E /C E P A L /1 0 5 0 /R ev . 1), S antiago, C h ile , 1978, T H E PERIPHERY AND THE INTERNATIONALIZATION... / A níbal Pinto T a b le 5 S H A R E S O F M A IN E C O N O M IC A REA S IN W O R L D T R A D E E x p o rts F O B P e rc e n ta g e sh a re in total 1950 A. D e v e lo p e d m a r k e t e c o n o m y c o u n trie s U n ite d States C anada E u ro p e a n E c o n o m ic C o m m u n ity (E E C ) (9 c o u n trie s) E u ro p e a n F re e T ra d e A sso c iatio n (E F T A ) (8 c o u n trie s) Ja p a n O th e rs B. C e n tr a lly p la n n e d ec o n o m ie s E a s te r n E u ro p e A sia C . D e v e lo p in g c o u n trie s O il-e x p o rtin g c o u n trie s N o n -o il-e x p o rtin g c o u n trie s A frica L a tin A m eric a A sia M id d le E a st 1975 60.2 66.3 16.6 4.7 12.2 26.5 33.9 5.6 1.3 5.6 6.1 6.4 3.8 8.1 9.8 9.0 6.8 3.7 1.3 0.8 31.7 23.9 13.4 10.5 1.8 3.9 4.3 0.4 7.3 24.4 4.0 10.4 9.1 0.8 Source: C E P A L , T h e econom ic and social developm ent a n d external econom ic relations o f L a tin Am erica 53 O bviously, th e b ig exception to th ese ch an ges appears after 1973, w ith the substan­ tial rise in oil prices (see table 5), w hich w ill b e d iscu ssed later on. A nother notew orthy elem en t of undoubt­ ed im portance is the grow ing share of indus­ trial exports by th e periphery, w h ich to som e exten t reduce its relative losses.23 B etw een 1960 and 1975, at constant prices, th ese exports grew at 12.3% per year, w hich was tw ic e as m uch as the total exports o f those countries and also com pares favourably with th e growth rate o f world trade in that period, w h ich w as 7% per year.24 In the case o f Latin Am erica, this m eant that the share o f manufac­ tured goods rose from 13% o f its exports to 23% b e tw e e n 1970 and 1975, and this tendency was m aintained su bsequ en tly, d esp ite the deterio­ ration in the international situation?5 It is worth recalling, how ever, that this perform ance has b een lim ited to a small num ­ b er o f countries on the periphery : a feature w h ich is also to b e noted in Latin America, although to a sm aller extent. W ithout anticipating the recapitulation w h ich w ill b e m ade later on in this study, it m ay b e stated that the details given regarding international trade not only bring out its sig n if­ icant role in the d evelop m en t o f internation­ alization but also h ighlight certain changes and ten d en cies w h ich show the different im p li­ cations it has for the centres and the periphery. (E /C E P A L /1061), vol. II, 1979. drop in its total share did not prevent the annual growth rate o f its exports from amount­ in g to 7.6% (6.8% for Latin America) in the p eriod 1950-1975. T his growth rate may be com pared w ith that recorded by commodity exports in on e o f th e m ost vigorous phases o f past grow th (1871-1913), w h en they expanded at th e rate o f 3.5% per year.2 1 Strictly speaking, then, that fundamental readjustm ent represents the relative relegation o f a large part o f the periphery to a second p la ce, rather than its exclusion from the great w a v e o f internationalization through external trade.22 21 A. F e rre r, op. cit. 22T h is a p p raisal w o u ld a p p e a r n o t to b e valid, h o w ­ e v e r, fo r th e c o u n trie s w h ic h th e W orld B ank has classified as th o s e o f low est in co m e , am o n g w h ic h a re a n u m b e r of c o u n trie s w ith v e ry larg e p o p u la tio n s, su c h as In d ia (620 m illio n ), In d o n e sia (80 m illion), B a n g la d esh (80 m illion), a n d P a k ista n (71 m illio n ). T h e ir exports in c re a se d b y 3.6% p e r y e a r b e tw e e n 1960 a n d 1970, b u t w e n t d o w n b y 0.4% b e tw e e n 1970 a n d 1976. S e e W orld D evelopm ent Indica­ tors, W ashington, T h e W orld B ank, 1978. 23P ro fesso r A. L e w is’s o p tim istic ju d g e m e n t on this m a tte r is o f in te rest. In th e E v o lu tio n o f the International E conom ic O rder (T h e E lio t Ja n e w ay L e c tu re s, P rin c eto n , N . J., P rin c e to n U n iv e rsity , 1971), h e n o te s th a t as far back as 1975 m an u fa ctu re s m a d e u p 33% o f th e ex p o rts o f th e d e v e lo p in g c o u n trie s (e x clu d in g th e oil-ex p o rtin g co u n ­ trie s), a n d if th e p re s e n t te n d e n c y c o n tin u e s, by 1985 th ey w ill r e p re s e n t m o re th a n half. In h is v iew , th e d iv isio n ci th e w o rld in to d e v e lo p in g c o u n trie s w h ic h e x p o rt a g ric u l­ tu ra l p ro d u c ts a n d im p o rt m an u fa ctu re s a n d d e v elo p ed c o u n trie s w h ic h d o th e o p p o site is o n th e p o in t o f e n d in g . ^ S e e “ T h e c h a n g in g c o m p o sitio n o f d e v e lo p in g c o u n ­ try e x p o rts” b y H . B. C h e n e ry a n d D . B. K eesing, in W o rld D evelopm ent R eport , 1978. 25C E P A L , E conom ic Survey o f L a tin Am erica, 1977, op. cit. 54 CEPAL REVIEW N.° 9 / D ecem ber 1979 g) The role o f m o vem e n ts o f ca p ita l It seem s superflous to recall the correlation — not n ecessarily sym m etrical— b etw een trade flow s and capital flow s, w hich, as w e already n oted , constitute th e econom ic fulcrums o f the internationalization process. As regards th e second o f these, w e shall lim it ourselves to the analysis o f direct invest­ m ents and their fundam ental agents, the trans­ national enterprises. W e shall therefore leave asid e everyth in g con n ected with financial flo w s, the size and com position o f w hich have u n d erg on e great changes during this decade. Q u ite apart from the fact that many valuable stu d ies have b een m ade on this subject,26 it has b een assum ed here that the com bination of direct investm ent and transnational enter­ p rises (w hich o f course has projections on to the financial level) has more significance from a structuralist point o f view .27 From the com parative view p oint o f the con tin uity and contrasts b etw een the experi­ en c e o f the past and that subsequent to the S econ d World War, the interesting points in this con n exion are those connected with the grow th rates and forms o f capital m ovem ents, the spatial distribution o f the resources and their sources, and their sectoral destination, all o f w h ich are essen tial considerations for ap­ praising their in cid en ce on the general ques­ tion under consideration. T a b le 6 W O R L D C U M U L A T IV E D IR E C T IN V E S T M E N T IN T H E D E V E L O P E D C O U N T R IE S A N D IN T H E V A RIO U S D E V E L O P IN G R E G IO N S M illio n s o f do llars a t e n d of y e a r 1967 W o rld in v e s tm e n t I n v e s tm e n t b y U n ite d S tates I n v e s tm e n t in th e d e v e lo p e d co u n tries I n v e s tm e n t in th e d e v e lo p in g co u n trie s In E u ro p e ,J I n A frica In A sia In th e M id d le E a st In L a tin A m erica (23 c o u n trie s p lu s o th e r territo ries) In L a tin A m eric a (19 c o u n trie s) B razil M exico A n n u al p e rc e n ta g e g ro w th rates 1967 1975 900 200 500 400 400 100 300 100.0 53.8 66.6 33.4 1.9 6.3 4.7 2.9 100.0 48.0 72.0 28.0 2.5 4.3 6.7 11.9 10.3 13.0 9.5 15.6 6.7 16.8 18 400 37 600 17.5 14,5 9.3 15 250 3 728 1787 27 750 9 100 4 800 14.5 3.5 1.7 10.7 3.5 1.9 7.8 11.8 13.1 105 300 56 600 70172 35 128 2 000 6 600 5 000 3 100 1975 P e rc e n ta g e b reak d o w n 258 124 186 72 6 11 17 1967-1975 Source: C E P A L /C T C , D ocum ento de Trabajo N .° 12, S e p te m b e r 1978. aN o t in c lu d in g th e M id d le E ast. b I n c lu d in g A ustria, C y p ru s, F in la n d , G ib ra ltar, G re ec e , G re e n la n d , Ic elan d , Ire la n d , M alta, S pain, T u rk e y a n d Y ugos­ lavia. 26S e e , for e x am p le, C . M assad, “T h e re v o lt o f th e b a n k e rs in th e in te rn a tio n a l econom y: a w o rld w ith o u t a m o n e ta ry sy s te m ” , CEPAL R eview , N .° 2, se c o n d h a lf o f 1976; R. D e v lin , “ E x te rn a l fin an c e a n d com m ercial b a n k s”, C EP A L R eview , N .(i 5, first h a lf o f 1978 a n d “C om m ercial b a n k fin a n c e from th e N o rth a n d th e eco n o m ic d e v e lo p ­ m e n t of th e South: c o n g ru e n c e a n d c o n flict” , w h ich a p p e a rs in th e p re s e n t issu e o f CEPAL Review . 27I t sh o u ld , h o w e v er, b e n o te d th at th e c h an g es in th e co m p o sitio n o f th e loans —h ig h lig h te d in th e studies re fe rre d to— invo lv in g an in c re a se in th e sh a re o f p riv ate le n d e rs a n d b o rro w e rs a t th e e x p e n se o f th e sh a re ac­ c o u n te d for b y loans m ad e by g o v e rn m e n ts o r in te rn atio n al a g e n c ie s to o th e r g o v e rn m e n ts or p u b lic secto rs also c o n s titu te a s ig n ific a n t s tru c tu ra l m odification, a lth o u g h o f m o re u n c e rta in d u ra b ility . TH E PERIPHERY AND THE INTERNATIONALIZATION... I A níbal Pinto As regards growth rates, there is no infor­ m ation w h ich perm its a proper comparison of th e exp erien ce o f the two periods, although there are significant data on their vigour in the first o f th ese periods.28 We shall have to co n ten t ou rselves, then, with the information co lle c te d for a relatively recent period, w hich is p resen ted in table 6 and figure 1. What im­ m ed ia tely stands out is the overall growth rate o f alm ost 12% p er year, w hich is more than that cited above for the world product and exports (see table 2). T h e rate o f growth is strongest in the cen ­ tral countries, particularly in Europe, and in A sia (alm ost 17% per year), due to the w ell- l-igure I WORLD CUMULATIVE’! D IRECT INVESTM ENT IN T llli DEVELOPED AND DEVELOP]NO COUNTRIES (Millions o f dollars) 55 know n w eigh t o f the small group of industrial exporting econom ies. In contrast, the rate for Latin America is slower, although it rises som e­ w hat in the case o f Brazil and M exico.29 As regards the spatial distribution o f the export o f capital and the sources from w hich it cam e, the situation in the n ineteenth century w as very clear. D esp ite the considerable repre­ sentation o f centre-periphery trade, the truth is that during this period the predom inant m ove­ m ents o f capital w ere the horizontal circulation w ith in Europe and to the U nited States and Canada and the vertical circulation to the British colonies. Argentina was the most con­ sp icuou s exception to this, for well-known reasons.30 If this country is excluded, about two-thirds o f the total investm ent around 1913 w as concentrated in the first group.31 This fact, and the scanty m obility o f the peripheral labour force to the centres, w ere the main reasons for th e frustration o f the classical optim ism about th e dynam izing and hom ogenizing effects w h ich w ou ld be caused by the expansion of industrial capitalism to the exterior. D ev elo p m en ts after the war confirmed this tendency and structure: the rapid growth o f the total accum ulated direct investm ent was concentrated m ainly in the d evelop ed eco n o ­ m ies, w h ose share rose from 66.6% in the first year m entioned to 72% in the second (see table 6). It is also interesting to exam ine the unfold­ ing o f this inclination from other view points. As regards the origin o f the flow, th e su­ prem acy o f the British source o f supply in the / / 33 ./4 ';'/ , / / 28 S e e th e im p o rta n t stu d y p re p a re d b y C E P A L in 1965, E xtern a l fin a n c in g in L a tin A m erica, E /C N . 12/649/R ev. 1; S a les N .° : E .65.11.G .4. 2yI t s h o u ld 1x3 b o rn e in m in d th a t a c o n sid e ra b le p a rt o f th e a c c u m u la te d v a lu e is a cc o u n te d for by th e rein v est­ m e n t o f p ro fits m ade in th e sam e country. A stu d y on th e situ a tio n re g a rd in g U n ite d S tates in v e stm e n ts sh o w ed that s u c h r e in v e stm e n t of p ro fits r e p re s e n te d a little o ver 50% o f th e c u m u la tiv e total b e tw e e n 1966 a n d 1976. S ee US D e p a rtm e n t o f C o m m erce, Survey o f C urrent Business, W a sh in g to n , A ugust 1977. 30A. F e rr e r , in La econom ía argentina (M exico C ity, F o n d o d e C u ltu ra E co n ó m ica , 1963), notes: “ F rom the se c o n d h a lf o f the n in e te e n th c e n tu ry o n w a rd s, A rg en tin a re c e iv e d a su b s ta n tia l p ro p o rtio n o f th e flow o f capital ... to th e d e v e lo p in g areas ... th e c ap ital in v e s te d in th is co u n try ro se from p ra ctic a lly n o th in g in 1860 to 2.5 b illio n dollars a t to d a y ’s p rice s (1962) in 1904 a n d n e arly 10,5 b illio n d o lla rs in 1913. 31 A. L ew is, op. cit. 56 first historical scenario was su bsequ en tly re­ p la ced by another and perhaps even more over­ w h elm in g on e, that o f the U nited States, until w e ll into the post-war era. Subsequently, how­ ever, th e full recovery o f Europe and Japan u n d erm in ed this dom inance, as is shown by th e reduction o f the U nited States share during th e m ost recent p hase from 53.8% in 1967 to 48% in 1975.32 It is also interesting to take into account the distribution o f investm ents in the periphery (se e table 6). In the light of its share o f world p opulation (a little over 10%, com pared with 31% for Asia (excluding Japan and Israel) an d a little over 12% for Africa (excluding South Africa), the large share o f Latin Am erica is quite striking. At the sam e tim e, how ever, quite apart from the considerable d eclin e during the peri­ od u nd er exam ination, it is essential to take into account the countries in w hich these in vestm en ts are m ade. Thus, Brazil and Mex­ ico, w hich accounted for about a third o f the total in 1967, cam e to account for half by 1976. As in w orld trade, th e sectoral structure of in vestm en ts in clin es towards the industrial field , in contrast w ith the past, w h en it was p referen tially oriented towards m ining and b asic services. T his is due to the influence both o f the dynam ics o f the sector and the post­ war ten d en cies w h ich favoured the nation­ alization o f the p reviously dom inant areas. The variations are appreciable even if w e only take th e relatively b rief period b etw een 1967 and 1975, during w hich —as regards the capital accum ulated by the U nited States— industry's share in Latin Am erica rose from 33% to 49%, w h ile the share o f the petroleum and mining sectors dropped from 41% to 19%.33 Partial 32O n e o f th e m o st sig n ific a n t e le m e n ts in th is d e v e lo p ­ m e n t is th e g ro w th o f fo reig n in v e s tm e n t in th e U nited S ta te s. F ro m an a v e ra g e o f so m e 923 m illio n dollars in 1967-1969, th is rose to a lm o st 4 b illio n do llars p e r year in 1973-1975, a cc o rd in g to in fo rm a tio n from th e U n ite d N a tio n s C e n tre on T ra n s n a tio n a l C o rp o ra tio n s, TNCs in w o rld developm ent: a re-exam ination (U n ite d N ations p u b lic a tio n , Sales N.°: E.78.I1.A .5), 20 M arch 1978, R e g a rd in g th e d e c lin e o f th e U n ite d S tates d o m in a n c e, se e in te r alia L G. F ra n k o , "M u ltin atio n als: th e e n d o f U S d o m in a n c e ” in H arvard B usiness R eview , B oston, M a ss a c h u se tts , N o v e m b e r-D e c e m b e r 1978. 33S e e C E P A L , E conom ic Survey o f L a tin Am erica, 1977, dp, cit. T h e o th e r se c to r w h e re th e re w as ra p id e x p a n s io n in th e r e c e n t p a st w as th a t o f fin an ce, th e share CEPAL REVIEW N.° 9 1 D e c e m b e r 1979 data give grounds for assum ing that this ten­ d en cy is even more pronounced in the ca se o f E uropean capital.34 h) The w eigh t o f th e tran sn ation al en terprises It is generally agreed that an overw helm ing proportion o f direct investm ent is m ade by the transnational enterprises: consequently, there is no n eed to repeat or enlarge on here what has already b een observed from exam ination o f th e ten d en cies and structures o f invest­ m ents. W e shall therefore concentrate on d is­ cu ssin g som e qualitative elem en ts w hich may h elp to identify the present character o f the p h en om en on , com pared w ith similar situations in the past,35 th e aim b ein g to make a better appraisal o f the role o f th ese enterprises in the internationalization process since the en d o f th e war. T h e m agnitude of this phenom enon must b e u n d erlin ed from the very start. According to a w ell-know n U nited Nations study, around 1971 a relatively lim ited num ber o f parent corporations (7,276) and their subsidiaries (27,300) generated about one-fifth o f the total valu e added in the w orld gross product, not cou n tin g the centrally planned econom ies,36 Com parable data regarding Latin America are not available, but perhaps the m ost impor­ tant consideration is that involving a w ell d ocum ented fact: that the transnational corpo­ rations play the lead ing and som etim es exclu­ siv e role in som e key sectors o f production — p recisely those o f greatest dynam ism and h ig h est technological lev el— just as occurred in th e past w ith the primary com m odity export­ in g com plex. T here is considerable docum entation re­ o f w h ic h ro se from 14% to 20% o f th e total, for w ell-k n o w n re aso n s. ^ I n th e case o f W e st G e rm an y , for e x am p le, it w o u ld a p p e a r th a t 77% o f th e total in v e s tm e n t a re in th e industrial se c to r, accoxding to th e U n ite d N atio n s stu d y M ultina­ tio n a l corporations in w orld develo p m en t (Sales N .° : E .73.I1.A .11), 1973. 35W ith reg ard to th e e x iste n c e o f su c h situ atio n s, P ro fe ss o r A. L ew is c o m m e n ts — ra th e r ironically— th a t the r e c e n t d isc o v ery o f th e ir e x iste n c e by p o litica l th e o rists le a v e s th e h isto rian a little p e rp le x e d (A. L ew is, op. cit.), 36U n ite d N ations, M u ltinational corporations..., op. cit. TH E PERIPHERY AND THE INTERNATIONALIZATION,,. / A n íb a l P in to garding this matter w h ich makes it unnecessaiy to go into it here in detail. It does seem useful, h o w ev er, to go into a little more detail about so m e com m on features and also som e notable d ifferen ces in th e particular situations o f the Latin American countries. In order to do this, w e h ave taken data regarding the industrial sector in Brazil, C olom bia and M exico.37 In all th ese countries, from an early stage, foreign participation has b een relatively high­ e s t (b etw een 50 and 100%) in the chem ical, b a sic m etals and m etal manufactures and ma­ ch inery industries, w ith the proportions vary­ in g according to th e sp ecific lines in each sub sector. W h ile th e sm aller d egree o f diversifica­ tion and d evelop m en t o f Colom bian manufac­ turing m ay explain som e o f the contrasts noted, it is n o n eth eless true that th ese are very marked com pared w ith the situations in Brazil and M exico. As regards the m etal manufactures and m achinery group, for exam ple, foreign control in various m ain item s in the second country w as com p lete until at least 1970 (the last year of the study quoted), but it was more varied and relatively sm aller in Brazil. The m otor industry m ay b e taken as an illustration: e v e n w h en th e term inal plants are foreign o w n ed , dom estic m otor-com ponent firms ac­ cou n t for about one-third of the total sales in this branch.38 O bviously — and b eyon d any value ju d ge­ m en t— th e situation sketched above im plies d e c isiv e influence on the growth rates and orientation o f the production system s and on o n e o f th e crucial links o f the external relations o f th e countries, p recisely w here this is most important. It is difficult to say categorically w hether th is n e w form o f internationalization im plies m ore or less d ep en d en ce on the exterior than that w h ich characterized the primary commod­ ity exporting growth. T his is not the place to go 37R e g a rd in g B razil, se e th e d a ta c o lle c te d b y th e C E P A L /C T C U n it; re g a rd in g C olom bia, se e M ich ael M o rtim o re , C E P A L /C T C U n it, Foreign participation in C o lo m b ia n developm ent: the role o f TN Cs, 1979, a n d re g a rd in g M exico, s e e C. B azd resch P arada, “ L a p o lítica a c tu a l h a c ia la in v e rs ió n e x tra n je ra d ire c ta ” , Comercio E xterio r, M exico C ity , N o v e m b e r 1972, 38 D e rei o G. M u ñ o z , “ C a p ita is e xtranjeiros — a e sp e ra d e p ra g m a tism o ” , in R evista de A n p ec , N.° 2, 1978. 57 into the terms o f the controversy over this matter, but what does seem to b e beyond doubt is that th e p henom en on in volved is m uch more com p lex and com preh en sive than th e previous type o f linkage.39 i) T he ‘m o tiv a tio n s’ o f th e tran sn ation al co rporation s W hat are the forces or m otivations w h ich im­ p e lle d this process? If w e look back over th e way th e problem w as exp ressed in th e previous system o f trade, it seem s obvious that the central im pulse came from th e n eed to prom ote exports o f primaiy com m odities so as to ensure su pp lies o f food and raw m aterials at relatively low prices (w h ich , among other things reduced the cost o f th e labour force), w h ile at the sam e time o p en in g up other profitable horizons for lhe export o f capital. In the post-war phase, th ese incen tives con tin u ed to b e present, but other conditioning factors also en tered into the matter. O n e o f th em arises from technological developm ent and the ten d en cies towards the concentration o f enterprises, w h ich created the possibility and n ecessity o f going beyond national bound­ aries. W ith regard to the first and m ost d ecisive elem en t, it seem s unnecessary to stress the in flu en ce o f progress m ade in the fields o f cam- 39W ith o u t th is c o n stitu tin g a n a n sw e r to th is q u e ry , it se e m s u se fu l to re c a ll th a t in v a rio u s r e c e n t C E P A L studies p ro m in e n c e has b e e n g iv e n to th e b ig g e r c apacity o f th e re g io n to d e f e n d its e lf a g a in st th e c y c le o f th e central e c o n o m ie s , w h ic h can b e e x p la in e d in th e final analy sis b y th e g re a te r d iv e rsific a tio n o f p ro d u c tio n o f m an y cf th e e c o n o m ie s o f th e re g io n . W h e n re fe rrin g to th is topic in h is s ta te m e n t a t th e e ig h te e n th se ssio n o f C E P A L , the E x e c u tiv e S e c retary o f th e C o m m issio n e m p h a siz e d th e fo llo w in g re le v a n t asp e cts: th e g re a te r stru c tu ra l solidify o f th e e co n o m ies o f th e re g io n , d u e b a sica lly to th e d iv e rs ific a tio n o f th e ir p ro d u c tio n a p p a ra tu s thanks to in d u stria liz a tio n ; th e m o re d iv e rs ifie d stru c tu re o f exports a n d , in p a rtic u la r, th e in c re a s e in e x p o rts o f m anufactures; th e d o m e s tic p o te n tia l for p ro d u c in g in te rm e d ia te a n d c a p ita l g o o d s, w h ic h c o u ld p re v io u sly o n ly b e obtained th ro u g h im p o rts; th e g re a te r a ccess to in te rn a tio n a l fin an c­ in g (a b o v e a ll o f a p riv a te n a tu re ), e v e n a t tim e s o f serious b a la n c e -o f-p a y m e n ts d is e q u ilib riu m in som e c o u n tries, a n d th e lim ite d b u t sig n ific a n t c h a n g e s in a g ric u ltu re and p a rtic u la rly in a m o d e rn iz e d se c to r w ith q u ite a h ig h g ro w th rate. 58 CEPAL REVIEW N.° 9 1 D ecem ber 1979 m unications and transport, cybernetics, and p o ssib ilities o f p rofit— visib le or hidden profit b u sin ess m anagem ent, to w hich was added the on inter-enterprise transfers, payments for “capacity and ... technical skill to ‘fragmentize’ tech n ology rights, and other w ell-known th e productive p rocesses, even in relatively tricks— w hich acquires even greater signifi­ m ore com plex activities, separating the seg­ can ce if w e Consider the global or supranational m ents o f higher labour density from those strategies and the logic behind the oligopolistic w h ich , although characterized by high capital com petition b etw een the big corporations. In d en sity , can b e carried out by u nsk illed or other words, what interests them is not so much the profitability o f each investm ent in particular sem i-sk illed workers” .40 T o th ese fam iliar reasons are added some as th e global effect over the w h ole o f their others from other sources w hich com plem ent profits and the situation as regards com petition th em and accentuate problem s connected with w ith sim ilar firms in the same field. “cap italist accum ulation” , esp ecially the un­ satisfactory ten d en cies o f profit rates in the j) The ex p o rt o f ca p ita l an d the produ ction cen tres (although this question only b ecam e of cy cle im portance in the present decade), the pres­ sure o f the organized working class o f the T h e elem en ts o f continuity and change in the central countries th em selves to share in the p resen ce o f the transnational enterprises and advances in productivity, and also the alterna­ their investm ents give rise to other queries tiv e and com pensatory attraction o f the low w h ich lead us to ask, as was done in a study w a g es paid in th e periphery. already referred to: what is really n ew , if there W ithout d en yin g the d egree o f validity of is in d eed anything n ew , in the recent trends?42 this second group o f explanations, it seem s In this sen se, for som e analysts the former clear that it com es from the same stock as the p h ase was characterized by the export o f capital classical assum ptions on this matter w h ich w e from the central econom ies, w h ile the phase referred to earlier through a quotation from w h ich began after the Second World War was Professor Rosens te in-Rodan. As regards sp eci­ d istin gu ish ed by the “ internationalization of fically the attraction exerted by the lower the production c y c le ”43 or, to put it another w ages paid on the periphery, it is necessary to w ay, by “the incorporation o f the labour forces recall o n ce again the w ell-p roven fact that the of many countries into an integrated and corpo­ bulk o f the investm ents o f the central countries rate w orld production structure”44 in w hich has b een concentrated in their own sphere th e transnational enterprises play a decisive — i.e., p recisely w here substantially higher role. w a g es predom inate— and that even in the p e ­ W ithout d en yin g the substantial change riphery itse lf they tend to recruit workers at w h ich took p lace b etw een the tw o periods as w a g es w h ich are usually higher than the aver­ regards the com position o f the flows o f capital, age, although ob viously they are far b elow this did not prevent the fact that in the first th o se p revailing in the industrialized econo­ stage, and even lon g before, as in the revealing m ies 41 case o f the sugar plantations of the W est Indies A sounder approach, therefore, is to take and Brazil, the other phenom enon m entioned into account th e gen eric reasoning over the above also took place. Particularly from the en d of the n ineteenth century onwards, there w as a considerable increase in the centre4()P, V uskovic, “A m é ric a L a tin a a n te n u ev o s térm in o s periphery links based on the trading o f raw d e la d iv isió n in te rn a c io n a l d e l trab a jo ” , in th e rev iew E conom ía de A m érica L atina, G ID E , M exico C ity, M arch 1979. 44F ro m th e p o in t o f v iew o f M arxist c ateg o rie s, it co u ld b e sa id th a t th e e x tra ctio n o f th e re la tiv e su rp lu s value (c o n d itio n e d by tire d iffe re n tia l gro w th ra te s o f p ro d u c ­ tiv ity a n d w a g es) has b e e n m o re a ttrac tiv e th a n the e x tra c tio n o f th e a b so lu te su rp lu s v alue (c re a te d by th e in te n sific a tio n o f th e efforts o f w o rk ers a n d /o r th e com ­ p re s s io n o f w ages). 42P . V uskovic, op. cit. 43C. Palloix, “ Im p é ria lism e e t m ode d ’acc u m u la tio n in te rn a tio n a l d u c a p ita l” , R evue Tiers M onde, Paris, Ja n u a ry -M are h 1974. Q u o te d by P e d ro V uskovic, op. cit. 44S. H ym er, “T h e in te rn a tio n a liz a tio n o f c a p ita l” , Jou rn a l o f E conom ic Issues, L in c o ln , N ebraska, M arch 1972. TH E PERIPHERY A ND THE INTERNATIONALIZATION... / Aníbal Pinto m aterials and food for m anufactures, thus in­ ternationalizing th e global production cycle through the reciprocal significance o f the flows o f goods and capital involved. O bviou sly, the centre laid dow n the forms and rates o f the links, but the m ainly en d ogen ous nature of their functioning was not in contradiction to th e m inor but still strategic role o f the periph­ eral u niverse w h ich was incorporated in this relationsh ip and w h ose growth was subordinated to its rate and forms. M oreover, this evolution, as a logical cor­ ollary o f the direct or indirect promotion and control o f production units by the guiding ec o n o m ie s, also m eant the forced or sponta­ n eo u s m obilization and recruitm ent o f an enor­ m ous reserve o f labour. As is w e ll known, two en orm ous international migration m ovem ents w e re set afoot: the approxim ately 50 m illion p e o p le who left E urope had as their counter­ part a sim ilar num ber o f p eop le w ho left the p erip hery for the tropical plantations, the m in es or the construction projects. A dded to th e migrants w ere many more m illion s of p e o p le w h o w ere incorporated into the primary com m odity export activities in their own lands. T h e se amounts seem to be considerably greater than th ose now estim ated w ith regard to the foreign operations o f the transnational enter­ prises.45 W h ile th e th esis thus unravelled may give rise to valid objections, it is n on eth eless true that it does point to a clear and main fact: the greater com plexity of the pattern o f interna­ tional relations (intra-centre and centre-pe­ riphery) estab lish ed by the present agents in th e articulation process. T he socialization of ec o n o m ic activities (and not only o f th ese ac­ tiv ities) shows a great advance under th e si­ m u ltan eou sly paradoxical and contradietoiy a egis of the transnational corporations, which are p r iv a te but in w h ose activities para-State and governm en t b od ies also play a part. k) The in te rn a liza tio n o f in vestm en ts In seek in g the n ovel features o f the n ew situa­ tion it may be usefull to recall the w ell known 45S. H yrner, op. cit., c a lc u la te d th at th e foreign e m p lo y e e s o f th e 500 b ig g e s t U n ite d S tates firms am ount 59 im age o f Hans Singer w ho, referring to foreign in vestm en t in the primary com m odity export­ ing field, m aintained that it was um bilically rooted in the central country w hich gave rise to it, w hereas its link w ith the peripheral country w as a factor more o f geographic than econ om ic sig n ifica n ce46 T his picture underw ent a profound change in the period after 1945. As foreign investm ent abandoned or w as d isp laced from the field of com m odity exports and began to b e con cen ­ trated in industry and other activities, an “ internalization” process took place to a de­ gree w h ich was more or less significant but in any case undoubtedly greater than in the past. T h e basic reason for this fact, as w e know very w e ll, is that the enterprises cam e to d epend on th e d om estic market for their profitability and expansion, although they continued to b e sub­ ordinated to the exterior through various chan­ n els (imports o f inputs and capital, technolog­ ical subjection, finance, etc.). On the other hand, d ep en din g on the host countries’ bar­ gainin g pow er, this was accom panied by an expansion o f the m anoeuvring capacity of national p o licies and ev en the em ergence of n ew forms o f linkage w ith the transnational enterprises,47 T his “internalization” has many important co n seq u en ces. O ne o f them is the bigger ir­ radiation of its effects over the societies which act as hosts to such enterprises, extending from the intensification and extension of the dem­ onstration effect, with the con seq u en t repro­ duction of the consum ption patterns o f the transm itting centres, to social and political im pacts. It has b een convincingly argued that all this has increased the co-optation capacity of the foreign presence, w hich covers th e po­ litical, b u sin ess and wage-earning classes, to to b e tw e e n 13 a n d 14 m illio n p e rso n s, w h ile C. V aitsos, op. cit., e stim a te s th e n u m b e r o f p e rso n s e m p lo y e d by th e tra n s n a tio n a l e n te rp ris e s in in d u strie s in th e d ev elo p in g c o u n trie s a t b e tw e e n 2.5 a n d 4 m illio n . 4f’H a n s S inger, " T h e d istrib u tio n o f gains b e tw e e n in v e s tin g a n d b o rro w in g c o u n trie s” , in Am erican Eco­ nom ic R eview , Papers and Proceedings, N a sh v ille , T e n ­ n e s s e e , Vol. II. N .° 2, M ay 1950. 47S e e in this re s p e c t C E P A L , The econom ic and social d evelo p m en t and external econom ic relations o f Latin A m erica (E /C E P A L /1024), Vol. II, 1979. P ro m in e n t am ong th e s e n e w form s are: c o -p ro d u c tio n a n d specialization 60 say nothing o f that part o f the population which is incorporated (or hopes to be incorporated) in th e market for consum er goods w h ich are characteristic o f the process. Paradoxically, in co n seq u en ce, this “internalization” b ecom es a force w h ich activates the tend en cies towards internationalization already referred to. W ithout prejudice to the foregoing, it is clear that th ese im p ulses run counter to other very pow erful im p ulses in the opposite direc­ tion: i.e., towards the absolute or relative (but in any case con flictive) exclu sion o f a consider­ a b le part o í the population of the periphery, w ith th e proportions varying according to lhe particular situations o f the countries, as many stu d ies have con vincingly demostrated.48 T h ere is no room here to go into greater d etail on this topic o f such outstanding impor­ tance, but w e cannot p roceed w ithout stopping to speak about a m anifestation w hich is n ew in this matter and w h ich is o f particular signifi­ ca n ce for the central discussion. G o in g to the root o f the matter, w e must recall th e undoubted export-orientation o f the former system o f investm ent, w hich had as its counterpart —and m ade p ossib le— the flow in th e reverse direction represented by imports and service paym ents on foreign capital. T h e n ew circum stances, and particularly th e ‘‘internalization” m entioned, radically ch a n g ed this circuit. W ith the international en terp rises transformed into the main actors in th e so -called secon d p hase o f substitution industrialization (w hich only really flourished it m ay b e n oted in passing, in the larger coun­ tries o f Latin America), the trend towards im­ ports replaced th e former export trend. S om e se le c tiv e data make it p o ssib le to illustrate this p henom en on: although they re­ fer to changes w h ich took place after 1950 they n ev er th eless bear w itn ess to the change which a g re e m e n ts ; su b -c o n tra c tin g ; co -o p era tio n a rra n g e m e n ts lim ite d to a sp e c ts o f te c h n o lo g y a n d m ark etin g , a n d a g ree ­ m e n ts b e tw e e n foreign a n d d o m estic e n te rp ris e s to carry o u t j o in t v e n tu re s. 48A m ong th e s e stu d ie s , th o se c o n c e rn in g incom e d is trib u tio n a n d situ a tio n s of e x tre m e p o v e rty a n d on th e su b je c t o f b a sic n e e d s a re p a rtic u la rly p e rtin e n t. See, for e x a m p le , C E P A L , T he econom ic and social developm ent a n d extern a l econom ic relations o f L atin Am erica, 1979, op. cit., vol. I. W ith re g ard to th e g e n e ra l p h e n o m e n o n o f integration- CEPAL REVIEW N « 9 / D e c e m b e r 1979 took place in the period w ithin the general framework o f inw ard-oriented d evelopm ent. T hus, for exam ple, if w e com pare the grow th rates o f the dom estic product and of th e imports o f Latin Am erica in the period 1950-1960 w ith those for 1965-1974 (see table 7), w e se e that in the second period there was a substantial rise in the growth rate o f imports, w h ile there was only a relatively m od est in­ crease in the product. T he sam e evolution is repeated w ith greater force in the large coun­ tries in w h ich the secon d stage o f substitution w as concentrated, sin ce in th ese countries the grow th rate o f purchases abroad increased four­ fold. T a b le 7 G R O W T H R A T E S O F T H E L A T IN A M E R IC A N D O M E S T IC P R O D U C T S A N D IM PO R T S L atin A m erica as a w h o le L arg e co u n tries o f L atin A m erica 1950-1960 1965-1974 1950-1960 1965-1974 D o m e s tic p ro d u c t Im p o rts E x p o rts 5.2 3.5 4 .0 6.7 9.4 4.6 5.4 2.8 3.1 7.5 12.2 6.2 Source: C E P A L , L ong-term trends and prospects o f the d evelo p m en t o f L atin Am erica (E /C E P A L /1076), d o c u m e n t p r e s e n te d a t th e e ig h te e n th sessio n o f C E P A L in L a Paz, B olivia, 1979. O f course th ese disparities are not due e x c lu siv ely to the p henom en on under consid­ eration. T hey are also influenced by th e ex­ p ansion in w orld trade and the relative im­ provem ent o f the terms o f trade n oted in the secon d period (1965-1974). At the sam e time, h ow ever, it should be noted that the average growth rates o f the region ’s exports are similar in both periods, although they increase ap­ preciably for the bigger countries, largely b ecau se o f the performance o f Brazil. External in d eb ted n ess con seq u en tly assum es outstand­ in g im portance in explaining the differen ce in the grow th rates o f the tw o flow s. e x c lu sio n , th e stu d ie s by O sv ald o S u n k e l, “C apitalism o tra n s n a c io n a l y d e sin te g ra c ió n n a c io n a l” in E l Trim estre E conóm ico, M exico C ity , N .° 150, a n d by S, H y m er, op. cit., a re w orthy o f m en tio n . T H E PERIPHERY A N D THE INTERNATIONAL^ATION,,. / A n íbal Pinto T his matter is m ade clearer if w e look at fragm entary figures on th e relation b etw een exports and imports (and financial paym ents) for th e ca se o f Brazil, w h ere the phenom ena u n d er consideration are to b e seen more cl early and sign ifican tly affect the field s selected . A study carried out by the M inistry o f Plan­ n in g o f Brazil, w h ich refers to the year 1974 and to 115 o f th e main transnational enter­ p rises, revealed that the trade balance o f the latter sh ow ed a n egative balance o f 2,161 m il­ lio n dollars,49 w h ich rises to 2,412 m illion dollars on th e current account (i.e., taking into accoun t paym ents for services) and w h ich is red u ced to 1,731 m illion dollars if w e take into accoun t investm ents and loans under the m o v em en t o f capitals. From the point o f view o f th e current account, this balance is equiva­ len t to one-third o f th e total deficit recorded for 1974 (7,286 m illion dollars).50 It hardly seem s necessary to stress the great im portance o f the structural turnabout in th e internal and external projections o f the a ctiv ities o f th ese corporations. For a start, it raises a clear contradiction b etw een the need for foreign exchange and the inward effects on th e le v e l and com position o f dom estic demand, w h ich stim ulates an increase in imports. More­ over, it ob viou sly represents an obstacle to the progress of th e internationalization o f the econ­ om y (or, if you prefer, its “transnationaliza­ tio n ”), insofar as it makes paym ents on foreign capital and th e grow th o f imports more dif­ ficult. N e w n et investm ents and an increase in other exports and credits can ob viously make up for this d issociation to som e extent, but their grow th cap ab ilities su ggest that only a change in th e structure o f external relations o f th ese en terp rises — in th e direction o f increasing their export trends— cou ld restore a m anage­ a b le le v e l o f harmony to the opposing trends i£ o f course, th ese are going to continue playing su ch a d e c isiv e role as in the recent past. B e that as it may, the change in question s e e m s to im ply that, in th e second historical p eriod under consideration, foreign enter- 49The exports of the 115 enterprises totalled 837.5 m illion dollars as against 3,000 million dollars of imports. ^ S e e SUB IN, Ministerio de Planejamento, Balanço de Pagamentos de 115 empresas multinacionais, Brasilia, 61 p rises or investm ents did not so m uch contrib­ u te to the progress and change o f the in tern a ­ tio n a l d ivision o f labour as h elp to d eep en n a tio n a l divisions in this, i.e., w ith in each country, as exp ressed in m ovem ents o f labour and capital b e tw e en and w ithin the productive sectors. O f course, the outlook w ould b e dif­ feren t if w e forgot about the national frame­ work and took as our reference a u nified world system . From that point o f view , this inwardd irected change w ou ld have a sen se equal to that o f the international d ivision o f labour as it is norm ally understood. 1) O il a n d in te rn a tio n a liza tio n It w ou ld b e a serious om ission not to include som e b rief remarks about the in cid en ce o f the ch an ge in oil prices on the question under exam ination. A lthough the difficulties o f the w orld econom y, and particularly those o f the central countries, had already begun to show th em se lv es earlier,51 there can be no doubt that this price rise has b een o f d ecisiv e impor­ tance in th e secon d half o f the n in eteen -seven ties and it seem s that it w ill b e even more im­ portant in the future. T h e truth is that this abrupt change gave rise to universal aw areness o f the realities of internationalization (and interdependence), h o w ev er their nature and content m ight be v iew e d . It may b e, as has b een suggested, that this w as sim ply th e detonator w hich dramatically brought to the surface the various disequilibria gen erated by the kind o f d evelop m en t fol­ lo w ed since the war, but at the sam e tim e few w ill d en y that it has a personality o f its own and effects w hich go far b eyon d the m ere m om ent o f th e explosion. For the particular purposes o f the present study, w hat is worth stressing more than any­ th ing is the fact that this ep isod e constitutes th e first and u n p reced en ted case in w hich the im p u lse towards internationalization — with all th e co n seq u en ces w hich it involves— has originated from a d ecision o f a sector o f the 1976, and CEPAL, Economic Survey o f Latin America, 1976, op. cit. 51See in this connexion the analysis which appeared in CEPAL, Economic Survey o f Latin America, 1971, op. cit. 62 periphery, thanks to its partial but strategic dom ination and handling o f a product w hich is essen tia l for m odern society and esp ecially for th e m ost h ighly industrialized core of that so ciety. Many appraisals shared by analysts of d iv erse and op posed ten d en cies probably exaggerate the n egative repercussions o f this p h en o m en on and underestim ate, in contrast, th e capacity of adaptation of the centres. There see m s to b e general agreem ent, how ever, that th e adjustm ent process (quite apart from hav­ in g a striking in flu en ce on the growth rate, inflation and the terms o f trade) may involve substantial ch an ges in their style o f d evelop ­ m en t and, m ore sp ecifically, in their resource a ssign m en t matrix. R ecalling an oft-repeated m etaphor, it cou ld be said that the type o f econ ­ om y b ased on oil at less than 2 dollars a barrel can hardly b e the sam e w h en the price in mid1979 is already over 20 dollars.52 A more direct and eq u a lly transcendental result could be the m a ssiv e reallocation of investm ents called for by en ergy program mes. All this raises great queries w hich are far from b e in g clarified, but their consideration g o es b eyon d the scope o f the present study, ex cep t as regards the repercussions of the gen eral p henom enon on the periphery and the reactions o f the industrialized econom ies. A contradictory aspect inm ediately com es to our attention in this respect. There can Ire no doub t that the rise in oil prices represented a g lo b a l strengthening of the bargaining posi­ tion of the periphery vis-à-vis the centres, and this is th e m ain reason for the political solidari­ ty w h ich is to b e observed within the group o f peripheral countries with regard to the OPEC, O n th e other hand, how ever, as is even clearer, it rep resen ted a differentiating and weakening factor in this group in view o f the contrast w h ich it created b etw een the oil-exporting 52S e e J. W. M u lle n , “ W orld oil p rices: p ro sp ects a n d im p lic a tio n s to r e n e rg y po licy -m ak ers in L atin A m erica’s oil-d e f'icit c o u n trie s ” , C uadernos de la CEPAL, Santiago, C h ile , 1978, In p ra c tic e , th e p ric e of a barrel o f oil b efore th e 1973 in cre ase, in c o n sta n t 1975 dollars, w as e q u iv a le n t to le s s th a n h a lf th a t p re v a ilin g a t th e b e g in n in g o f the 1950s. It w o u ld b e d iffic u lt to fin d a m ore e lo q u e n t illu s tra tio n of th e h isto ric sh o rt-sig h te d n e ss o f th e “ m arket fo rc e s” . CEPAL REVIEW N." 9 / December' 1979 countries and those d ep en dent on the importa­ tion o f petroleum .53 Moreover, if w e look at the situation of the latter countries, it is easy to see the multitude o f negative con seq u en ces follow ing upon the rise in fuel prices and transmitted from the central econom ies, the most readily visib le of w h ich are those deriving from “stagflation”; w eakenin g of dem and for the non-oil countries’ exports, rises in the prices o f their imports, and in addition the recrudescence of protec­ tionism . In the more distant future, however, there loom other disq u ietin g factors also, such as those w hich may result from the changes in the patterns of growth and investm ent already referred to.54 Without w eigh in g the various positive and n egative elem en ts against each other, there is a striking contrast b etw een the effective im p u lse towards internationalization repre­ sen ted by the oil problem and the contrary in flu en ces — towards marginalization— which affect in particular the oil-im porting peripheral econom ies.55 Looking at the same problem from the an gle of the central countries, w e also note a contradictory situation. On the one hand, the energy crisis has so far stim ulated joint d eci­ sions for tackling it, but few w ould deny that if it persists or gets w orse this could w ell be the source o f future conflicts. (m) A stru ctu ral balance-sh eet In order to give a broad picture o f the changes w h ich the internationalization process has 53T h e first o p e n m an ife sta tio n o f th is sp lit w as se e n a t th e U N C T A D C o n fe re n c e h e ld in M anila in 1979. 54By way o f illu stra tio n , w e m ay c o n sid e r a ten d e n c y w h ic h w as a lre a d y ta k in g sh a p e b e fo re th e oil crisis. T hus, b e tw e e n 1970 a n d 1973 o v e r 80% o f th e total e x p e n d itu re o n th e e x p lo ra tio n o f m in e ral re so u rce s w as c oncentrated in o n ly fo u r c o u n tries: th e U n ite d S tates, C a n ad a , A ustralia a n d S o u th Africa. See U n ite d N ations, D evelopm ent F orum , G en ev a, M ay 1978. 55T h e so-called re c y c lin g o f th e oil su rp lu se s a n d th e ir c o n trib u tio n to in te rn a tio n a l liq u id ity facilitated the flow of c re d its to the n o n -o il-e x p o rtin g e co n o m ies, a n d som e m e a su re s h a v e also b e e n tak e n by th e o il-p ro d u c in g c o u n trie s to re d u c e th e d iffic u lties o f th e form er. It is o b v io u s, h o w e v e r, th a t th e s e e le m e n ts are far from repre­ s e n tin g a d e q u a te so lu tio n s to th e p ro b lem , O n th e o th er h a n d , th e a llo c a tio n of a large p art o f th e O P E C c o u n tries’ re so u rc e s to in v e stm e n ts an d p u rc h a se s in th e c en tral e c o n o m ie s h a s sig n ific a n tly a id e d th e latter. 63 TH E PERIPHERY AND THE INTERNATIONALIZATION.,. I A níbal Pinto h e lp e d to bring about, two approaches have b e e n selec ted . O ne stresses the changes in the pattern o f trade o f the main groupings in the w orld system , w h ile the other stresses the structural shifts in the centre-periphery com p lex in its usual sen se, i.e., w ithout takiqg into account th e socialist econom ies, although d etails are giv en regarding them. W ith regard to the first approach, an attem pt is m ade to establish to what degree there has b een a change in the “classic*' d iv isio n b e tw e e n exporters o f com modities and exporters o f manufactures. S ee in this resp ect table 8, prepared for a recent CEPAL study, w hich clearly illustrates this matter. As m ay be seen , there is a clear predom ­ inan ce o f industrial exports in the export structures o f the central econom ies and the E uropean Socialist countries. In contrast, d esp ite the significant changes w hich took p lace b e tw e en the years in question, industrial exports represent only a small fraction o f the sales o f the peripheral countries, although the Asian market econ om ies constitute a signifi­ cant excep tion to this b ecau se o f the w ellknow n w eight ol the group o f countries w hich b egan their industrialization process with a v ie w to the external market. T h e situation is very different if w e look at th e com position o f imports, since in all cases (w ith the exception o f Japan)56 imports of m anufactures clearly predom inate. This situa­ tion, of course, im plies a marked distortion in th e external trade structure o f the periphery b eca u se o f th e scanty relative w eigh t o f their industrial exports in com parison w ith the very h igh valu e o f their im ports o f such goods. In contrast, the sym m etry in the imports and 56T h is situ atio n is larg e ly e x p la in e d b y th e shortage o f n a tu ra l re so u rc e s. I t is a lso in flu e n c e d , h o w e v er, by p o lic ie s re stric tin g th e a ccess o f in d u stria l p ro d u c ts, w h ic h a re fr e q u e n tly c ritic iz e d , it m ay b e n o te d in passin g , by th o s e w h o claim to b e a d v e rse ly a ffe c te d b y th e s e po licies. T a b le 8 R E L A T IV E V A LU E O F M A N U FA C TU R ES* IN W O R L D A N D R E G IO N A L T R A D E IN G O O D S (E X C L U D IN G F U E L S ), 1955 a n d 1975 (Percentages) E x p o rts Im p o rts 1955 W o rld N o rth A m eric a (C an a d a a n d USA) W e ste rn E u ro p e E a s te r n E u ro p e a n d U SSR Japan O th e r d e v e lo p e d c o u n trie s6 L a tin A m eric a a n d th e C a rib b e a n A frica (e x c lu d in g S o u th Africa) A sia (e x c lu d in g Ja p a n a n d A sian so c ia list c o u n trie s C h in a a n d o th e r A sian socialist countries^' 1975 1955 1975 49 70 49 70 51 69 59 83 11 63 80 68 94 23 42 39 47 13 78 76 69 68 33 89 5 6 22 12 71 72 78 79 19 55 59 67 17 39 78 73 Source: C E P A L , on th e basis o f d a ta from U N C T A D , Haridbook o f International Trade and D evelo p m en t S ta tistics, 1976 (U n ite d N atio n s p u b lic a tio n s, Sales N.°: E /F .7 6 .II.D .3 ) a n d 1977 (Sales N.°: E /F .7 8 .II.D .1 ). * S IT C s e c tio n s 5, 6, 7 a n d 8, ex ce p t for d iv isio n 68 (non-ferrous m etals). F ig u re s b a se d on F O B v alu es. 6A u stra lia , N e w Z e a la n d a n d S o u th Africa. uN o rth K orea, M o n g o lia a n d th e fo rm er S ocialist R e p u b lic o f V iet Nam . 64 CEPAL REVIEW N.° 9 í D ecem ber 1979 exports o f th e central econ om ies in this respect is very clear.57 In v ie w o f th e d e c isiv e role w h ich exports o f co m m od ities w ill con tin ue to play in the p erip h ery and in Latin America, it is worth referring again here to an aspect w hich was already m en tion ed and w h ich is o f essential im p ortance w ith in th e C E PA L conceptions o f th e centre-periphery system . W e refer to the d ifferen t d em an d dynam ics for the goods w h ich m ake up foreign trade and their influ­ e n c e on its structure. As w e can see from table 3, b e tw e e n 1960 and 1974 the growth rate of industrial exports — at constant values— was tw o and a h alf tim es higher than the rate for primary com m od ities and foodstuffs, although it w as not so m uch higher than that for fuels. In order to try to draw up a balance from th e other angle, w e assem b led and rearranged k now n data w h ich en a b le the situations in 1930 and 1977 to b e com pared. T h ese are given in tab le 9. As already noted, the socialist area has b e e n exclu d ed for the basic reason that it d oes not form part o f this group, although it is linked to it b y various ch an nels and does form part o f th e w orld picture. Furtherm ore, this exclusion w as d u e to more substantive reasons con n ected w ith th e particular characteristics o f these eco n o m ies, w h ich are based on collectiv e, or, according to som e, State ow nership and p lan n ing, and w ith their internal or regional relations in the case o f the USSR and the countries o f Eastern Europe.58 R eference w ill b e m ade to their evolution later in this study. T a b le 9 C E N T R E A N D P E R IP H E R Y : D IS T R IB U T IO N O F P O P U L A T IO N , T O T A L P R O D U C T A N D P E R C A P IT A P R O D U C T IN 1950 A N D 1977 1950 1977 P o p u la tio n (% ) C e n tr e a n d p e rip h e ry 1 1 “ M o d e r n ” se c to r N o rth A m e ric a (C a n a d a a n d USA) W e s te rn E urope^1 Jap an O th e r d e v e lo p e d countries*-' “ I n te r m e d ia te ” se c to r L a tin A m e ric a a n d th e C a rib b e a n “ P r im itiv e ” s e c to r A frica (e x c lu d in g S o u th Africa) A sia (e x c lu d in g Is ra e l a n d Jap an ) T o tal p ro d u c t (% ) % 100.0 34 .3 10.2 17.4 5.1 1.6 10.0 10.0 55 .7 12.6 100.0 86.0 51.4 29.1 3.0 2.5 5.8 5.8 8.2 2.3 43.1 5.9 P e r c a p ita p ro d u c t P o p u la tio n T o tal p ro d u c t P e r c a p ita p ro d u c t In 1970 US d o lla rs {%) (%) % In 1970 US d o lla rs 100 250 506 168 59 138 57 57 15 19 627 1 565 3 172 1052 367 866 360 360 93 117 100,0 26,6 8.6 12.3 4.0 1.7 12.1 12.1 61.3 14.1 100.0 82.2 41.9 28.9 8.9 2.5 7.7 7.7 10.1 2.6 100 309 487 235 221 148 63 63 17 19 I 448 3 543 5 595 2 696 2 532 1 698 725 725 191 214 14 86 47.2 7.5 16 183 Source: C E P A L , o n th e b a sis o f d a ta ta k e n from official U n ite d N a tio n s p u b lic a tio n s. “ In c lu d e s o n ly m a rk e t e c o n o m ie s a n d th e re fo re e x c lu d e s th e c e n tra lly p la n n e d eco n o m ies o f E u ro p e , A sia a n d C u b a. '’A ll th e E E C a n d E F T A c o u n trie s , G re e c e , M alta a n d S p ain . c‘A u stra lia , Is ra e l, N e w Z e a la n d a n d S o u th A frica. 57S e e in th is re s p e c t G . F ic h e t a n d N o rb e rto G onzález, “ T h e p ro d u c tio n s tru c tu re a n d th e dy n am ics o f d e v e lo p ­ m e n t” , in CEPAL Review , N .° 2, se c o n d h a lf o f 1976. S^W ith reg ard to th e se c o n d e le m e n t, it sh o u ld b e s tr e s s e d th a t th is g ro u p o f c o u n trie s, d e s p ite som e sim i­ la ritie s w ith th e c e n tre -p e rip h e ry sc h e m e o f th e c a p ita list s p h e r e (su c h as th e fact th a t th e re is a “m ain c e n tre ” and o th e r e c o n o m ie s w h ic h a re d e p e n d e n t on it In e sse n tia l a sp e c ts), th e r e a re d iffe re n c e s in o th e r im p o rta n t aspects, s u c h as th e Êtct th a t th e “c la ssic ” sy stem o f tra d e b e tw e e n e x p o rte rs o f in d u stria l goods a n d ex p o rters o f basic c o m m o d itie s d o e s n o t a p p ly . In p ra ctic e , th e m ain p ro d u c e r o f p rim a ry c o m m o d itie s is th e USSR, a n d som e o f the sm a lle r c o u n tries h a v e a n e co n o m ic stru c tu re w h ic h is m o re h o m o g e n e o u s a n d “ d e v e lo p e d ” th a n th e “m ain p e n tre ” . F o r a lo n g e r a n d m ore fu lly d o c u m e n te d d isc u s­ sio n o f th is su b je ct, se e A, P in to a n d J. K ñakal, América Latina y el cambio en la economía mundial, In stitu to d e E s tu d io s P e ru a n o s, L im a, 1973. TH E PERIPHERY A N D THE INTERNATIONALIZATION... / A níbal Pinto As w ill b e noted, th e statistical picture reflects th e approach ap p lied in Latin America for characterizing the structural h eterogen eity o f th e region,59 T his procedure is not arbitrary, sin c e a sim ilar picture is to b e observed at the w o rld le v e l, w h ere several outstanding univer­ se s co e x ist and are interrelated: that o f the predom inantly prosperous countries (in rela­ tiv e term s and w ith th e excep tion o f some sp ecia l cases w h ich are o f little significance for th e group as a w h ole); that o f the predomi­ nantly backward or poor countries (except for th e ca se o f sm all rich élites w h ich are also o f little significance for the total), and that o f the cou n tries w h ich are “interm ediate” in the Latin A m erican style, nam ely, countries w h ich are n eith er o n e th ing nor the other because th e y contain m arkedly h eterogen eou s produc­ tiv e strata w h ich represen t significant propor­ tion s o f th e population and/or the product. T h e global system then, resem b les the L atin Am erican formation in its structure. A m o d e m sector (the central econom ies) ac­ co u n ts for a h igh proportion o f the product and a lo w proportion o f the population; the “primi­ tiv e ” sector (Asia and Africa)60 is marked by the o p p o site features, w h ile the interm ediate sector (Latin America) show s som ething o f a b alance b etw e en the two positions (see ta­ b le 9).61 59P a ra p h ra sin g o n e o f M a rsh a ll W olfe’s d e fin itio n s (C E P A L , E conom ic S u rvey o f L a tin Am erica, 1973, p. 291) fo r th is p u rp o s e , it c o u ld b e said th a t th is c o rre sp o n d s to a s itu a tio n m ark e d b y th e c o e x iste n c e o f e co n o m ic groups c h a ra c te riz e d b y p ro fo u n d d iffe re n c e s o f p ro d u c tiv ity and “ m o d e r n ity ” b u t c o n n e c te d b y com plex links o f trad e, d o m in a tio n s a n d d e p e n d e n c e w ith in th e w o rld as a w h o le W ith re g a rd to its a p p lic a tio n to L atin A m erican analysis s e e in te r alia A. d i F ilip p o a n d S. Ja d u e , “ L a h e te ro g e ­ n e id a d e stru c tu ra l: c o n c e p to y d im e n sio n e s” , El Trim estre E conóm ico , N .° 169, Ja n u a ry -M arc h 1976, so in o rd e r to fa cilitate th e sta te m e n t o f th is positio n , th e o il-e x p o rtin g c o u n trie s h a v e n o t b e e n se p a ra te d in t h e s e g ro u p in g s. In an y case, th e co m p ariso n s are o n th e b a s is o f th e re a l p ro d u c t in m o n e y o f c o n stan t value, so t h a t th e y d o n o t ta k e in to a c c o u n t th e v a ria tio n s in fuel p ric e s. 61A n o th e r factor a lre a d y re fe rre d to is th e internal s tr u c tu r e o f L a tin A m erica. A t th e e n d o f th e 1960s, th is w a s a p p ro x im a te ly as follow s: th e m o d e m se c to r gen erated 53% o f th e p ro d u c t a n d gave e m p lo y m e n t to 12% o f th e l a b o u r fo rce (not, it s h o u ld b e n o ted , o f th e total p o p u la ­ tio n ); th e figures for th e in te rm e d ia te se c to r w e re 48% a n d 42% , re s p e c tiv e ly , w h ile th o se fo r th e “ p rim itiv e ” sector w e r e 5% o f th e p ro d u c t a n d 34% o f th e lab o u r force. 65 T h e first elem en t to consider is the expan­ sion o f th e system and o f its parts, for which p urpose w e may look at the increase in the per capita product. What strikes us im m ediately from this point o f v ie w is the dynam ic evolution o f th e w h o le and the different increases o f each segm en t o f this. Thus, w h ile the global in­ crease w as 83%, that o f the centre exceed ed 126%, that corresponding to Latin America rose by 100%, and that o f the m ost backward area b y 105%.62 D e sp ite th e significant contrasts, the interm ed iate and prim itive sectors slightly im proved their share in the total product at the e x p e n se o f th e m o d em sector. T he variations in ab solu te terms, how ever, are extrem ely u neq u al (alm ost 2,000 dollars for the centre, alm ost 100 dollars for the m ost backward countries, and 365 dollars for Latin America).63 It is easy to se e that the change in the relative population o f the areas affected this evolu tion . T hus, in k eep in g w ith w ell-know n factors, the population growth rate o f the industrialized econ om ies w en t dow n con sid ­ erably, w h ereas that o f the other groups went up. C learly, h ow ever, this is only a minor factor com pared w ith th e centripetal ten d en cies o f th e system as regards the absorption o f tech ­ nical progress. N a tu ra lly , th e r e a re m a rk e d d iffere n ce s b e tw e e n coun­ trie s. A rg en tin a, for e x am p le, d iffers co n sid e ra b ly from th e g e n e ra l p ic tu re in th a t th e “ p rim itiv e ” se c to r o nly accounts for 5% o f the la b o u r force, w h e re a s th e m o d e m secto r e m p lo y s 21% o f th e to tal lab o u r. S ee in th is re sp e c t A P in to , “ Styles o f d e v e lo p m e n t in L atin A m erica” in C E PA L R eview , first h a lf o f 1976. 62T h e rates o f a n n u a l in c re a se w e re 2.3% for th e w h o le, 3.1% for th e m o d e rn sector, 2.6% for th e in te rm ed iate secto r a n d 2.7% for th e p rim itiv e sector. In o rd e r to have a p o in t w ith w h ic h to c o m p a re th e s e , th e y m ay b e p la c e d alongside th e in c re a s e s in th e p e r c ap ita p ro d u c t in th e U n ite d States in a sim ila r p e rio d o f a ctiv e e x p a n sio n (1897-1900 to 19281930), w h ic h c a m e to 1.7% p e r y e a r (US B u re au o f th e C e n s u s , H istorical S ta tistics o f th e U nited States, Colonial tim es to 1957, W ash in g to n , D .C ., US G o v e rn m e n t P ritin g O ffice , 1960). ^ T h e figures m ak e p o ss ib le a re a listic a p p raisal o f th e re fe re n c e s to L a tin A m e ric a as an in te rn a tio n a l “m iddle c la ss” . A p a rt from th e fu n d a m e n ta l factor o f th e d istrib u tio n o f th is in c re a s e b y social cla sses a n d c o u n tries — w hich m e a n t v e ry sm all a d v a n c e s for th e 50% o f th e p o p u la tio n w ith th e lo w e st in co m e — th e d ista n c e b e tw e e n Latin A m e ric a a n d th e le v e ls o f tire c e n tre is very m u ch g re a te r th a n th a t b e tw e e n L a tin A m erica a n d th e m ost backw ard a rea . CEPAL REVIEW N.° 9 / D ecem ber 1979 66 It w ou ld b e tiresom e to go into all the d etails of th e various aspects arising from the inform ation p resented , but it seem s useful to draw attention to the shifts w ithin the m odem sector, w hich con fian the rise in the relative p o sitio n o f W estern E urope and, in particular, o f Japan, w h ose per capita product increased sev en -fo ld . T his is obviously due largely to the year taken as a reference, w h en th ese areas w e re on ly b eg in n in g their period of post-war reconstruction. M oreover, even in 1977 the sp ecific and proportional w eigh t o f the United States continues to b e striking. In order to com p lete this balance-sheet, w e in clu d e the inform ation given in table 10, w h ich sh ow s the changes regarding the Euro­ p ean Socialist countries. E ven taking into accoun t th e year taken as a base, w hich like­ w is e reflects th e u psets o f the war, the varia­ tions in all the indicators are still substantial; in this respect, it is su fficien t to note that this grou p ’s share in the w orld product rose from a little over 12% in the base year to 23% in 1977, w h ile their per capita product rose at an annual rate o f 6% over th e period in q uestion.64 T able 10 R ELATIVE W E IG H T O F TH E EUROPEAN SO C IA LIST CO U N TR IES IN THE W O RLD ECONOM Y1 ' (World = 100) 1950 P opulation T otal product Per capita product 1977 14.8 12.2 82.0 12.2 22.9 189.0 Source: C E P A L , on th e basis o í data taken from official U n ite d N a tio n s p u b licatio n s. " E a s te rn E u ro p e (A lbania, B ulgaria, C zechoslovakia, G e rm a n D e m o c ra tic R e p u b lic , H ungary, Poland, R o m an ia a n d Y ugoslavia) a n d th e USSR. 64 By w ay o f re se rv a tio n re g a rd in g th is e v o lu tio n , it has b e e n a rg u e d th a t th e a m o u n t o f e x p e n d itu re on defence c o n s titu te s a la rg e r p a rt o f th e p ro d u c t th an in th e central c a p ita lis t e c o n o m ie s a n d th a t th e official exchange rates o v e r-e stim a te th e re a l sig n ific a n ce o f th e figures; e v e n so, h o w e v e r, th e c h a n g e s a re su b sta n tia l. Recapitulation As w e have seen , the rate o f internationaliza­ tion — excep t for the interval b etw een the First W orld War and the en d of the Second World War— u nd ou bted ly accelerated during the secon d period, w h ile the process also becam e m ore com plex and all-em bracing, esp ecially at certain superstruetural lev els. From the more directly econ om ic p oin t o f view , how ever, the p rocess continued to b e concentrated in the d e v e lo p e d countries, as the driving forces and gu id es o f the overall m ovem ent, w hereas it took place in relatively few countries o f the periphery and even then only in certain dynam ic activities now closely linked to the consum ption patterns of the central econom ies and the m id dle and upper groups. Thus, the p h enom en on continued to be primarily hori­ zontal (North-South), selectiv e with respect to the periphery (as regards countries, activi­ ties, social groups, spatial location, etc.), and, as a result, a source o f relative or absolute m arginalization in all th ese dim ensions as far as th e great majority o f the world population is con cern ed . In short, the expectations regarding “the w orld -w id e expansion of industrial capital­ ism ”65 did not m aterialize, not so much b e ­ cau se o f overdoses of the supposed m edi­ cin e, but rather b ecau se th ese doses w ere insu fficien t or u nsuitable for transforming the w orld econom y in the im age and likeness o f th e centres. As w e already noted at the b egin n in g o f this study, w e have not gone into the question of “in terd ep en d en ce” w h ich is so often in­ term in gled w ith that o f internationalization. T his matter d oes, of course, involve related realities, and it can thus be m aintained in general terms that tire d evelop m en t o f the secon d process necessarily promotes the first situation, but the problem is considerably more com p lex than this in reality, due m ainly to tire am biguity of the con cep t o f interdependence. In order to go straight to the heart o f the matter, let us recall on e o f the elem en ts w hich form th e backbone o f the centre-periphery 65R. P re b isc h , “ T o w a rd s a th eo ry o f c h a n g e ” , a n u n p u b lis h e d stu d y to a p p e a r soon in CEPAL Review. TH E PERIPHERY A N D THE INTERNATIONALIZATION... I A n íbal Pinto 67 th eory formulated by Raúl Prebisch. As w e know , h e started from the analysis of the ec o n o m ic cycle and the dom inating role o f the “m ain centre o f the c y c le ”, reflected in the d ep en d e n c e o f th e peripheral countries. This an alysis w as p rogressively enriched through th e identification o f the structural contrasts w h ich con d ition the links b etw een the two sp h eres beyond th e periodical fluctuations. W ithin th e framework o f this conception, the various functions discharged by the periphery for th e d ev elo p m en t of the central countries aie n o t ignored, but it is estab lish ed beyond all d ou b t that it is th e centres w h ich impart their sp ecia l features and dynam ics to the evolution o f th e system as a w h o le and that o f the p erip hery in particular.66 In other words, the o verall in terd ep en d en ce has as its basis these tw o substantially different roles. T h e course o f th e processes sin ce the war has n e t changed th e esse n c e o f this com posi­ tion: in d eed , the w orld projections o f the “ stagflation” suffered by the centres is suffi­ cien tly elo q u en t proof o f this. Although there can b e no doubt that the “oil ch allen g e”, w h ich w e d iscu ssed earlier, is a prime excep­ tion o f great p resent and potential significance, it is n o le ss true that it has also brought out the very different capacities for response and adap­ tation o f the industrialized and peripheral econ om ies. In reality, as Dr. Prebisch pointed out, this is a situation o f in terd ep en d en ce betw een u neq u als.67 T h e moral o f the analysis w h ich w e have tried to m ake is clear. T he dynam ic continua­ tion o f th e process o f internationalization is not en ou gh to significantly alter the classic system o f centre-periphery relations. For this, there m u st also b e a profound change in the ways in w h ich th e peripheral countries are fitted into th e w orld econom y, and this, in its turn, is intim ately con n ected w ith the shift in their ow n productive structures. T here lies the nub o f th e discussion s and p olicies on the N ew International E con om ic Order, 66I n th is c o n n e x io n , s e e O . R o d rig u ez , “ O n th e c o n c e p tio n o f th e c e n tre -p e rip h e ry sy ste m ” , CEPAL R e v ie w , N .° 3 , first h a lf o f 1977. 67I n h is sta te m e n t a t th e U N C T A D C o n fe re n c e in M a rc h 1979. CEPAL REVIEW D ecem b er 1979 Commercial bank finance from the North and the econom ic developm ent of the South: congruence and conflict Robert Devlin* T h e e x e c u tiv e s o f th e b ig p riv a te b a n k s feel v ery sat­ isfie d w ith th e ir g ro w in g ro le in th e fin an c in g o f th e le s s d e v e lo p e d c o u n trie s a n d fu rth e rm o re c o n sid er th a t th e r e is a g e n e ra l h a rm o n y o f in te re s ts b e tw e e n b o rro w e rs a n d le n d e rs: a s e n se o f satisfaction w h ic h is s h a re d b y a n a p p re c ia b le n u m b e r o f econom ists a n d o fficials re s p o n s ib le for fo rm u la tin g p o lic ies b o th in th e d e v e lo p e d a n d th e u n d e r-d e v e lo p e d c o u n trie s . W h ile h e d o es re c o g n iz e th a t th e re a re som e p o s itiv e a s p e c ts in th e situ atio n , th is o p tim istic a ttitu d e is n o t s h a re d b y th e a u th o r, w h o m ain tain s th a t s u c h a g e n e ra l h a rm o n y o f in te re s ts d o e s not e x ist. T h e v ie w is b a s e d o n four m ain ch aracteristics o f p riv a te b a n k lo an s w h ic h a re u su a lly in conflict w ith th e in te re s ts o f d e v e lo p m e n t: (i) th e s e loans in v o lv e a n a rro w a n d c o n se rv a tiv e in te rp re ta tio n o f th e c rite ria for ju d g in g th e c re d itw o rth in e ss o f th e b o rro w e r c o u n trie s w h ic h d o es n o t u su a lly take into c o n s id e ra tio n efforts to a ch iev e b ro a d e r eco n o m ic a n d so cial o b je c tiv e s; (ii) th e y inv o lv e stric t rep ay ­ m e n t d e a d lin e s w h ic h c an c o m p lica te th e m an ag e­ m e n t o f th e d e b t a n d , w h e n th e case a rises, m ake it im p o s s ib le to s e c u re d e b t re lie f; (iii) th e re is a te n d e n c y fo r p riv a te b a n k s to h a v e b r ie f p erio d s o f h ig h liq u id ity w h ic h g e n e ra te a h arm ful bo o m in s u p p ly -le d lo an s; a n d (iv) th e p riv a te financial m a rk e t is n o t c o m p e titiv e a n d is less th a n n e u tra l at c e rta in cru c ia l sta g es in th e c re d it c y cle o f a country. A fter p o in tin g o u t som e serio u s d e fic ie n c ie s w h ic h a re to b e o b s e rv e d in th e p r e s e n t situ atio n , th e a u th o r d e v o te s th e fin a l se c tio n o f h is p a p e r to e x p lo rin g th e a lte rn a tiv e s a n d co m es to th e con­ c lu s io n th a t th e w o rld eco n o m y sh o u ld m ake a b e tte r u s e o f th e d iv is io n o f la b o u r w h ic h has a lre ad y b e e n in s titu te d in d e v e lo p m e n t fin a n c in g b y re v iv in g th e im p o rta n c e o f lo an s from m u ltila te ra l in stitu tio n s a n d th e p riv a te b o n d m ark e ts. ^Economic Developm ent Division, CEPAL. This study was presented by the author at the CEPAL Academic Sem inar in November 1979, I Introduction* T h e em ergen ce o f private com m ercial banks as principal lenders to less d e v e lo p e d countries T h e d ecad e o f the 1970s has b een marked by th e em ergen ce o f private com m ercial banks (herein u sed interchangeably w ith “bank” or “banks” ) as a major force in the transfer o f resources to d evelop in g countries.1 In the two p reced in g d ecad es the external finance o f th ese countries had generally b een dom inated by official m ultilateral and bilateral institu­ tions, together w ith credit from suppliers and direct investm ents o f foreign firms. Banks u sually lim ited th em selves to shorter-term fin ance often associated w ith trade. H ow ever, b eg in n in g in th e early 1970s the interaction o f m any factors associated w ith the supply and d em and for international finance generated con d itions w h ereb y banks rapidly expanded th e volu m e o f their len din g to d evelop ing countries and there was a qualitative change in th e relationship b etw een bankers and the governm en t authorities o f less d evelo p ed countries (LDCs),2 As an illustration of the nature o f the ch an ge in the role o f banks, it can b e pointed out that in 1970 they accounted for roughly 19% * T h e a u th o r g ra te fu lly a ck n o w le d g es th e h e lp fu l c o m m e n ts o f H . A ssael, D . H o e lsc h e r, M . M ortim ore, A. P in to a n d L. W illm o re on th e first d ra ft o f th e p ap er. It goes w ith o u t sa y in g th a t a n y e rrors in th e w ork a re th e sole r e s p o n s ib ility o f th e au th o r. A c tu a lly , th is m ig h t b e b e tte r te rm e d th e re -e m e r­ g e n c e o f b a n k s, sin c e p rio r to th e g re a t fin an cial co lla p se o f 1929 th e s e in stitu tio n s h a d b e e n sig n ific a n t le n d e rs to L a tin A m e ric a a n d o th e r d e v e lo p in g re gions. See D avis, p p . 6-21. 2B y n o w th e re is so m e lite ra tu re th a t covers — in v a ry in g d e g re e s o f c o m p re h e n s iv e n e ss— th e re c e n t rise in b a n k le n d in g to d e v e lo p in g c o u n trie s. S ee B eek, D e v lin (first h a lf o f 1978), G orostiaga, K apur, L issakers, Sargen, W a c h te l, W atson, W e in e rt (1973 a n d 1978) a n d W ei Ions (1977). 70 CEPAL REVIEW N.° 9 / D ecem ber 1979 of th e total current account finance (including reserve accum ulation) of the non-oil-exporting d ev e lo p in g countries, m ost of w hich was o f a short-term nature (maturities o f less than one year). By 1974, h ow ever, banks generated 33% o f this financé, w ith the bulk o f the transactions falling into the m edium and long-term category (m aturities o f 1-5 and greater than 5 years, resp ectively). W ith som e increase in lending by official agen cies in the post-oil-crisis period c o u p le d w ith the moderation o f current ac­ cou n t deficits, th e banks’ participation has now slip p ed back som ew hat to b etw een 25% and 30% of the total. Again m edium and long-tenn transactions predom inate.3 As it has now b ecom e customary to point out, the structure o f com m ercial bank lending is by no m eans symmetrical. In absolute tenns, m ost o f the len d in g has gone to the upperin co m e d ev elo p in g countries, esp ecially those o f Latin America. As may be seen in table 1, Latin Am erica accounts for nearly two-thirds o f th e gross in d eb ted n ess o f the non-oil-expor­ ting d ev elo p in g countries to com mercial banks, and alm ost all o f the net indebtedness. W h ile the bulk o f this debt is accounted for by Brazil and M exico, other countries like Peru, C h ile, Argentina and Colom bia are also impor­ tant clien ts o f international banks. T h e relative w eigh t o f banks in the struc­ ture o f th ese countries’ external finance has lik e w ise b ecom e considerable. In 1966-1970 th e average n et contribution o f banks to the current account finance o f Latin America was only slightly greater than 12% o f the total, but by 1974 banks accounted for more than twothirds o f net flow s, and in 1976, d esp ite n ew len d in g b y international organizations, the bank contribution was still nearly 50%.4 T hus, the issu e o f bank len din g to d ev el­ o p in g countries is largely associated with the u pper-incom e group; low er-incom e L D C s have had only lim ited access to credit from banks and basically remain d ep en dent on official concessionary finance. T he m uch higher profile for commercial banks in external finance has brought many tangible b en efits for both lenders and bor­ rowers: for exam ple, for banks it has meant substantially increased earnings,5 and for the T a b le 1 I N D E B T E D N E S S O F N O N -O IL -E X P O R T IN G D E V E L O P IN G C O U N T R IE S T O PR IV A T E C O M M E R C IA L BANKS AT E N D O F D E C E M B E R 1977a (B illio n s o f dollars) L a tin A m erica1 ’ M id d le East? A frica Asia1 * T o tal G ro ss 71.1 1.9 14.0 21.6 108.6 Net* 36.2 - 7 .1 3.0 - 1 .2 30.9 Source: Derived from data in tile Bank for International Settlements, Basle: F orty-Eighth A nnual R eport, 12 June 1978, pp. 94-95. '‘Includes short-term debt. Excludes Caribbean area and Panama. c’Exclude.s Israel. Residual estimate. Excludes Hons Kong and Singapore. * D e b t less d e p o sits in th e banks. 3T he data just cited are from Watson, table 2, pp. 12-13. 4S e e M assad a n d Z ah ler, ta b le 1, p. 4. 5S ee W atson, p. 37 a n d L issak ers, p p . 10-11. COMMERCIAL BANK FINANCE FROM TIIE NORTH / Robert D evlin countries a significant influx o f resources for d ev elo p m en t.6 All is not w ell, how ever, as the d e p e n d e n c e o f d evelop in g country borrowers on com m ercial banks appears to have gone b ey o n d prudent bounds. T he focus of concern is not on the issu e w hich has received most attention to date, i.e., the ability o f borrowing countries to repay their debt and the ability of banks to absorb such risks. There is little q u estio n that in on e way or another countries w ill con tin ue to repay their obligations and accep t the costs o f doing so.7 Rather what is of concern here is the qualitative impact o f bank len d in g on the process of d evelopm ent. T h e problem arises from the fact that tire w illin g n ess o f banks to lend exten sively to d e v e lo p in g countries has reduced pressures on th e industrialized nations to support official institution s and has contributed to the long­ term stagnation o f funding from this source.8 T hu s, banks have not m erely increased the finance available to d evelop in g countries but have also effectively d isplaced official insti­ tutions as the major agent for the transfer o f resources to the South. Moreover, tire d is­ p la cem en t has not only b een in tenns o f the vo lu m e o f len din g, but also in terms of 71 functions, as banks have gone beyond strictly com m ercial len d in g and entered into the usual dom ain o f official institutions, i.e., balance-ofpaym ents support, infrastructural project len d in g, general programme lending, etc. T his situation gives rise to a dilem m a b ecau se com m ercial banks do not appear to be an appropriate primary agent o f finance for d ev elo p in g countries. Private commercial banks, as their name im plies, are not d ev el­ op m en t institutions and their private com ­ m ercial tim e and risk preferences make it difficult for them to provide finance in ways w h ich satisfy tire broad socioeconom ic goals o f d evelop m en t. W hen external finance becom es com m ercialized, as it is today, this asymmetry b ecom es dangerous, placing strains on the d ev elo p m en t process and perhaps even on the w orld banking system itself. Thus, analysis w ill su ggest that officials in the North should be less com placent about the preponderant presence of banks in d evelop m en t finance and that the current situation requires a more courageous stance in th e North that w ill foster appropriate funding o f the current account balances of d ev elo p in g countries. II L en d in g to LDCs: The view of bankers T h e increased presence and pow er o f inter­ national com m ercial banks in developm ent (and w orld) finance has not gone unnoticed by th ese institutions. Through eloquent spokes­ m en banks have entered directly into the d eb ate about their role in d evelop in g country 6S e e D e v lin (first h a lf o f 1978), pp. 68-79. "^Econom ists a n d banks in N o rth e rn c o u n trie s have g o n e to g re a t le n g th s to p ro v e e m p irica lly th a t d e v elo p in g c o u n trie s a re in d e e d c a p a b le o f p a y in g off th e ir d e b ts. S ee, fo re x a in p le , S m ith , B rittain , van B. C le v e la n d a n d B rittain, a n d S olom on. Also se e L ew is, c h a p te r 9, lor an in te re s tin g p e rs p e c tiv e o n th e d e b t p ro b lem . B e tw e e n 1965 a n d 1975 th e re w as no real gro w th o f official le n d in g . S ee O E C D , p. 153. finance, to w hich their attitude is usually very p ositive.9 T heir arguments are generally fo­ cu ssed according to their spécifie audiences. W hen addressing th em selves to the pub­ lic in their ow n hom e countries the banks stress th e over-exaggerated nature o f the concern about their len d in g to d evelop in g countries, assuring their au dien ces that the bulk o f the len d in g has b een to creditworthy, sem i-indus­ trialized econom ies; that m ost loans have been of a short to m edium -term nature and/or have carried external guarantees o f the industrial­ isée, for in sta n c e , W atson, F rie d m a n , a n d van B. C le v e la n d a n d B rittain. 72 CEPAL REVIEW N.° 9 I D ecem ber 1979 ized countries; that d eb t growth in the d ev el­ o p in g countries in real terms has b een reason­ ab le and is serviceable; that the record for loan lo sses abroad has b een considerably better than that at hom e; and that in any case the ex p o sed assets represent a relatively small p ercen tage oí the total loan porfolio. W hen addressing officials in d evelop ing cou n tries, banks em phasize that their presence has greatly increased the resources available for d evelop m en t; that their involvem ent in the recy clin g ol oil surpluses has h elp ed to avoid a drastic adjustm ent process; that unlike official in stitution s, loans from banks are quickly arranged and disbursed, are not tied to the purchase o f any su pp liers’ goods and are o f a n on-political nature, based on the merits o f each case; and that due to a com petitive en viron m en t, borrowers enjoy the freedom to “shop around” for credits, thereby obtaining th e b est available terms. Finally, w h ile banks adm it that they are basically lim ited to short and m edium -term finance, they add that they are interested in long-term relationship with creditw orthy custom ers, so that in effect, through the continuous rollover o f shorter-term credits, th ese funds can “perform a function sim ilar to long-term funds” .1 0 T h e sam e spokesm en see the increased participation o f banks in d evelop m en t finance as b ein g “dem and driven”, with banks re­ sp on d in g on the basis o f “normal” credit criteria.1 Furthermore, its is claim ed that 1 — b eca u se of the benefits noted previously— “ d ev elo p in g countries want private banks to play a significant role in their developm ent p ro cess...” .1 In d eed , the p erceived harmony of 2 in terest has b een expressed on one occasion in th e fo llow in g way: “T h e b en efits o f b e c o m in g —and remaining— creditw orthy in the private bank markets are n ow see n in m ost d evelop in g countries to be of major proportions. In th ese countries, it is seen that p o licies n eed ed to maintain external cred itw orthin ess w ith banks are also n eed ed to m e et national d evelop m en t objectives. It is the m ain ten an ce o f the country’s econom ic d ev el­ 10F rie d m a n , p. 39. 11 S e e F rie d m a n , p. 48 a n d W atson, p. 27. 12S e e F rie d m a n , p. 61. op m en t that is the prim e purpose o f policy m easures, but if it also accom plishes availabili­ ty o f private credits, the process o f d ev el­ op m en t is greatly facilitated.”1 3 But just what is creditw orthiness? W hile it is seen to vary am ong banks, there are som e com m on elem en ts w hich are worth examining. T h e con cep t o f creditw orthiness puts a prem ium on the availability o f foreign ex­ chan ge to service the debt; w h en an econom y is run in such a way as to ensure availability this is term ed “good m anagem ent”,1 4 L ogically, then, w hen bankers are Scruti­ n izin g a country’s creditw orthiness, great em ph asis is p laced on external liquidity indi­ cators such as the various com ponents o f the balance o f paym ents, debt service, the lev el of foreign exchange reserves, inflation, dom estic cred it and exchange rate policy, etc.15 External d eb t m anagem ent also is important, as is industrial growth and a country’s treatment of foreign investm ent.16 As a tacit recognition o f the still immature state o f the art,17 m ost spokesm en stress the on­ g oin g n eed to im prove techniques o f credit­ w orthiness analysis. As part o f this process, m any banks, esp ecially the larger ones, have b e e n raiding the ranks o f d evelop m en t insti­ tutions in an effort to recruit more personnel w ith relevant exp erien ce in country and d ev el­ op m en t econ om ic analysis. As w e ll as recognizing the n eed for more effectiv e evaluation o f creditworthiness, bankers have also b ecom e concerned once again about conditionality. In the 1950s and 1960s banks had b een cautious, lim ited and conditional lenders to d evelop in g countries, w ith conditionality itself often linked to IM F standby agreem ents. But in the exceptionally com p etitive environm ent o f the early 1970s, funds w ere len t to d evelop in g country govern­ m ents w ith few , if any, reservations; project l3lb id ., p. 66. 14S e e F rie d m a n , pp. 24-29; W atson, pp. 42 an d 45. 15T h is is c le a r from a re v ie w o f th e c rite ria o f banks. S ee G o o d m a n , A sian Finance, BOA M ethodology, Brac k e n rid g e , A n d e rso n , a n d W olfe. Also se e F rie d m a n , pp. 24-30 a n d W atson, p. 42. 16F rie d m a n , p p . 47 a n d 53. 17T h e re la tiv e ly p rim itiv e sta te o f th e a rt is c le a r from th e G o o d m a n su rv ey a n d re sea rc h p re s e n te d by Blask. COMMERCIAL BANK FINANCE FROM THE NORTH / Robert D evlin loans often received little or no scrutiny, and large am ounts o f freely disposable funds w ere contracted by L D C s, all seem ingly on the security o f borrower governm ent guaran­ te e s .18,19 H ow ever, the m assive accum ulation of bank d eb t by the d evelop in g countries in 19741975, co u p led w ith the fragile external position o f m any o f th ese countries, h elp ed to bring back a trend towards conditional lending. Also im portant in the return to a more traditional con servative posture was the bankers’ concern about th e very viability o f the international banking system itself.29 At first — see in g that the volum e o f their loans dwarfed len d in g by official agencies— the banks felt con fid en t enough about their lev era g e to entertain ideas of extending condi­ tional balance-of-paym ents assistance on their ow n.21 T h e m ost celebrated test case was Peru, w h ere in m id-1976 a large group of internation­ al banks agreed to support a stabilization pro­ gram m e in w h ich an um brella IM F standby cred it w as conspicuous by its absence.22 18T h is is starkly c le a r from th e a u th o r’s stu d y (available la te 1979} o f th e e v o lu tio n o f com m ercial b a n k le n d in g to th e g o v e rn m e n t o f P e ru o v e r th e p e rio d 1965-1976. In th e la tte r h a lf o f th e 1960s, loans w e re h eav ily se c u re d a n d /o r c o n d itio n e d b y p o lic y lim ita tio n s, e sp e c ia lly w ith reg ard to c o n tra c tin g n e w d e b t. F u rth e rm o re , lo an s w e re often lin k e d to a n IM F s ta n d b y c red it, H o w ev e r, by the early 1970s c re d its w e re e sse n tia lly d e v o id o f any c o n d itio n ality a n d m a n y w e re of free d isp o sa l, i.e., w ith no ex ante p u rp o s e sta te d in th e lo an a g re e m e n t M atu rities and i n te r e s t sp re a d s (m arg in s on to p o f floating bank in te re s t ra te ) w e r e a lso c o n sid e ra b ly m ore favourable. As W e in e rt (1973, p. 37) has p o in te d out, th e re is no w ay this tra n s fo rm a tio n in le n d in g b e h a v io u r co u ld have b e e n ju s tif ie d b y c h a n g e s in th e e co n o m ic circ u m stan c es o f P e ru . F o r in fo rm a tio n on th e sco p e a n d goals o f th e P e ru v ia n p ro je c t se e D e v lin (F e b ru a ry 1978). 19T h e e x p a n siv e (som e have e v en said reck less) a tti­ t u d e o f th is ra th e r u n iq u e p e rio d o f w orld b an k in g is w ell s u m m a riz e d by C u m m in g s. A lso se e W ello n s (1977), p. 24. 20D u rin g th e first h a lf o f th e 1970s m any banks o v e re x te n d e d th e m se lv e s b o th on loans a n d foreign ex­ c h a n g e tran sa c tio n s. T h is w as m a n ife ste d in th e failure o f B a n k h a u s L D . H e rs ta tt on 26 J u n e 1974, follow ed by F ra n k lin N a tio n a l B ank la te r in th e year. Both banks w e n t b a n k ru p t d u e to b ad m a n a g e m e n t o f foreign exchange tra n s a c tio n s. 21 S e e , for in sta n c e , M organ G u a ran ty T ru st C om pany (M ay 1976), pp . 8-9. 22S e e B e lliv ea u . I t sh o u ld b e p o in te d o u t th a t th e P e ru v ia n re p re s e n ta tiv e s a sk e d th e banks to p a rticip a te in a s ta b iliz a tio n p ro g ram m e b e c a u se political co n sid era tio n s m a d e t h e G o v e rn m e n t u n w illin g to u n d e rg o IM F scru tin y , (se e , in B e lliv e a u , th e in te rv ie w w ith th e th e n C entral B an k P re s id e n t C arlo s S antistevan). In 1976 th e banks also 73 T h e Peruvian loan agreem ent generated a h eated political debate about the advisability o f international banks entering directly into the econ om ic p olicy of d evelop in g countries. In resp on se to this criticism , the banks once again w ith d rew to more familiar terrain by making their loans to “problem ” countries conditioned upon an IM F standby agreem ent. W hile bankers are quick to point out that the F und’s con d itions are not necessarily sufficient for private banks’ creditw orthiness criteria,23 in practice standby agreem ents have com e to serve as the “green light” for bank lending, thus con ven ien tly passing the political em ­ barrassments generally associated w ith “ad­ ju stm ent” onto the international organization. Sin ce the Peru affair o f 1976, a clear strategy has b een evolvin g for dealing with countries that have debt service problem s. As just m ention ed , first and foremost is the con­ d ition that a country must call in the IM F for a standby agreem ent. Until such an agreem ent is arranged, the banks w ill refuse to grant any n ew credit, other than perhaps very brief rollovers (often w ith maturities o f only several m onths). Moreover, the rollovers are often granted only at the last m inute and just prior to paym en t d ead lin es in order both to place pressure on governm ent authorities to subm it to th e IM F conditions and to prevent outright default, w h ich banks in any case want to avoid b eca u se o f the adverse effect this m ight have on their annual financial statem ents.24 In situations w here borrowing govern­ m ents seek som e form o f debt relief, banks have a rather special view o f their role in such operations. O fficial lenders —through the a d hoc Paris Club m echanism — w ill generally (although som etim es reluctantly) reschedule debts over a m edium to long-term period. Banks, how ever, se e things differently: a fun­ dam ental distinction is m ade b etw een debts to official creditors and private creditors, and it is le n t to A rg e n tin a on th e b asis o f an e co n o m ic program m e. In fo rm a tio n a b o u t th is less p u b lic iz e d case a p p e a rs in B iem , p. 724. 23S ee F rie d m a n , p. 53. ^ S e e th e F e b ru a ry , M arch, M ay a n d J u n e 1978 issu es of The A n d ea n R eport for a good d e sc rip tio n o f how th e b a n k s u s e d sh o rt ro llo v e r c re d its as a w ay to p re ssu re th e P e ru v ia n G o v e rn m e n t in to an a g re e m e n t w ith th e IM F . 74 CEPAL REVIEW N.° 9 / D e c e m b e r 1979 h eld that private debts must receive the highest priority and b e serviced as originally sched­ u led .25 T hus, debt r e lie f from banks is to be a v o id ed b ecau se “rescheduling o f debt due to private banks w ill seriously damage a country’s cred itw orthin ess w ith private lenders, and w ill therefore impair future access to n eed ed pri­ vate capital” 26 T his attitude is reflected in private banks’ d ea lin g s w ith d evelop in g countries. When Zaire req u ested a 10-year rescheduling o f the principal o f private bank debts in 1976 —an a g reem en t w h ich w ould have paralleled that granted by creditors o f the Paris Club— the banks resisted. Instead they proposed to “res­ tore Z aire’s creditw orthiness” by having the country clear up its accum ulated arrears, after w h ich , upon fulfilm ent o f som e other condi­ tions, a n ew loan w ould be extended to re­ fin ance upcom ing paym ents to the banks.27 In another case, w hen Peru sought debt r e lie f in 1978, banks again ch ose an indepen­ d en t route. T he Paris Club creditors agreed to resch ed u le 90% o f the 1979-1980 payments ov er a 7-year period; the banks, on the other hand, granted a rollover credit for 1979 paym ents o f principal and then agreed to convert it to a 7-year balance-of-paym ents loan in 1980. Principal paym ents due in 1980 are to be rolled over until 1981 and then converted into a 6-year loan.28 M aintenance of an IM F standby accord was a condition for the resch ed u lin g by the banks and the Paris Club. N otw ithstanding difficulties with “prob­ lem ” countries like Jamaica, Nicaragua, Peru, Zaire, etc., banks are generally eager to con tin ue their role in the external finance of d ev elo p in g countries, although they w ould not m ind see in g greater funding from internation­ al institutions so as to m ove towards “at least a partial restoration o f the traditional balance b etw e en official and private financial flow s”,29 T h ey feel that this in turn w ould help to en h ance the creditw orthiness o f borrowers and allow banks to maintain the volum e of loans to d evelop in g countries. In addition, som e bankers have suggested that there should b e a greater flow o f country information to banks from international institutions such as th e IMF;30 as indicated earlier, how ever, most bankers have sh ied away from the idea of formal co-operation w ith such institutions on the grounds that banks must maintain their freedom to make independent judgem ents about the creditw orthiness o f a borrower. Ill Bank len d in g to LDCs: Som e reservations Bankers are certainly not alone in the sanguine v ie w th ey take about their role in developm ent finance: a majority o f policy-makers and econo­ m ists in the industrialized countries and a sign ifican t num ber in the d evelop in g world seem to share their enthusiasm about lending to L D C s. Such criticism as there was in 19751976 — com ing m ostly from the Centre and con cern in g the risks o f LDC default— has w a n ed considerably in more recent years, perm itting bankers to entertain strategies for ^ S e e F rie d m a n , p. 69. m lb id . 27S e e B iem , p. 727 an d F rie d m a n , p. 71. As of M ay 1979, th e n e w loan h a d still n o t b e e n organized. the global m anipulation of resources for d ev el­ opm ent. T here is little doubt that many of the vir­ tu es that bankers extol concerning their new role in th e external finance of d evelop in g coun­ tries m ake good sen se and few reasonable peo- 28T h e re fin a n c in g o p e ra tio n covers 90% oí th e sc h e d ­ u le d re p a y m e n t. T h e in te re s t rate on th e first c red it is 1.875% o v e r th e L o n d o n In te rb a n k O ile r R ate; in te re s t on th e se c o n d c re d it is still u n d e r n e g o tia tio n . Source; u n p u b lis h e d d a ta se c u re d from th e e d ito r o f The A ndean R eport. A lso se e Banco C entral de Reserva del Perú, pp. 4849. 29W atson, p. 8. A lso se e B ra ck e n rid g e (p. 53), A n d erso n (p. 44) a n d F rie d m a n (p. 81). 3oS e e W atson (p. 70) a n d B ra ck e n rid g e {p. 53). COMMERCIAL BANK FINANCE FROM THE NORTH I Robert D evlin p ie w o u ld w ant to disagree with them. For in­ stance, banks clearly are efficient interm edi­ aries o f financial resources, there b eing no b etter testim on y to this than the way in which th ey sk illfu lly m anaged the recycling of the O PE C surplus. Banks have also proved to be h ig h ly flexib le lenders w h ose interest rates are in d e e d reasonable in real terms. N evertheless, th e picture that they paint about an over­ w h elm in g harmony o f interests is an exces­ siv ely optim istic on e w hich h id es som e serious d é fic ie n c e s in the current nature o f finance for d ev elo p in g countries. Rather than noting a general harmony of interests, from another angle one can see a num ber of important asym m etries b etw een w h at is good for the banks and what is good for d ev elo p m en t, u sin g the latter term in its most far-reaching sen se. T he impact o f these on the d ev elo p in g w orld was m inim ized in the 1950s and 1960s by the fact that banks w ere simply not in the front line o f d evelop m en t finance. H o w ev er, w ith their em ergence as important len d ers to the Third World —and principal len d ers to the upper-incom e develop ing cou n tries— the contradictions have becom e m ore apparent and, of course, more threatening to th e process o f d evelop m en t. T he follow ing paragraphs w ill bring out som e of th ese p roblem s. A. Banks: a co n serva tive influence on th e d ev elo p m en t p olicy T h ere are several factors w hich seriously restrict the tim e and risk preferences o f banks. First, they are profit-oriented institutions w h ich operate on the basis o f private rates of return. T hey can internalize social rates of return on their len d in g only to the extent that th e se en h ance the former, but, the gestation p eriod for any such feedback process can be very long. S econd, a great deal o f bankers' resources com e from call or short-term time deposits. The short-term d ep osit base places a lim it on the d eg ree to w h ich banks can prudently mismatch m aturities, i.e., len d long on short funds. Thus, th e nature o f the resource base gives these institutions only a short and at m ost a m ediumterm tim e horizon w ith regard to lending. 75 Third, as bankers w ill readily admit, they have a special concern for m inim izing risk and avoiding losses. This orientation is partly a matter of tradition, but it also reflects the reality that banks operate w ith other people's m oney and m ust ensure the safety o f deposits if access to resources is to be maintained. T his leads to a conservative view o f life w here “caution and prudence" are the watchwords for interna­ tional len d in g operations.31 W hen view in g prosp ective loans to d evelop ing countries, bankers are naturally primarily interested in th e prospects for repayment. It is not sur­ prising, then, that liquidity indicators dom i­ nate creditw orthiness criteria; good manage­ m ent is synonym ous with insurance o f liquidi­ ty to service debts, even if this means deflation of the local econom y to free foreign exchange. Thus bankers are by nature conservative b u sin essm en . This was of little importance w h en their role in channelling resources to d ev elo p in g countries was secondary or tertiary, as their pow er to influence events was lim ited, but today they dom inate finance and their op in ion s and actions can have a considerable im pact on the d evelop m en t process. W hen v iew ed from a global perspective, it b ecom es clear that bankers’ individual tim e and risk preferences —w hich may b e perfectly rational from the standpoint o f an individual institution— may distort the allocation o f world resources to d evelop in g countries. This has b een w e ll exp ressed by Albert Fishlow , who rightly points out that private credit decisions w ill not necessarily lead to an appropriate level and distribution o f international purchasing power: “Capital markets do not settle by th em selves at a u niq ue interest rate that determ ines the distributions o f all the surplus to the most productive users. Instead private loans go to selec ted and favoured borrowers. Perversely, lack o f n eed facilitates access to capital. It is easier to borrow for reserve acquisition than for imports, easier to borrow w hen there is surplus foreign exchange rather than a shortage."32 31 S ec F rie d m a n , p. 79, a n d G re e n e , p. 199. F o r a b riei p e rio d in th e early 1970s th e re was a b reak d o w n in this c a u tio u s tra d itio n o f in te rn a tio n a l hanking. 32Fishlow, p. 137. Guido Carli, a former President of 76 M oreover, bankers can not only generate a less than satisfactory global distribution o f resources but can also contribute to a skew ed distribution at the lev el o f an individual d ev el­ o p in g country. O f course, bankers are not resp o n sib le for the allocation o f the resources o f a country: this task is undertaken by Third W orld policy-m akers. But they can never­ th eless seriou sly affect the decisions o f such policy-m akers, in several ways. First, in a situation w here commercial banks dom inate external finance there is only lim ited access to other types of funding. Thus, th e co st and shorter maturities o f bank finance b eco m e a relative constraint on the p ossib ili­ tie s for th e prudent utilization o f external resources in the local econom y. S econ d , w h en bankers are the primary len d ers to an L D C governm ent, they have con siderab le leverage and can exert pressure — eith er directly or indirectly— on policy­ m aking, T h e situation is analogous to the im pact that a bank can have on a heavily in d eb ted corporation, for through their finan­ cial leverage bankers can steer policy in the direction o f conservative financial m anage­ m en t at th e ex p en se o f bolder objectives.33 Bold ob jectives for a corporation are profit maxi­ m ization and expansion; in the case of a d ev elo p in g country the corresponding aim is th e rapid m aximization of develop m en t po­ tential in th e context o f the enhancem ent o f the material (and spiritual) w ell-b ein g o f the general population, It sh ou ld b e em phasized that d evelop ­ m ent, b y its very nature, m ust be a very bold process. O ften policy-m akers m ust be ambi­ tious and assum e large future risks in order to a void stagnation, hum an suffering and social disruption today. T his is particularly true in a d em ocratic d ev elo p in g country w here com pe­ tin g dem ands on lim ited resources can be more ea sily and effectively expressed, thereby forcing authorities to seek “consensual” rather than “optim al” econom ic programmes.34 H ow ­ Ita ly 's C e n tra l B ank, h as e x p re ss e d a sim ila r co n cern . S ee C a rli, p p . 20-21. ‘" S e e K otz, p. 142. A lso se e H ay es, pp . 117-118. 34I n a n a u th o rita ria n ré g im e , th e d e m a n d s o f th e m a s se s m ay n o t fin d e ffe c tiv e e x p re ssio n a t all. CEPAL REVIEW N.° 9 / D ecem ber 1979 ever, a country that is heavily reliant on com m ercial bank finance w ill undoubtedly fe e l pressure in favour o f a conservative policy that p laces priority on a strong balance-ofpaym ents perform ance and reserve accum u­ lation, often at the sacrifice o f broader-based d ev elo p m en t objectives. This is so because program m es oriented towards the satisfaction o f basic n eed s and incom e distribution — w h ich are undoubtedly key ingredients in real d ev elo p m en t — usually w eigh heavily on th e balance o f paym ents and reserves.35 Bankers are unlikely to b e im pressed by re­ d u ced unem ploym ent, im provem ents in health care and social w e ll b ein g if th ese are gained at th e ex p en se o f a country's external liquidity position. T hus, Third World financial manag­ ers w h o are p reoccupied by their countries' creditw orthiness may be tem pted to place b asic n eed s and balanced incom e distribution at th e margin o f p ublic policy. It is not sur­ p rising that many o f the banks' favourite d evel­ op in g countries are considered by many ob­ servers to be h igh ly authoritarian régim es w h o se socioeconom ic policy is not character­ iz e d by a primordial concern for social justice and econ om ic and political participation.36 It should also b e noted that bank finance is excep tion ally w e ll placed to exert pressures b ecau se o f th e rather short maturity structure o f th e loans. T he asym m etry b etw een the long­ term requirem ents o f d evelop m en t and the short-term nature o f bank finance m eans that bankers are continuously b eing asked to roll­ over their credits, w hich is a terribly awkward w ay to accom odate the gestation period of d ev elo p m en t programmes. N ot only are countries repeatedly exp osed to the volatile nature o f the terms offered on international financial markets, but they must also regularly pass under the cautious e y e o f their bankers, w h o se con fid en ce m ust b e m aintained if roll­ overs (and / or transfers) are to b e achieved. ^ W h i l e in th e o ry a reform / b a sic n e e d s a p p ro ac h to d e v e lo p m e n t is n o t n e c e ssa rily in c o n s is te n t w ith a h e a lth y b a la n c e o f p a y m e n ts, th e sta te o f th e a rt o f p u b lic policy m a k in g in d e v e lo p in g c o u n trie s is u n fo rtu n a te ly su c h th a t in p ra c tic e o n e has te n d e d to p re v a il o v e r th e oth er. ^ B a n k e r s do n o t n e c e ssa rily p re fe r a u th o ritarian ism , it is ju s t th a t th is ty p e o f rég im e can m o re e asily e n su re COMMERCIAL BANK FINANCE FROM THE NORTH / Robert D evlin B .The p rim a cy o f rep a y m e n t schedules A nother exam ple o f the less than com plete harm ony o f interests b etw e en banks and d ev el­ o p in g countries is the rigid way in which bankers v ie w repaym ent sch ed u les. Bankers tend to take a dim view o f the strategy o f renegotiating terms on old loans by contracting n ew refinance credits that take advantage o f favourable changes in conditions on international capital markets. As expressed by o n e spokesm an: “It goes w ithout saying that refinan cin g is undertaken by m ost banks... only very reluctantly and only for custom ers with w h om ... (they) have ex cellen t long-term rela­ tion sh ip s’\ 37 T o discourage prepaym ent strategies — liqu idatin g in full outstanding old loans with receip ts from cheaper n ew loans— banks often provid e for q uite sizeab le penalty fees for p rep aym ent in their contracts. In the case o f P eru, for exam ple, over 60% o f all m edium term com m ercial bank credit to the public sector during 1971-1976 carried a prepayment p en alty, typically ranging b etw een 2 1/2 and 1/2% o f th e am ount prepaid, d ep en din g on the contractual year in w hich prepaym ent was effected .38 A nother tactic involves “moral su a sio n ” , by w h ich it is m ade perfectly clear to th e borrow er that any attem pt to refinance or prepay w o u ld create great displeasure at the bank.39 T his latter strategy can b e quite ef­ fe ctiv e th e larger the bank involved and the greater th e country’s reliance on com mercial credit. F in ally, in som e instances banks have e v e n b e e n know n to includ e clauses in their contracts w h ich actually forbid prepayment, alth ough few sophisticated borrowers are lik e­ ly to fall victim s to this tactic. S o m e countries are more successful than others in circum venting bankers’ reluctance to refinan ce, w ith the in cid en ce o f success in­ creasin g th e h igh er the liquidity in the market c o n d itio n s th a t p ro v id e fa v o u ra b le p ro sp e cts for re p a y m e n t o f lo an s. 37S e e B e n n e y , p. 57. 38T h e fig u res are from field re se a rc h o f th e a u thor. See th e p ro je c t c ite d in fo o tn o te 18. B ra zil, w h ic h in 1978 w as g re atly in te re s te d in r id d in g its e lf o f so m e e o stly loans, has b e e n a victim o f this s tra te g y . S e e E v an s. 77 and the more attractive the customer.40 H ow ­ ever, it is d istressing that such obstacles p revail, becau se prepaym ent and refinance strategies are important tools to develop ing countries w h ich perm it them to assuage som e o f the im pact o f the surges in interest charges and contractions o f m aturities that can occur on private credit markets. T his is not to im ply that prepaym ent or refinancing is a “right” o f the borrower. Such strategies are undoubtedly troublesom e to a bank: not only does it lose a profitable loan, but it also receives unw anted liquidity, unless it participates itself in the n ew credit. Moreover, a bank cannot call for ex p o st adjustment o f term s on an old loan w hen market conditions shift in its favour. N everth eless, what appears to b e rational behaviour on the part o f an ind ividu al bank, cou ld b e detrim ental to all con cern ed from a broader perspective, because a d ev elo p in g country borrower that can trade in old loans for more favourable terms is a better overall credit risk and generally has increased capacity to assum e n ew debt. Bankers are ev en reluctant to depart from repaym ent sch ed u les at tim es w h en countries are exp erien cin g serious debt problem s (as op p o sed to m ere short-term liquidity prob­ lem s). As show n earlier, banks reject any m ove to resch ed u le older loans, opting instead for n ew loans that are h eavily conditioned, carry short m aturities and are loaded down by high interest charges and heavy fees. For instance, th e US$ 400 m illion o f refinance credits granted to a financially hard-pressed Peru in 1976 w ere for 5 years (2 years’ grace) at a spread o f 2.25% over the London Interbank Offer Rate (LIBOR) and w ith accum ulated flat fees of m ore than 1.5%.41 And w h en Peru sought a general resch ed u lin g o f its debt in 1978, banks instead respon d ed w ith an offer for n ew re­ finance credits. As already noted, the 7-year maturity on the n ew loans m atches the terms of th e Paris Club accord; how ever, it is preceded 40S ee E urom oney. 41A s p re a d is a m arg in o f p o in ts a d d e d to a floating b ase in te r e s t ra te , u su a lly th e L o n d o n In te rb a n k O ffer R ate, F la t F e e s a re a o n e -tim e p e rc e n ta g e c h arg e on th e face v a lu e o f a lo an . T h e fig u re s a re from field re sea rc h o f th e author. See th e p ro je c t c ite d in footnote 18. 7H CEPAL REVIEW N.° 9 / D ecem ber 1979 by tw o years o f “ short leash ” rollovers, w hich is a co n v en ien t way to maintain leverage over governm en t p olicy during the difficult 19791980 period. From the view p oin t o f an individual bank it is no doubt sound business to extend new loans w ith high spreads and short maturities to cou n tries w ith d eb t problems: a premium com m ensurate w ith p erceived higher risks en su res profitability, shorter maturities m ini­ m ize risk and increase leverage, and a new loan en su res that “p rob lem ” credits do not appear on annual financial statem ents. H ow ever, from th e standpoint o f develop m en t, a debt crisis m erits long-term resch ed ulin g — longer even than th e Paris C lub is accustom ed to offering— on m oderate terms so that paym ents can b e really sm oothed out instead of just b eing p o stp o n ed on e or tw o years, after w hich they can soar up again quickly to cause renew ed dam age.42 A lso, resch ed ulin g should be v iew ­ ed as a con ven ien t and desirable way o f rescu in g d ev elo p in g countries, instead of carrying the pejorative connotations it does today. T h e period 1972-1974 was a tim e of high liqu idity w hen banks w ere aggressively com ­ p etin g for n ew custom ers in the d evelop ing world. Actually, d evelop in g countries w ere caught up in the tail end o f an accum ulating w ave of expansion of international banking that began in the late 1950s, led by large US banks, and w as follow ed in the 1960s by the Euro­ peans and in the 1970s by the US regional banks and the Japanese banks.43 In the early 1970s the p ossib ilities for continued rapid grow th of len din g to the industrialized coun­ tries w ere b ecom in g exhausted, aggravated by a recession in the Centre in 1970-1971. In an en viron m en t o f high liquidity and severe com p etitive pressure for growth o f assets, len d in g con seq u en tly sp illed over into the d ev elo p in g world, but even so the race for v o lu m e and marginal earnings greatly intensi­ fied , cau sing interest margins to d eclin e dras­ tically and maturities to reach unprecedent­ ed lengths. D ev elo p in g countries, naturally en ou gh , w ere eager to take advantage o f these unusual conditions. W hen the OPEC oil sur­ plus started flow in g to the banks in late 1973, th ese institutions w ere even more eager C. The in te r m itte n tly ve ry a ctive su p p ly curve to len d , w h ile deficit-burdened countries w ere, o f course, ready borrowers, esp ecially as As m en tion ed earlier, bankers generally see con d itions w ere very favourable, with margins their increased role in d evelop m en t finance as that had fallen below 1% and maturities that b e in g “dem and d riven”, i.e., a result of their cou ld easily range up to b etw een 10 and 15 h avin g respon d ed to the “dem ands” of d ev el­ years. o p in g countries. T his is a clever ploy because Expansion o f len din g to LD C s continued bankers w h o advocate this position can elu de at a very heated pace until m id -1974, w hen a resp on sib ility for any en su in g problem s that series of important bank failures —derived m igh t d ev elo p w ith regard to repayment. O ne from poor m anagem ent o f foreign exchange can im agin e the response to a request for debt trading— marked an en d to this euphoric r e lie f as b ein g som ething along the lines o f the p eriod o f lending. Nervous bankers quickly follow in g: “it was you w ho sought the credit reappraised their international strategies and and it is not our fault that you are now having b ecam e m uch more selective lenders. More­ d ifficu lty in repaying it”. over, term s becam e very onerous, as margins B ut bankers are often more d eep ly in­ for d ev elo p in g countries rose to 2% or more and v o lved in the repaym ent problem s o f d ev el­ m aturities shrank to the point w here a term o f op in g countries than they w ould lead many to over 6 years was uncom m on and loans for more b e lie v e . T o som e d egree the current burden of than 10 years sim ply becam e im possible to paym en ts o f d ev elo p in g countries reflects the o b ta in 44 This severe contraction o f terms on effect o f the u niq uely perm issive len din g en ­ vironm ent o f 1972-1974, follow ed by radical 43 F o r a go o d analysis o f how an d w hy US banks w e re in retrenchm ent in 1975-1976. th e v a n g u a rd o f th e “ in te rn a tio n a liz a tio n ” o f w o rld h a n k ­ in g , s e e R o b in so n , a n d also L issakers. 42See Corea, pp. 72-73. 44See D evlin (first half 1978), pp. 77-79. COMMERCIAL BANK FINANCE FROM THE NORTH / Hubert Devlin len d in g contributed to a bunching o f maturities and co n seq u en t debt service problem s in recen t years. Bankers m aintained their highly restrictive terms on L D C s up to 1978, w hen margins again began to d eclin e and maturities to w id en as the bankers’ resolve for prudent p ricin g o f loans was eroded by the pressures o f co n tin u ed liquidity.43 T h e point to be m ade here is that the first half o f the 1970s w as a high-pressure period in th e history o f w orld banking and a tim e in w h ich th e supply side som etim es led events. T h e general environm ent o f the tim es has been characterized by som e financial m en them ­ se lv e s as b eing on e o f “supercharged credit ex p a n sio n ” ; a “glad-handed, name-your-priee approach” to credit extension,46 And the result w as that som e countries w ere literally deluged w ith offers o f credit.47 E v en more important to this analysis is the fact that during th e expansive phase bankers often paid little attention to the end-use o f the credit, i.e., it m ade little difference whether cred it w as for military hardware, commercial aircraft or steel m ills. Indeed, many banks did not have the infrastructure to evaluate credits and thus usually relied on the security o f a so v ereign governm ent guarantee, itself evalu­ ated to a large extent by “fe e l” , other subjec­ tiv e criteria, and even rumours.48 Standards co n tin u ed to b e lax during the early stages of th e petrodollar recyclin g process, as banks tap p ed resources at relatively low interest costs and reloaned them at high interest rates and h igh p lacem en t fees.49 In this type o f environ­ m en t only relatively sophisticated borrowers co u ld resist bankers’ overtures: for those which 45 A m ajor tacto r b e h in d th e lib e raliza tio n o f bo rro w in g c o n d itio n s w as th e b e h a v io u r o f th e Ja p a n e se banks. U n n e r v e d by th e u n c e rta in e v en ts o f m id -1974, they p a rtic ip a te d in a m ass w ith d raw al from th e m ark et p lace, h e lp in g to tig h te n th e b o rro w in g e n v iro n m e n t. H ow ever, b y 1978 J a p a n ’s a c c u m u la tin g balan ce-o i-p ay rn en ts su r­ p lu s e s fo s te re d a re -e m e rg e n c e of th e s e banks. T h e y r e tu r n e d w ith a v e n g e a n c e , an d th e ir ag g ressiv e a pproach to b id d in g for n e w b u sin e ss h e lp e d to d riv e in te re s t rate m a rg in s d o w n to le v e ls th at m any b a n k ers th o u g h t to b e im p ru d e n t. 46F ro m an in te rv ie w w ith b a n k ers q u o te d in H ayes, p. 79 co u ld n ’t, like Zaire, Peru and Jamaica, the co n seq u en ces are w ell known. T hus it seem s that bankers are not com­ p le tely innocent w ith regard to the current debt p roblem s o f d evelop in g countries: indeed, they appear to be at least partly to blam e for p resent circum stances and it w ould seem justi­ fied to exp ect them to take a len ien t attitude on any future rescue operations. It must also be rem em bered that com m ercial banks’ profits on international operations w ere phenom enal in the early 1970s, due in no small part to the profitability of busin ess w ith LD C s.50 Indeed, in v iew of the fact that risk prem ium s have been charged on L DC loans, m ight there not even be room in som e cases to absorb moderate losses on future rescue m issions? D . C om m ercial banks are n ot a lw a ys c o m p e titiv e an d neutral International banking is often seen as b eing a h igh ly com petitive operation w here institu­ tions vigorously seek b usin ess on non-political terms. Carlos Diaz-Alejandro has gone even further and has d escrib ed the Eurocurrency market as “standoffish and rem ote”, so that it provides L D C s w ith greater opportunities for “national self-determ ination”51 than is avail­ ab le from the som etim es politically influenced len d in g of official agencies. T h e above v iew appears to be true of one p oin t in the credit cycle, but not so much of others. It is clear that bankers are most attracted to “virgin s” ,52 that is, countries not excessively b urdened by external debt, not heavily repre­ sen ted in the portfolio o f an individual bank, and p erceived at the same tim e to be credit­ worthy. At this initial stage in a country’s credit cy cle — a position many d evelop in g countries en joyed in the early 1970s— banks may very w e ll com p ete vigorously to attract potential b u sin ess, thus giving the country excellen t opportunities for bargaining on the amount, costs and terms o f credit. Moreover, at this 49. 47S ee D e v lin (first h a lf 1978), pp. 77-78 a n d p. 94. 48S e e W e in e rt (1973), p. 35. Also see W ellons (1977), p. 24. 49See Hayes, p. 297. M S e e L issak ers, pp . 10-11. ljl S ee D íaz-A lejandro, pp . 188-197. 52T h is term c am e to m y a tte n tio n in a co n v ersatio n w ith A rtu ro P o rz e ca n sk i. 80 sta g e bankers are u nlikely to be concerned about the u se o f a loan. T he actual degree of co m p etition exp erien ced w ill d epend on many oth er factors such as the liquidity o f banks, the n um ber o f institutions operating in the inter­ national market, the general b u sin ess psychol­ o g y o f the tim e and the quality o f the credit­ w orth in ess o f th e borrower. In the case o f the latter factor — in v iew o f the way credit­ w o rth in ess is v ie w e d by banks— the w ill­ in g n ess o f th ese institutions to extend credit w ill probably b e inversely related to the coun­ try’s n eed for credit. A ll things b ein g equal, the more com ­ m ercial credit paper that banks accum ulated on a g iv en country, the more their exposure b eco m es a consideration and the more their ea g ern ess to com p ete for n ew business may w an e. T h e bargaining position o f the borrower is correspondingly eroded, and bankers even may b eco m e concerned about the use o f credit.53 T he d egree o f erosion, for its part, d ep en d s on other variables. If many n ew banks are en terin g the international market, this may co m p en sate for the w aning interest o f other institutions. I f liquidity surges and no new attractive custom ers appear, bankers may have no ch o ice but to com pete for existing cus­ tom ers, I f a country’s creditw orthiness som e­ h o w im proves, bankers may then be w illin g to absorb m ore exposure, thereby favourably af­ fectin g th e com petitiven ess equation.54 I f a country that has borrowed from banks lo se s its creditw orthiness there is sim ply no co m p etition at all: ind eed , there may be a quasi-m onop olistic situation that absolutely lim its access to credit and encourages the m arket to intervene in the dom estic affairs o f th e borrower. W hile no on e could reasonably ex p ec t banks to com pete for an uncreditworthy 53U n til liq u id ity c o n sid e ra tio n s le d to th e sw am p in g o f th e m a rk e t in m id-1978, B razil m ay have faced a less c o m p e titiv e e n v ir o n m e n t as a re s u lt o f its p a p e r h a v in g flo o d e d se c o n d a ry m ark ets. In 1977-1978, w h e n som e d e v e lo p in g c o u n trie s w e re e x p e rie n c in g d e c lin in g m a r­ g in s o n th e ir lo a n s on a cc o u n t o f in cre asin g liq u id ity in b a n k in g c irc le s, B razil w as still p a y in g ra te s clo ser to th o se w h ic h h a d p r e v a ile d in th e s tiff e n v iro n m e n t o f 1975-1976. ^ R e g u la to r y a u th o ritie s o f so m e c o u n tries p lac e c o u n ­ try l e n d in g lim its on b anks. I f b a n k s run u p against this b a rrie r e x p o su re m ay b e c o m e an a b so lu te c o n strain t on c o m p e titio n for so m e b anks. CEPAL REVIEW I¡í.° 9 / D ecem ber 1979 country, this type o f situation is an important consideration that is often overlooked by those w h o are aw ed by the com petitive environm ent o f Eurocurrency lending. It must be rem em ­ bered that d evelop in g countries, facing as they do volatile external markets and/or sen sitive d om estic socio-political and econom ic condi­ tions, are esp ecially prone to the external balance-of-paym ents crises that can cause them to fall out o f grace w ith banks. W hen a country exhibits serious external problem s and faltering liquidity, banks w ill ce a se to com p ete to len d it m oney and its access to n ew com m ercial credit is effectively cut off. It is n ow a “p roblem ” country and bankers actually collu d e in search o f ways to insure that th ey w ill not individually and collectively incur losses. A good exam ple again is Peru. In 1976, w h en Peru w as seek in g a large balance-ofpaym ents loan (really a refinance credit) to bail out its external accounts, its major private creditors formed a Steering C om m ittee to negotiate w ith the governm ent. Such a com mit­ te e is u ndoubtedly an efficien t way to organize negotiation s, for w ithout central co-ordination chaos cou ld prevail. N everth eless, this does not alter the fact that p ublic officials faced an u ncom p etitive environm ent, as the banks that com posed the Steering C om m ittee negoti­ ated in a block and represented most o f the more than 100 banks w hich had lent to the gov­ ernm ent. All banks dem anded identical condi­ tions on the refinance credits, and Peru could not realistically turn elsew h ere for credit, since th e block represented nearly all the major international lenders. T he collu sive nature o f th e n egotiations is confirm ed by the fact that th e syndicates formed w ere not o f an inter­ national character; regional groups o f banks — A m ericans, Canadians, Europeans, Japa­ n ese— b anded together to enforce individual cred it agreem ents w hich all displayed the sam e len d in g terms and ve rb a tim formulation o f m any o f the convenants.55 Later, in 1978, w h en Pern sought to reschedule its com m ercial d eb ts, the banks formed another Steering C om m ittee. 55Research of the author. See project cited in footnote 18. COMMERCIAL BANK FINANCE FROM THE NORTH / Robert D evlin O f course, in its negotiations with the banks Peru w as not com p letely without a bargaining position, for it could always default: so m eth in g th e banks w ou ld surely want to avoid. In d eed , som e have ev en seen the threat o f d efau lt as a way in w hich banks can becom e “h o sta g es'’ to the dem ands o f d evelop ing cou n tries.56 A borrow ing country’s leverage should not b e exaggerated, how ever. In the first place, a country cannot default selectively —thereby p erhaps gen erating a more com petitive en vi­ ronm ent— b ecau se o f the cross-default clauses w h ich figure in alm ost all com m ercial bank loan contracts.57 M oreover, defaulting on all com m ercial banks is not a realistic option for a g overn m en t w ish in g to remain a m em ber o f the W estern capitalist com m unity, since it w ould resu lt in th e cutting off o f virtually all external com m ercial credit; it w ould cause the govern­ m en t to face th e wrath o f its national business sector, w h ich w ou ld undoubtedly have its a cc ess to cred it adversely affected; and it could very w e ll bring retaliation from the home govern m en ts o f the banks. M oreover, the risks a sso cia ted w ith default are by no m eans sym­ m etrical, for w h ile banks could probably absorb a p rolonged default by any one borrorw er, a country w ou ld find it m uch more d ifficu lt to absorb the effects o f a blockade by its com m ercial creditors.58 O nly if several coun­ tries jo in e d together in default w ould there be seriou s p o ssib ilities for taking banks hostage, b u t e v e n th en , u n less on e o f the countries w ere a super borrow er such as Brazil or M exico, the o u tcom e w o u ld m ore than likely b e m erely a stalem ate,59 W h en a country is at the bottom end o f a cred it cy c le , banks can also be very inter­ v en tio n ist. Peru is a case in point. In 1976, w h en th e governm ent sought its balance-ofpaym en ts loan the banks reluctantly agreed. 56 S e e L issa k e rs, p. 58. 57C ro ss -d e fa u lt c la u se s a re n o t w h a t o n e w o u ld e x p ect from a " s ta n d o ffis h a n d re m o te ” m arket. m A stu d y b y th e US F e d e ra l R e se rv e B ank show s th at in th e c a s e o f th e six larg e st U S banks o nly tw o bo rro w in g c o u n trie s e a c h a c c o u n t for as m u ch as 1.5% o f total assets. O th e r b o rro w e rs a c c o u n t for m u c h sm a lle r pro p o rtio n s. S ee W atso n , p . 50. 59ibid. 81 H ow ever, bankers insisted on a two-tranche cred it w ith the second tranche b eing condi­ tional upon a favourable evaluation o f the progress o f the governm ent's stabilization program me.60 Another more blatant form of intervention ism w as a condition that the governm en t m ust settle a tax dispute w ith one foreign firm and com pensate another which had b een nationalized a year earlier: not sur­ p risingly, both corporations had close links w ith th e banks in the Steering Com m ittee.61 T hen in 1978, w h en Peru was negotiating with th e Steering C om m ittee to refinance its com ­ m ercial debts, it was w id ely reported that one m em b er o f the C om m ittee threatened to tie the su ccess o f the negotiations to satisfactory set­ tlem en t o f a d ispute it had w ith the governm ent over the handling o f the foreign exchange earnings o f a local foreign firm to w hich the bank had exten ded a large loan.62 Banks have also sought to influence the p o lic ie s o f governm ents that are not in an open d eb t crisis. For instance, a w idely-circulated and h igh ly-respected publication o f one o f the largest international banks in 1976 made the fo llo w in g com m ents about Brazil’s m anage­ m ent o f its econom y: “ In th is regard, Brazil’s delay in internal adjustm ent has com e as a disappointm ent. T here, th e growth in aggregate dem and, the re em ergen ce o f the fiscal deficit, and the acceleration o f inflation (estim ated at45%-50% for this year) have b een inconsistent with the clear n ecessity for a current account ad­ ju stm en t” .63 It is no coin cid en ce that the bank w as a major creditor o f Brazil, thus making the statement not u nlik e th e m edieval practice of adm onish­ in g debtors in th e main public square. This rather heavy-handed com mentary is not som e­ th ing on e w ou ld exp ect from a “remote and neutral” market. A nother final consideration about the ^ S e e B e lliv ea u . 61S e e W ello n s (1976), p . 74, 62S e e L a tin A m erican E conom ic R eport, No. 20, M ay 2 6 ,1 9 7 8 , I t is o n ly fair to a d d th a t th e b a n k la te r d e n ie d e v er h a v in g e s ta b lis h e d su c h a link. ^ M o r g a n G u a ran ty T ru s t C o m p an y (O c to b er 1976), p p . 3-4. 82 CEPAL REVIEW N.° 9 / D ecem ber 1979 co m p e titiv en ess o f international banking is that w h ile there are in d eed hundreds o f insti­ tutions d ealin g in the Eurocurrency market — gen eratin g conditions that som e think ap­ proxim ate a perfectly com petitive environ­ m en t— access to credit is actually controlled by a relatively small coterie o f banks. This is b eca u se only very large banks have the re­ sou rces and good w ill to be leaders or orga­ n izers o f syndicates. It is th ese banks —w hich m aybe num ber roughly 50 in all —that d om inate th e market. As leaders o f credit operation s it is they w ho evaluate a country’s cred itw orthin ess and pass on information to p ro sp ective len ders in the p lacem ent m e­ m orandum that accom panies each loan syn­ d ication. T hus, the opinion o f th ese banks can in flu e n c e the attitude of the w h ole market tow ards a borrower. M oreover, it w ould appear that there is a considerable d egree o f con cen ­ tration am ong the lead ing banks them selves. F or instance, table 2 show s that of the top 50 lea d m anagers o f syndicated credits in 1977 and 1978, th e top 10 w ere responsible for 58% and 44%, resp ectively, o f the total amount m o b iliz ed through such syndication.64 Thus, on e cou ld con clu de that a handful o f banks have a disproportionate amount o f pow er in the distribution o f international com m ercial bank credit, perhaps making for a less com petitive en viron m en t than w ould at first sight seem to exist in v iew o f the hundreds o f banks dealing in th e Eurocurrency market. T a b le 2 P R IV A T E C O M M E R C IA L BANKS: D IS T R IB U T IO N O F S Y N D IC A T E S A M O N G T O P 50 E U R O C R E D IT L E A D M A N A G ER S (Percentage o f credits m obilized) 1977 1978 V alu e o f c re d its N um ber of c re d its V alue o f c re d its N um ber of c re d its 38 33 25 30 58 44 44 50 100 100 100 100 Top 5 banks Top 10 b a n k s Top 50 banks S o u rc e ; D e riv e d from d a ta in Euromoney, F e b ru a ry 1979. IV E xploring the alternatives W e have ju st seen som e o f the drawbacks that m igh t b e associated w ith having commercial banks at th e forefront of the allocation o f resources to d ev elo p in g countries. Unfortu­ n ately, in econ om ics it is easier to diagnose p rob lem s than to prescribe cures for them and this final section of the paper now has the d ifficu lt task of su ggestin g som e alternatives. A. The in te rn a tio n a l d ivisio n o f labou r f o r d e v e lo p m e n t fin a n c e In gen eral it appears that what is n eed ed is som e rethinking about the current division of ^ I n 1975-1976 c o n c e n tra tio n am o n g lea d banks w as m u c h m o re se v e re . G re a te r d isp e rsio n in 1977-1978 was th e re s u lt o f a h ig h e r p ro file for Ja p a n e se a n d G erm an labour for d evelop m en t finance. There are m any sources o f finance, and each one is u sually particularly good at performing certain tasks. L et us look first at com mercial banks. T hey are esp ecia lly good at financing trade. T hey have a w orld-w ide network of branches and correspondents w ith w hich to follow trade flow s, and d ecision s on finance can be made quick ly b ecau se o f their familiarity w ith their clien ts. A ssessm en t o f risk does not have to be terribly sophisticated, becau se m uch o f the finance is self-liquidating and the duration of agreem ents is on the short side: this, inciden ­ b a n k s, c o u p le d w ith th e re stra in e d a ctiv ities o f A m erican b a n k s. COMMERCIAL BANK FINANCE FROM THE NORTH / R obert D evlin tally, is in k eep in g w ith both the lim ited riska ssessin g ability o f m ost com m ercial banks and th e short-term d ep osit base o f th ese insti­ tutions. Banks are also exceptionally suited for fin an cin g h igh ly profitable com m ercial ven ­ tures w ith a quick return, say b etw een 5 and 7 years. A nother area w h ich appears suitable is th e fin ancing o f working capital, i.e., the pure n e e d for short-term liquidity. Just as banks are exceptionally suited for th e ab ove tasks, how ever, they are inferior at som e others. O ne area w here banks display sev e re lim itations is in the provision o f finance for ven tu res w ith a long payout. Social infra­ structure requires maturities far beyond the reach o f banks, and not surprisingly, th ese institution s are som etim es chary about lending in this area. But many com m ercial ventures, too, m ay b e out o f th e reach o f banks, particular­ ly th o se that are very capital intensive. Some m igh t argue that there are few commercial projects that cannot provide returns within the 10-12 year m aturities b ein g offered by banks in 1978-1979. H ow ever, this assum es that matu­ rities w ill n ever shrink again as they did in 1974-1975. It also assum es that ventures w ill m e et their cash flow projections: som ething that is far from certain for infant industries in d e v e lo p in g countries. M oreover, banks cannot adequately fill liq u id ity n eed s w h en lack o f liquidity is due to structural im balances (real or financial) in the eco n o m y. T hus, if balance o f paym ents or fiscal d ifficu lties stem from som ething other than a tem porary exogenou s factor (e.g., a fall in the p rice o f a major export com m odity), banks are an inferior source o f finance. In th ese circum­ stances — w h ich are very com m on in d ev el­ o p in g countries— if banks extend “no ques­ tions ask ed ” finance they b ecom e a perm issive in flu e n c e that masks the n eed for changes in structure and p olicy. Peru up to 1975 fell victim to an overly co-operative banking community. O n th e other hand, if banks attempt to induce ch an ges in p o licy and structure they becom e in tervention ist. B ecause o f their private- com ­ m ercial character, w h en they negotiate with so v ereig n governm ents they are open to charges o f conflicts o f interest and political su bversion. T o this must b e added the fact that 83 th e m aturities that they can offer under the risk associated w ith restructuring may sim ply be inad eq u ate for the circum stances. C onsequent­ ly, w h en banks embark upon the financing o f structural balance-of-paym ents problem s they en ter into a “no w in ” situation. Accordingly, w hen the com m ercial banks in itiated the recycling o f the OPEC surplus few com plained: banks recycled quickly, and most thought th e crisis to be temporary, as a full recovery in the Centre was seen to b e im­ m in en t and “market forces” w ould quickly put an en d to th e O PEC cartel. But, of course, so far this has not b een the case, as balance-ofpaym ents d isequ ilib ria have gained a more perm anent character and m ost d evelop ing countries (and d ev elo p ed countries as w ell) appear to b e interested in restructuring (over and above th e normal restructuring associated w ith d evelop m en t) to accom odate th em selves to a n ew era o f higher energy costs and slow er grow th in the Centre. It is m ost distressing, h ow ever, to find that no adequate finance is available to d evelop in g countries for such restructuring: Brazil, for exam ple, has had no ch o ice but to fund its m assive import substi­ tution/restructuring programme on the lim ited and uncertain maturities o f com m ercial banks. W hich institutions, then, w ould appear to b e th e experts in those areas w here com mercial banks face constraints? T he author b eliev es that th e answ er is th e m ultilateral agen cies and private bond markets. M ultilateral agencies — i.e., the World Bank, th e Inter-American D evelop m en t Bank, etc. — d isplay great virtues w ith regard to som e o f th e sp ecial n eed s o f d evelop in g countries. First, they possess highly trained profes­ sional staff w h o have a w ealth o f experience w ith th e problem s confronting d evelop ing countries. T h ey can help in project prepara­ tion , troubleshoot w here problem s arise, and assist in follow -up evaluation. Moreover, they are in terested in th e success o f the project and not ju st its finance and repaym ent, and further­ m ore th ey are capable o f collaborating with authorities in the formulation o f global policy for d evelop m en t w ithout raising suspicions o f con flicts o f interest. 84 CEPAL REVIEW N.° 9 / D ecem ber 1979 S econ d , and ev en more important, m ulti­ lateral ag en cies are not com m ercial institutions and therefore can accept tim e and risk situa­ tions com patible w ith the far-reaching needs of d ev elo p m en t. T hus, multilateral agen cies can and do len d to countries w h ich display liquidi­ ty and p olitical conditions that w ould sim ply u n n erv e a private banker. Moreover, their sp ecia l character en ab les th ese agencies to p erm it repaym ent periods o f up to 25 years or m ore, w h ich is the type o f finance that can sm ooth ly prom ote the broad-based socioeco­ n om ic change integral to the process of d ev el­ op m en t. Im p licit in this capability is a w illin g­ n ess to finance projects o f a basic needs character, and to encourage this type o f d ev el­ op m en t as w e ll. Third, u nlike com m ercial banks w here d e v e lo p in g countries have no influence over p o licy, d ev elo p in g countries are voting m em ­ bers o f m ultilateral agen cies and have an op­ portunity to influence events in them. Nor is this virtue negated by the fact that L D C s are a m inority votin g block. As long as industrialized cou n tries contribute the bulk o f the funds, the cred ib ility o f m ultilateral agencies is best m ain tained if those countries have technical control over decision-m aking. If the L D C s act together, h ow ever, they can form an effective lobb y for pressuring the industrialized coun­ tries to adopt p o lic ie s favourable to their needs. L D C s can also im prove their voice in policy m atters by en su ring that they gain maximum representation on the staffs o f multilateral a g en cies by sponsoring candidates for their tech n ical com p eten ce and not for their dom es­ tic p olitical connexions.65 T h e above is not to suggest that m ulti­ lateral institutions are perfect. T he quality of their finance u ndoubtedly can be improved. For instance, there could be greater articu­ lation b e tw e en the IM F and World Bank so that standby programmes can, where appropriate, take on a long-term character and facilitate real structural — as op posed to just temporary mon­ etary/financial — change. In line with much lon ger standby agreem ents, conditionality co u ld b e m oderated to take into greater account 65T h is p o in t has b e e n ra is e d b e fo re by Je k e r, p. 225. d om estic political and social objectives and the n eed to avoid reductions o f em ploym ent and p er capita incom e in d evelop in g countries.66 T here is also a great n eed for significant program me len d in g by d evelop m en t institu­ tions like the W orld Bank and IDB.67 Many m ore exam ples o f desirable changes could be given . Fortunately, unlike com mercial banks, w h o se actions are constrained by the commer­ cial interests o f their stockholders and the rules o f prudent banking, the p olicy frontiers ofm ultilateral institutions are only lim ited by the courage and im agination o f policy-makers in th e industrialized countries. As for private bond markets, they afford d ev elo p in g countries the opportunity to ac­ quire funds for considerably longer terms than those usually offered by com m ercial banks. Also, their interest rates are generally fixed through the life o f the maturities, providing L D C s w ith a predictable cost that can easily be incorporated into planning strategies. Another consideration is that bond markets are really standoffish and remote in the sen se that borro­ w er and len der never m eet each other. Their major drawback is that investors tend to be rather unpredictable and therefore access may b e som ew hat unreliable. T here are two other important specialists in th e international financial arena that are w orthy o f mention; com m ercial suppliers and bilateral governm ent agencies. Both are usual­ ly associated w ith “vested interest” finance, i.e., finance w h ich is itself only a means to a broader objective. T he conditions o f finance can prove to be very attractive, and although this may be offset by their b ein g tied to particular goods or political positions, the interests o f the borrower may nevertheless som etim es overlap w ith those o f the lender, m aking for a mutually ben eficial transaction. It is in th ese circum stances that suppliers and governm ent can play an important role in the d ivision oflab ou r for d evelopm ent finance. 66F o r an e x c e lle n t c o m p re h e n s iv e c ritiq u e o f IM F s ta n d b y p ro g ra m m e s a n d su g g e stio n s for reform se e U n ited N a tio n s, 1979. 67N o n -p ro je c t le n d in g is e sse n tia l if th e W orld Bank a n d ID B a re to take on a larg e r role in sta b iliza tio n efforts th a t in v o lv e stru c tu ra l c h an g es in an econom y. COMMERCIAL BANK FINANCE FROM THE NORTH / Robert D evlin B. C an th is d ivisio n o f labou r b e m ade to w ork? W e h ave ju st ou tlin ed w hat may be considered a reasonab le d ivision o f labour for d ev el­ o p m en t fin ance based on an existing infra­ structure. Unfortunately, som e actors in the g lobal d ivision o f labour have had their activi­ ties restricted for on e reason or another, cre­ atin g a vacuum that has b een filled in an ad hoc fashion by com ercial banks, w hich in contrast h ave b e e n ab le to expand alm ost w ithout lim its b eca u se o f surging w orld liquidity and an u n regu lated Eurocurrency market. T he prob­ lem , as w e have seen , is that banks cannot properly assu m e their n ew role and it is n ecessa ry to find som e way o f rectifying this im b alance in th e sources o f finance. M ultilateral agen cies have suffered from a lack o f an automatic funding m echanism , w arin ess on th e part o f donors, and a general id eo lo g ical shift away from multilateralism. In an a ge o f fiscal deficits and tax revolts new con trib u tions to d evelop m en t institutions have b eco m e unfashionable: ind eed , perhaps one reason for the industrialized countries’ com ­ p la cen cy about th e role o f their banks in d e v elo p m en t finance is that it is sim ply less o f a fiscal burden to have private com m ercial banks ch a n n e llin g resources to d evelop in g coun­ tries,68 W hat is n eed ed to counter this trend is a cam paign to alert p ublic opinion to the n eed for m a ssiv e resource transfers on more reasonable term s to d ev elo p in g countries. This can be v ie w e d as sim ply en ligh ten ed self-interest, for w h ile com m ercial bank financing appears on th e surface to b e working sm oothly, the inferior q uality o f th e finance, cou p led with other w ellk now n m aladies o f the international econom y, m ay b e generating underlying social and eco­ n om ic ten sion s that cou ld make the world of th e 1980s a m uch less pleasant place to live in. M oreover, transfers to the South usually com e back to th e North in the form o f purchases of good s for import, thus creating n ew b usin ess and job s for th e industrialized nations. ^ T o th e e x te n t th a t co m m e rc ial b a n k pro fits are taxed b y th e in d u s tria liz e d c o u n trie s , th e shift to b a n k fin an ce o f d e v e lo p m e n t c o u ld e v e n b e p ro fita b le for th e g o v e rn m e n ts o f th e in d u s tria liz e d c o u n trie s . 85 T here has b een no lack o f proposals for transfers. T h e annex to this paper reproduces an e x c ellen t summary bf current proposals prepared by the O verseas D evelop m en t C ou n cil. T h ey are all characterized by sophis­ ticated m echanism s to provide long-term fi­ nance to d evelop in g countries. Multilateral a g en cies are seen in the role o f managers o f funds. T h e mayor obstacle to the proposed program m es seem s to b e the generation o f resources. It m ay therefore be w orthw hile to b riefly review som e tentative ideas on how resources cou ld b e generated, concentrating on th e n e e d for automatic funding. O n e p ossib ility is to assign to the World Bank and IM F a more direct role in transferring savings from North to South. M any have com plain ed about the lack o f symmetry in p ressures on countries to adjust their balance o f paym ents;69 d eficit countries must subm it to vigorous IM F programmes, w h ile surplus countries suffer at w orst moral suasion. Why not arrange for surplus countries in the indus­ trialized w orld and O PEC to place 50% o f their annual surplus (after adjustm ent for coverage o f “norm al” capital outflows) on d eposit with the aforem ention ed institution? Som ething near a com m ercial interest rate could b e paid, as in th e F u n d ’s Supplem entary O il Facility. Alter­ n atively, if d esired , a tax could b e placed on the surplus by offering m uch less than a com mer­ cial rate. W ithdrawals w ou ld not b e perm itted u ntil a surplus country’s “non-deposited” surplus fell to som e critical lev el — say the eq u iv a len t o f 3 m onths’ imports— and even th en w ithdraw als w ould still be in lin e with the trends in the country’s balance o f payments. S in ce surpluses tend to accum ulate in the ind u strialized countries and O PEC, the fund w ou ld b e continuously renew ed. T he special character o f d ev elo p in g institutions w ould allow th em to m ism atch maturities and transfer th e se resources to the South on appropriate term s. A dm ittedly, u nless the surplus is heavi­ ly taxed this proposal w ould place only m ild additional pressure on surplus countries, since access to surplus receipts is maintained: its c h ie f value, therefore, is that it w ould allow 69F o r a c ritiq u e o f th e lack o f sy m m etry in a d ju s tm e n t p re s s u re , s e e U n ite d N a tio n s, pp , 111*8-111.13. 86 m ore resources to be ch an n elled through de­ v elo p m en t agen cies. W ays also n eed to b e explored on how to a ch iev e p erm anent increases in the capital b a se o f international agen cies w hich w ill facil­ itate their ability to capture funds on inter­ national capital markets. O ne m easure m ight b e to ch an n el SD R allocations to subscriptions o f capital in th ese institutions. Inviting the centrally p lanned econ om ies to participate in th e d ev elo p m en t effort by joining d evelop ­ m en t institutions w ou ld also increase capital and have the ad ded b en efit o f providing great­ er id eo logical plurality in th ese agencies. The ind u strialized countries and O PEC, for their part, cou ld con sider directly guaranteeing b o n d issu es o f multilateral agencies, thereby facilitating greater leverage over the existing capital base. L ess certain are the p ossib ilities o f raising capital contributions via taxes in d evelop ed cou n tries. T h e constraints are more political than real, h ow ever, as am ple room exists for n e w reven u e. E m ergency econom ic d ev el­ op m en t taxes on luxury consum ption, i.e., cigarettes, liquor, oversized cars, second h o m es, luxury restaurants, etc., could pain­ le s s ly produce considerable annual contribu­ tions. T h e problem in this approach is that sm all interest groups may be able to resist the introduction o f what otherw ise are rational m easures. A nother schem e that enjoys som e support is co-finan cin g b etw e en m ultilateral banks and Third W orld finance institutions. In this way banks w ou ld com e under the um brella o f m ul­ tilateralism and effectively expand the re­ sou rces b ein g ch an n elled through d evelop ­ m en t a g en cies. Banks participating in co-fi­ n ancin g w o u ld presum ably offer slightly low er in terest rates and som ew hat longer maturities. T h e v alu e o f the sch em e is that it requires no real ch an ge in the existing financial system. T h e disadvantage is that it could b e construed as a su bstitute for increasing the capital base o f m ultilateral agen cies. It could also further erode th e d egree o f plurality in sources o f fin an ce and “cartelize” d evelop m en t finance. In exploring the resource problem , it m igh t also b e u sefu l to question the current p ractice o f charging all d evelop in g countries th e sam e rate o f interest on regu lar (i.e., non- CEPAL REVIEW N.° 9 / D ecem ber 1979 ID A) loans from d evelop m en t institutions. In order to stretch d evelop m en t funds to the greatest d egree p ossib le, on e m ight consider varying interest rates to suit the lev el o f d ev elo p m en t o f the borrower country. Lowerincom e countries could continue to receive ab solu tely concessionary rates, whereas iipperincom e countries, w hich are not so much in terested in aid as in rather longer maturities, cou ld b e charged com m ercial rates o f interest. Furtherm ore, rates to upper-incom e countries cou ld con tin ue to b e fixed in principle, but w ith provision for the periodic adjustment of old loans should they b ecom e uncom m ercial over the m edium term. E ven w ith commercial rates there cou ld be som e cost savings on loans: w ith greater access to multilateral finance there m igh t b e less n eed to maintain large amounts o f borrow ed international reserves, many o f the fees and ancillary charges o f loan syndication w ou ld b e elim in ated , and prepaym ent could be effected w ith ou t penalty. T urning to international bond markets, th ese have not b een a dynam ic source o f funds for d ev elo p in g countries since the great finan­ cial collap se o f the 1930s. T he industrialized countries have p laced great administrative barriers in the way o f LDC bond issues, creating a tw o-tier system w hereby rich coun­ tries tap Eurobonds and poor countries Euro­ credits. T his is regrettable, becau se bond markets can b e a very suitable way to finance d ev elo p m en t, and w h ile they cannot take the p lace o f dynam ic multilateral develop m en t fin ance, th ey certainly can take som e pressure o ff d ev elo p m en t and institutions. U ndoubted­ ly, rich countries should reconsider their p oli­ c ies in this area. As for bilateral finance, this has no doubt slip p ed b ecau se o f aid w eariness and it might b e d ifficu lt to stim ulate this source again, although it m ight b e p ossib le to secure re­ consideration o f sch em es w hich are actually d esig n e d to restrict funding, such as the G en­ tlem en ’s A greem ent among O E C D export cred it agen cies, at least as far as finance for L D C s is concerned. After review in g proposals for North-South transfers o f resources and som e possibilities for financing them , one cannot h elp but think that current problem s are o f a political rather than an econ om ic nature. There are a m ultitude COMMERCIAL BANK FINANCE FROM THE NORTH / R obert D evlin o f tech n ical w ays to enhance the functioning o f th e international d ivision o f labour in the field o f d ev elo p m en t finance. T he problem is to d e v e lo p the political w ill to im plem ent them . M any m ay fe el that any m assive reordering at this tim e runs counter to political realities and it is therefore b est to accept the present system , w ith perhaps som e minor modifications. H o w ev er, on e should rem em ber that reality can b e m od ified to som e degree, and with due 87 w illp o w er and courage it w ou ld be p ossib le to im prove upon the present transfer m echanism , w h ich has ev o lv ed in an a d hoc fashion and is less than adequate for the promotion o f broadb ased socioeconom ic develop m en t. Hard-core realists w h o may b e skeptical o f change should perhaps ponder on the fact that those w ho are e x c e ssiv e ly realistic can be the m ost unrealistic o f all. 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G re e n e , Ja m e s, “ F in a n c in g F o re ig n G o v ern m e n ts a n d O fficial E n titie s ” , in F , Jo h n M athis (ed.), O ffsh o r e L e n d in g b y U .S. C o m m ercia l B a n k s, P h ila d e lp h ia , R o b e rt M orris A ssociates, 1975, p p . 187-220. H a y e s, D o u g la s, B a n k L e n d in g P olicies, D o m e stic a n d In te r n a tio n a l, A nn A rbor, T h e U n iv ersity o f M ic h ig a n , 1977, J e k e r , R olf, “ V o tin g R ights o f L ess D e v e lo p e d C o u n trie s in th e IM F ” ,Jo u rn o / o f W o rld T ra d e L a w , Vol. 12, N o .3, M a y /Ju n e 1978, p p . 218-227. K ap u r, Ish a n , “ An A nalysis o f th e S up p ly of E u ro c u rre n c y F in a n c e to D ev e lo p in g C o u n trie s” , O x fo rd B u lle tin o f E co n o m ic s a n d S ta tis tic s , Vol. 39, No. 3, A u g u st 1977, p p . 173-188. K otz, D a v id , B a n k C o n tro l o f L arge C o rp o ra tio n s in th e U n ite d S ta te s , B erk eley , U n iv ersity o f C alifo rn ia P re ss, 1978. L a tin A m eric an E co n o m ic R ep o rt, L o n d o n (m onthly), “ P e ru ’s N ew T eam in Row w ith N ew York B a n k ers” , V ol. V I, No. 20, 26 M ay 1978, p. 154. L e w is , W . A rth u r, T he E v o lu tio n o f th e In te rn a tio n a l E co n o m ic O rd e r, P rin c eto n , P rin c e to n U n iv e rsity P re ss, 1977. L issa k e rs, K arin , I n te r n a tio n a l D e b t, T h e B a n ks a n d U.S F oreign P olicy, W ash in g to n , U .S. G o v e rn m e n t P rin tin g O ffice, 1977. M a ssa d , C a rlo s a n d R o b e rto Z a h le r, D os e s tu d io s sobre e n d e u d a m ie n to e x te rn o , C u a d e rn o s d e la C E P A L , S an tia g o , C E P A L , 1977. M o rg a n G u a ra n ty T ru s t C o m p an y o f N ew York, W o rld F in a n cia l M a rkets (m onthly). O E C D , P a ris, D e v e lo p m e n t C o-operatio n : 1976 R e v ie w , 1976. R o b in so n , S tu art, M u ltin a tio n a l B a n k in g , L e id e n , N e th e rla n d s, A .E . Sijthoff, 1974. S a rg e n , N . P . “ C o m m ercial B ank L e n d in g to D e v e lo p in g C o u n trie s ” , E co n o m ic R e v ie w (F e d e ra l R e serv e B a n k o f S an F ra n cisc o ), S p rin g 1976, p p , 20-31. S m ith , G o rd o n , T h e E x te rn a l D e b t P rosp ects o f th e N o n -O il-E xp o rtin g D e v e lo p in g C o u n tries, W a sh in g to n , O v e rse a s D e v e lo p m e n t C o u n c il, S u m m er 1977. S o lo m o n , R o b e rt, “ A P e rsp e c tiv e on th e D e b t o f D e v e lo p in g C o u n trie s” , B ro o kin g s P apers o n E c o n o m ic A c t iv it y , No. 2, 1977, p p . 479-501. U n ite d N a tio n s, N ew York, B ala n ce o f P a ym e n ts A d ju s tm e n t Process in D ev elo p in g C o u n tries: R e p o r t to th e G ro u p o f T w en ty-F o u r, U N D P /U N C T A D P ro je ct IN T /75/015, Ja n u ary 1979. v an B. C le v e la n d , H aro ld , a n d W. H . B ru ce B rittain, “A re th e L D C s in o v er th e ir h e a d s ” , F oreign A ffa ir s , Vol. 55, No. 4, Ju ly 1977, p p . 732-750. W a c h te l, H o w a rd , T h e N e w G nom es; M u ltin a tio n a l B a n ks in th e T h ird W o rld , W ash in g to n , T ra n sn a tio n a l I n s titu te of th e In s titu te for P olicy S tu d ies, T N I P a m p h le t No. 4 ,1 9 7 7 . W a tso n , P a u l, D e b t a n d D e v e lo p in g C o u n tries: N e w P roblem s a n d N e w A c to rs W ash in g to n , D .C ., O v ersea s D e v e lo p m e n t C o u n c il, D e v e lo p m e n t P a p e r No. 26, 1978. W e in e rt, R ic h a rd , “ E u ro d o lla r L e n d in g to D e v e lo p in g C o u n trie s ” , T h e C o lu m b ia Jo u rn a l o f W o rld B u s in e s s , W in te r 1973, p p . 34-38. “ W h y th e B anks d id it” , F oreign P olicy, No. 30, S p rin g 1978, p p . 143-148. W e llo n g s , P h ilip , T ra n sn a tio n a l B a n ks, R e p o rt to th e U n ite d N ations C e n tre on T ra n sn a tio n a l C o rp o ra ­ tio n s , N e w York, D e c e m b e r 1976. B o rr o w in g b y D e v e lo p in g C o u n tries on th e E u ro cu rren c y M a rket, P aris, O E C D , 1977. W o lfe, A le x a n d e r M e W .Jr., “ C o u n try R isk ” , in F . Jo h n M athis (ed.), O f f sh o re L e n d in g b y U.S. C o m m e r c ia l B a n k s , P h ila d e lp h ia , R o b e rt M orris A ssociates, 1975, p p . 35-54. CEPAL REVIEW N .° 9 / D ecem ber 1979 90 Annex A CO M PARISO N O F SOME CURRENT PROPOSALS FOR MASSIVE RESOURCE S enator Javits’ Proposal; G row th D evelopm ent F und. Mexican Proposal*. Long-term Recycling Facility (IM F/IBRD D evelopm ent Committee), US$ 25 billion (US$ 5 b illion per year) US$ 15 billion Not specified, but in range of US$ 20-40 billion. T im efram e 5-year initial period Long tenn 5*10 years, com m encing before 1980. O bjective T o estab lish a capital fund for productive investm ents in the L D C s that will prom ote rational agricultural and industrial dev el­ op m en t and trade leading to the expansion of m arkets and the stim ulation o f the world economy. To increase the supply of longte n n hinds to the LD Cs for financing capital goods purchases. To m obilize u n u sed savings in O PE C and th e O E C D into a capi­ tal pool and to invest these funds in th e non-oil-LDCs in such a way as to increase th e ir purchases oí' exports from the industrial nations; to head-off m edium -term inter­ national supply shortages; and to im plem ent structural adjustm ent plans in the O EC D . P roblem Focus 1. Econom ic grow th is stagnating in m any countries, necessi­ tating a rise in capital stock to increase productivity. 1. Low long-term grow th rates in D Cs are slow ing world trade, fostering protectionism , arid leading to .sluggish dem and for capital goods of DCs. 1. With sim ultaneous unem ploy­ m ent and inflation together w ith d e c lin in g profitability and p roductivity in D C industries, O E C D capital formation is lagging an d th e re is a tren d to­ w ards long-term stagnation. A m ount/ Size 2. O PE C recycling is inadequate becau se it fails to generate m acro-econom ic policies in drlim porting nations n ee d ed to restore purchasing pow er. 3. T h e foreign exchange drain resulting from oil im ports is constraining the purchasing p o w er o f oil-im porting LD Cs. 2. LD Cs have potential dem and for capital goods not m ade effective for lack of financing, 3. T he high level of financing by tire international banking sys­ tem cannot be sustained in the future, 4. T h ere ate short- and m edium term recycling facilities for balance-of-paym ents adjusments b u t none for tire longer term . V enezuelan Proposal: Joint O PE C /O E C D G lobal Stim ulation Plan (R onald M üller). 2. O PE C recycling longer-term . could be 3. T h e re are serious policy lags in D C s an d L D C s regarding ma­ cro-economic m anagem ent and international econom ic co­ ordination. 4. T he T hird World could he a new source of sustained d e­ m and —a new grow th frontier— for th e world economy. 5. T h e re is a n ee d to alleviate the p overty and d e b t problem s of th e LD C s. Industrial and O PE C countries. Sources of F unds Public and private investors of countries w ith strong balance-ofpaym ents and financial positions (including institutional investors). 1. U nderutilized savings in O PEC and O EC D ; 20-25% from O P E C ’s accum ulated petro ­ dollar earnings, and th e rest from priv ate investors. 2. C on trib u tio n s from OECD n ations to W orld Bank (addi­ tional or reallocation). A dm inistra­ tio n of Funds F u n d could be designed an d im p lem en ted by th e World Bank, regional developm ent banks, and the IM F , or a new institution could be created. N ew len d in g operation at the World Bank, S pecial w indow at W orld Bank and IF C , and/or regional institutions. COMMERCIAL BANK FINANCE FROM THE NORTH I Robert D evlin 91 TR A N SFE R S A N D GLOBAL STIM ULATION O E C D In v estm en t Plan Trilateral Food Task Force Programm e D oubling Bice Production in S/SE Asia (Hayami/ Takase). Roger H a n se n ’s Proposal: A G loba] Basic H um an N eeds R égim e A m ount Size US$ 5-10 billion in additional capital tlows. Total capital cost of US$ 52.6 bi­ llion (1975 constant U SI) b u t only US$ 1.8 billion annually in ad­ ditional flows. US$ 12 billion (constant USD per annum w hich w ould cover all in­ vestm ent costs and h alf of the annual m aintenance costs. T im efram e 3*5 years of increased transfers, w ithin a m edium -term tim efram e of up to 8 years. 15 year period; 1978-1993. 20 year period. T o undertake a major increase in in v e stm en t flows to LD C s as a general stim ulus to world econo­ mic activity directed at structural change over th e m edium ten u in key supply sectors. To double rice production in Asia through irrigation im provem ents. To establish a global basic human needs régim e w ith a view to e li­ minating absolute poverty in two decades. 1. T h e recovery of the O EC D econom ies from the recession is not yet self-sustaining and a stim ulus is n e e d e d for eco­ nom ic activity. 1. Focusing entirely on the w orld food problem , Asia is chosen because two-thirds of the w orld’s m alnourished live th e re, an d Asia has g reat p oten­ tial for a qu an titativ e increase in food production. 1, T he poverty problem is not insurm ountable, b u t w ithout a focused attack its dim en ­ sions are likely to grow along w ith p opulation problem s. O bjective P roblem F ocus 2. T h e re is currently substantial u n d erutilization of resources in th e O E C D and a w idespread feelin g o f uncertainty deters in ­ vestm ent. 3. C u rren t patterns of investm ent in key supply sectors are in­ ad eq u ate for the long-tenu needs of both DCs and LD Cs. S ources of Funds A dm inistra­ tio n o f F unds E q u ity an d d e b t from private an d com m ercial sources in O PEC an d O E C D (not ODA because po­ litically unrealistic). C o-financing arrangements through th e W orld Bank family. 2. Im provem ent and expansion of irrigation, w hich requires capi­ tal, is critical to increasing food production in Asia, 2, T h ere is a n eed for a less inter­ ventionist ch an n el for O D À • a highly qualified, specialized basic n eed s agency. 3, Increm ental increases in ODA through existing channels are un lik ely to have a m ^jor im pact on poverty because ODA is cu r­ rently determ in ed largely by other objectives, concerns and political p ressures. 1. M ultilateral or bilateral foreign agricultural aid, including O P E C assistance. 2. Asian developing co u n tries’ irrigation budgets. 3. U SI 1.8 billion p er year in additional capital contributions (presum ably ODA) by D C and O PE C countries. 1. O D A from D AC co u n tries p le d ­ g ed on am u ltiy èar basis. O E C D co u n tries sh o u ld p u t m ost o f th e ir O D A into basic needs program m es an d raise th eir O D A lev els to 0.45-0.50% of G N P by th e early 1980s, D onor countries and agencies w ould d ire ct funds to agricultural sector in Asian LDCs. Preferably through N orth-South action, a neutral international agency w ould be created, to re ­ ceive financial contributions, make allocative decisions and m onitor perform ance. T h e UN sys­ tem ,including the W orld Bank and regional d ev elo p m en t banks, co u ld also be involved. 2. ODA from O PE C as w ell as other better-ofT LDCs. 92 CEPAL REVIEW N.° 9 1 D ecem ber 1979 A CO M PARISO N O F SOME CURRENT PROPOSALS FOR MASSIVE RESOURCE S enator Javits' Proposal: G row th D evelopm ent F und M ain C haracte­ ristics Mexican Proposal: Long-term Recycling Facility (IM F/IBRD D evelopm ent Com m ittee) V enezuelan Proposal: Joint O PE C /O E C D Global Stim ulation Plan (Ronald M üller) 1. F u n d s w ould be divided into tw o parts: h alf (U S) 2.5 billion) w ould go to th e poorest LD Cs, an d the other half on a loan basis to the m ore creditw orthy ad vanced d ev eloping countries. 2. T erm s could be negotiated to m eet th e concerns of donor countries regarding the sus­ ta in ed value of their funds invested in the F und and the n ee d for liq u id assets in the ev e n t of econom ic em er­ gencies. 3. T h e fund could give priority to energy investm ents. 1. Total capital subscription o f th e facility could be divided into th re e borrow ing operations o f US$ 5 b illion each. 2 .D eb t instrum ents denom inated in SDRs w ould be issued to lenders for a 15-year term w ith a m arket rate of interest. 3. Secondary m arket w ould be developed to give liquidity to these instrum ents. 4. G overnm ents not contributing direct loans could guarantee loans granted by th e facility. 1. O PE C m oney w ould be raised through the issue o f "O PE C D evelopm ent Bonds" in inter­ national capital markets. O PEC w ould purchase 20-25% of the total subscription o f long-term T rip le A bonds (12-20 year maturities). 5. Purchases of D C capital goods financed by th e facility w ould b e lim ited to countries granting loans o r guarantees. 6. Capital goods w ould be p u r­ chased in connexion w ith sp e­ cific projects approved in LD Cs by th e World Bank. Loans could be extended to national p rivate firms operating in LDCs. S ector In v estm en t F ocus 1. Projects th a t expand dem and for O E C D goods. 2. E nergy exploration and alter­ native energy source projects. Projects th a t req u ire long-term capital p u rch ases from O E C D countries. 3. I D A -related projects in poorest L D C s. 2. T h e rem ainder w ould be sold to private investors in capital markets. 3. O P E C w ould act as first guarantor, w ith the W orld Bank family as th e second. 4. Funds w ould be targeted to purchases in O E C D sectors operatin g at low capacity u tili­ zation levels; in th e m edium term funds w ould b e targeted to in tern atio n al sectors w here supply shortages are likely. 5. In th e th ird year, intensified dom estic structural adjustm ent efforts w ould com m ence. 6. A bout 20-25% of th e funds w ould go to poorest LD Cs. 1. Basic n eed s projects in the p o o rest LD C s (20-25% o f funds). 2. Projects that gen erate a rate of return eq u iv alen t to that o f AAA Bonds. 3. T arg etin g in d ie short term of O E C D in d u stries o perating at low capacity utilization. 4. T arg etin g in th e m edium term on su p p ly sectors w h ere there co u ld be shortages. C ountry/ R egional F ocus B enefits 1. M ore "cred itw o rth y " advanced d e v e lo p in g countries. (M iddle-incom e LDCs). (All LD Cs). 1. W ould co n trib u te to th e sti­ m u lation o f capital goods sec­ tors in D C s th a t suffer from in a d eq u ate dem and, and w ould also facilitate structural adjust­ m ents in DCs. 2, W ould p ro v id e necessary long­ term resources for LD C s to fi­ n an ce th e ir dem and for capital goods. 1. W ould increase O E C D -w ide capital formation. 2. W ould expand d em an d for goods from O E C D industrial sectors w ith excess capacity. 3. W ould h av e positive em ploy­ m e n t im pacts an d b e less infla­ tionary than cu rren t O E C D d om estic dem and stim ulation, b ecau se it w ould absorb liquid o r near-liq u id assets, and w ould b e targ eted to O E C D industrial sectors op eratin g at low capaci­ ty u tilization levels. 4. W ould allev iate th e n ee d for im m ediate structural adjust­ m e n t in m any DCs. 5. W ould h elp L D C s’ d e b t and poverty problem s. 2, P oorest LD C s. 1. W ould stim ulate econom ic grow th in t h e LD C s. 2. W ould expand dem and for ex­ ports o f th e O E C D , leading to h ig h e r levels o f em ploym ent an d dom estic econom ic activi­ ty, an d few er pressures for pro­ tectionism . 3, W ould p rovide an additional in v estm en t o u tlet for surplus countries. 4. W ould h elp dev elo p a b etter structure o f assets and liabilities in th e financial system. COMMERCIAL BANK FINANCE FROM THE NORTH I R obert D evlin 93 TRANSFERS A N D GLOBAL STIM ULATION O E C D In v estm en t P lan M ain C h ara cter­ istics T rilateral F ood Task F orce Pro­ g ram m e D o u b lin g Rice Pro d u ctio n in S/SE Asia (Hayami/ Takase). R oger H an sen 's Proposal: A G lo­ bal Basic H u m an N eeds Régim e. 1. T h e program m e w ould rely on co-financing through th e W orld Bank fam ily. 1. R esources w ould be invested in irrigation an d related n eed s, in­ clu d in g research, m o d em farm inp u ts, an d m arketing systems. 1. T h e program m e w ould require long-term h ig h lev els of N orth­ ern funding. 2. F u n d s w ould not b e tied to specific industries in D C s but w ould be d ire cted in the m e­ diu m term to sectors w here supply problem s will becom e critical: food, energy, com m o­ dities, an d related infrastruc­ ture. S ector In v estm en t Focus C ountry/ R egional Focus B enefits ,2. T arg et for 1993 w ould b e to d o u b le rice production from the 1974 lev el o f 136 m illion tons to 321 m illion tons for a po p u la­ tion o f 1.72 billion by convert­ ing 17.5 m illion hectares of ina­ d eq u a tely irrigated areas and 30.4 m illion hectares o f rained areas to ad eq u ately irrigated areas. 2. T h e program m e w ould require L D C w illin g n ess to com m it funds to an altered d ev elo p ­ m en t strategy. 3. F u n d s w ould be allocated by an in tern atio n al agency on th e basis o f an L D C ’s program m e perform ance an d yearly b u d g e­ tary needs. 4. T h e ag en cy w ould m onitor pro­ gram m e perform ance to assure th a t funds are b ein g u sed in accordance w ith negotiated program m e g u id elin es. Projects related to food, com m odi­ ties, e n e rg y and related infra­ structure. R ice production. Basic n ee d s d ev e lo p m en t projects in LD C s. (All d ev eloping countries). C o u n tries in South an d S outheast Asia. (D ev elo p in g countries com m itted to basic n ee d s program m es), 1. W ould im prove th e supplyd em an d b alance for food and h av e incom e-creating effects w hich w ould enh an ce the pu rch asin g pow er of peasants. C o u ld susbtantially reduce or eli­ m in ate ab so lu te p overty for the o n e b illio n p eo p le w ho now exist in th is state. 1. W ould stim ulate dem and and increase production in both L D C s an d DCs. So u rce : O v e rse a s D e v e lo p m e n t C o u n c il, W ashington, D .C ., 1978. CEPAL REVIEW D ecem b e r Í979 Exports and industrialization in an orthodox m odel: C h ile , 1973-1978 Ricardo Ffrench-Davis* M a n y d e v e lo p in g c o u n trie s h a v e b e e n a p p ly in g e x p o rt p ro m o tio n p o lic ie s d u rin g , th e last fifteen y e a rs. A m o n g th em , m e n tio n m ay b e m ade-of B razil, C o lo m b ia , H o n g K ong, Isra el, M exico, Singapore, S o u th K orea, T a iw a n a n d Y ugoslavia. T h e c o n d i­ tio n s , tim in g , m e c h a n ism s a n d effects d iffer from o n e c a se to a n o th e r a n d co v er a b ro a d ra n g e o f p o litic a l a n d e c o n o m ic m o d els. T h e v a rie ty d isp lay ­ e d b y th e v ario u s k in d s o f p a st e x p e rie n c e show a b o v e a ll th a t e x p o rt p ro m o tio n is n o t ex clusively lin k e d to a g iv e n m o d el. T h is a rtic le e x a m in e s th e m o st o u tstan d in g a s p e c ts o f e x p o rt p ro m o tio n in C h ile b e tw e e n 1973 a n d 1978, a n a ly se s th e in flu e n c e w h ic h various stru c tu ra l a n d c o n ju n c tu ra l a sp e cts o f th e C h ile a n e c o n o m y h a v e h a d o n th e c o m p o sitio n a n d lev e l o f e x p o rts , a n d e x a m in e s so m e re p e rc u ssio n s o n th e d e v e lo p m e n t o f d o m e s tic in d u stry . S e c tio n I sets o u t th e m ain a sp e cts o f th e e x te rn a l tra d e p o lic ie s a p p lie d b e tw e e n 1973 a n d 1978. T h e n e x t se c tio n stu d ie s in d e ta il th e e v o lu tio n o f e x p o rts b y c ate g o rie s o f p ro d u c ts a n d m ark et d e s tin a tio n ; th e a n aly sis is e x te n d e d to c o v e r th e p e rio d 1965-1978 w ith th e aim o f g iv in g a b ro a d e r p e r s p e c tiv e for a p p ra isin g th e ex p an sio n o f th e se c to r. I n se c tio n I I I , an e x am in atio n is m ad e o f th e e c o n o m ic fram e w o rk in w h ic h th e e x p an sio n o f nontra d itio n a l e x p o rts h a s b e e n a c h ie v e d a n d th e effects w h ic h so m e o f th e s e e x p o rts have h a d on th e national e c o n o m y . O n th e b a sis o f th is in form ation, a b rie f c o m p a ris o n is m a d e w ith th e e x p e rie n c e s o f o th e r c o u n trie s . F in a lly , se c tio n IV gives som e b rie f c o n c lu sio n s a n d o u tlin e s an a lte rn a tiv e strategy w h ic h c o u ld satisfy n a tio n a l n e e d s m ore efficiently. *Re se archer of the Latin American Economic Research Corporation (CIEPLAN). An earlier version of this article was presented at the Informal Meeting on Industrialization and Development organized by CEPAL in October 1978 in Santiago, Chile, and published in Vierteljahresberichte, N,° 75, March 1979. The author wishes to express his grati­ tude for the support received from the Latin American. Committee of the Social Science Research Council, the valuable aid of J. Marshall and J. Scherman, and the comments of many colleagues. The views and interpreta­ tion contained in this study are, of course, exclusively the responsibility of the author. I T h e external trade p olicy and its m ost oustanding characteristics T h e econ om ic p olicy w h ich has b een in force in C h ile sin ce 1973 assigns a predom inant role to th e expansion o f exports. C hilean p olicy in th ese years has b een extrem ely orthodox, lor it has in volved the drastic liberalization o f im ­ ports, an unrestricted opening-up to foreign investm ent, and a pronounced anti-State ap­ proach exp ressed in abstention from direct in­ tervention in production activities and in the “neutrality” o f indirect econom ic p olicies, all w ith in th e context o f profound faith in the com ­ p etitiv e functioning o f the market. T h ese two lin es have b een follow ed system atically during th e fiv e years for w h ich the present m odel has b een ap plied .1 Non-traditional exports have increased significantly, lead ing som e observers to speak o f a n ew case o f econom ic expansion after the style o f South Korea. T he conditions sur­ rounding th e tw o cases are, how ever, very dif­ ferent, and the prospects seem to be even more dissim ilar, esp ecia lly as regards the industrial sector. T h e m ost notew orthy characteristic o f the p resen t external trade policy, is its marked m ovem en t towards free trade, through w hich it endeavours to attain a situation in w hich inter­ national prices (of goods tradeable w ith the exterior) prevail in th e w h o le o f the national econom y, there is free entry and exit o f capital, and th e exchange rate is determ ined by the market. T h e external trade policy thus coin­ cid es w ith th e general tone o f the entire eco ­ n om ic programme, w h ich seeks to m inim ize th e State’s participation in econom ic activities. 1. The p rin cip a l m easures T h e central elem en t o f the external trade p o licy has undoubtedly b een the drastic ^ h e apparent “neutrality” has been applied within a context of inequality in the various fields of national activity, and the predictable result has been a notably greater concentration of power and wealth. 96 CEPAL REVIEW N.° 9 / December 1979 reduction in the high tariff protection which im port substitution enjoyed when the new régim e took over. T he goal of the liberalization process has undergone significant changes during th e application of this process, how­ ever; thus in mid-1974 the maximum target tariff contem plated by the liberalization policy was 60%,2 b u t towards the end of that year it was hinted that the maximum tariff accepted in the future would be only 30%,3 and a little afterwards a maximum target tariff of 35% was formally established, which is the tariff that served as a guide for the successive tariff reductions carried out up to 1977, as shown in table 1. Table 1 TRADE LIBERALIZATION, 1973-1979 (Customs duties on CIF value) 12/73 Maximum rate Most frequent rate Average rate 6/74 8/75 2/76 8/77 7/79 £ 220% 90% 94% 140% 60% 67% 90% 40% 44% 80% 35% 38% 35% 20% 18% 10% 10% 10% Source: C e n tra l B ank. T h e d a te s g iv e n in th e ta b le c o rre sp o n d to th e first a n d la st d e c re e s e sta b lish in g tariff re d u c tio n s, w ith 4 o f th e 10 in te rv e n in g d e c re e s . T h e rates q u o te d d o n o t in clu d e th e sp e c ia l e x ce p tio n s, w h ic h m o stly re fe r to th e au to m o tiv e sector. Apparently, according to repeated official statem ents, the process of reducing the protec­ tion for im port substitution should have term inated in August 1977, when the tariffs stood, w ith only a few exceptions, at between 35% and 10%, but three months later the M inistry of Finance announced another change of policy which consisted in reducing the tariffs even more with the aim of arriving at a uniform rate of 10% by mid-1979, This is an unusually low rate for a developing country, and its total lack of selectivity is exceptional even for the most developed countries of the world.4 In reality, tariffs of this type are usually proposed only in the most orthodox texts on international economics. ^ U n iv e rsity o f C h ile , Taller de Coyuntura, N .° 13, S e p te m b e r 1974, p. 29. 3S. d e la C u a d ra , "E stra te g ia s d e lib e rac ió n d e l c o m e rc io e x te rio r c h ile n o ” in B anco C e n tra l d e C h ile , E studios Monetarios IV, 1976, se c tio n V. 4 D e ta ils o n th e tariffs in force in S outh K orea in 1976 a n d th e a im s o f a ta riff re d u c tio n p ro cess w h ic h w as in th e c o u rs e o f p re p a ra tio n a re g iv en in B. B alassa, “ In c e n tiv e s fo r e c o n o m ic g ro w th in K orea” , in Policy reform in developing countries (N ew York, P e rg a m o n P ress, 1977), p p . 148-151. D e ta ils o n n o n -tariff restrictio n s a n d tariff d is p e rs io n a p p lie d b y th e U n ite d S tates, Ja p a n a n d th e Exports w ere promoted in three ways: through an increase in the real effective exchange rate; through the promotional work of a public institution called PROCHILE, and through such incentives as the reimburse­ m ent of the value added tax (IVA).5 Indirectly, the expansion of exports has been helped by the drastic reduction in total domestic dem and brought about by the econom ic policy: a phenomenon which was particularly intense in 1975, when the rate of open unem ploym ent rose to 20% and manufac­ turing output w ent down by 24%. T he exchange rate rose appreciably during 1974 and 1975, and within the context of a depressed domestic economy (a situation E u ro p e a n C o m m u n ity to p ro d u c ts o f in te re s t for L atin A m e ric a a re g iv e n in P. M e n d iv e, “ P ro te ctio n ism a n d d e v e lo p m e n t: N e w o b sta c le s o f th e c en tres to in te rn atio n al t r a d e ” , in CEPAL Review N ,° 6, se c o n d h a lf o f 1978. 5T w o o th e r in stru m e n ts —e x p o rt c re d its a n d re d u c ­ tio n s in th e e x -cu sto m s c o st o f im p o rte d c o m p o n e n ts— w e re o f le s s re la tiv e significance. T h e re im b u rse m e n t o f th e v a lu e a d d e d tax, w h ic h is e ffe c te d by v arying th e a p p lic a tio n o f th is tax acco rd in g to th e d e stin a tio n o f th e g o o d s, is c o m p a tib le w ith th e “ n e u tra lity ” o f th e eco n o m ic p o lic y . EXPORTS AND INDUSTRIALIZATION IN AN ORTHODOX MODEL I Ricardo Ffrench-Davis w h ich w as notably accentuated from the seco n d h a lf o f 1974 onwards) this facilitated th e d isp osal abroad o f a grow ing proportion of national production. At the sam e tim e, P R O C H IL E carried out promotional and inform ation work w hich h elp ed to strengthen an export-oriented m entality among business­ m e n and to op en up n ew markets abroad; th e se efforts received d ecisiv e support during th e en tire p eriod that C hile b elon ged to the A ndean Pact, an integration grouping with five oth er South Am erican co u n tries w hich until 1976 con stitu ted the main destination for in crea sed non-traditional exports (see table 8). In addition, in cen tives w ere established such as th e reim bursem ent o f the value added tax paid on inputs and exem ption from paym ent o f this tax on th e exports th em selves, w h ile m ore recen tly generalized tariff exem ptions h ave b e e n introduced in respect o f imports of inputs to b e u sed in the manufacture o f goods for export. T h e exchan ge policy covers the fixing of th e exch an ge rate and the rules for access to th e foreign exchange market. On repeated o ccasion s, various lead ing personalities in the eco n o m ic team have stressed the desirability o f adopting an exchange rate policy free of State intervention in both aspects. During the last fiv e years, how ever, an exchange rate ad m inistered by the Central Bank has been m aintained, and som e restrictions on access to th e foreing exchange market still remain. Thus, th e foreing exchange policy constitutes the m ain d eviation — and perhaps the only impor­ tant on e— o f th e present econom ic policy from th e traditional recipes given in orthodox eco­ n om ics texts. U p to m id-1976 the exchange rate was adjusted tw o or three tim es a month. From July o f that year, how ever, the changes w ere m ad e daily and w ere announced monthly in advance. T his system was m aintained up to F ebruary 1978, w h en a table of daily changes 6A n e x a m in a tio n o f the m ain c h aracteristics and im p lic a tio n s o f th e A n d e a n P a c t (C a rta g en a A greem ent) w as m a d e in R. F fre n ch -D av is, “ E l P acto A ndino: un m o d e lo o rig in a l d e in te g ra c ió n ’’, in E , T iro n i, éd ., Facto A ndino: carácter y perspectivas, In stitu to d e E stu d io s P e ru a n o s , L im a , 1978. 97 w as p u b lish ed for the rest o f that year. The siz e and direction o f the changes have varied over th e last five years. In a first stage the size o f th e m ini-devaluations was such that it en a b led the real exchange rate to go up consid­ erably, as may b e seen from colum n 2 o f table 2. From the b egin n in g o f 1976, how ever, this ten d en cy was reversed, and in June 1976 and March 1977 there w ere even two devaluations w h ich led to sharp reductions in the real exchan ge rate am ounting in total to a deteriora­ tion o f the order o f 25% in this period.7 After a few m onths, h ow ever, an opposite policy was adopted w h ich involved two su ccessive d evaluations lead in g to a partial recovery o f the real le v e l reached in 1976. C onsequently, the evolu tion o f th e real price o f the dollar in C h ile has b een unstable and has caused fluctuations in the relative profitability of exports. In th e foreign exchange field it should also b e noted that there has b een a progressive T a b le 2 R E A L E X C H A N G E R A TE (Pesos p er US dollar) D a te 1974 1/76 6 /7 6 7/77 10/77 2/78 N om inal e x ch a n g e ra te (1) Real exchange rates (2) R eal p e rc e n ta je v ariatio n b e tw e e n d a te s in d ic a te d (3) 0.83 9.19 13.54 20.96 24.70 29.12 21.71 27.18 23.31 20.66 22.25 25.11 25.2 - 1 4 .2 - 1 1 .4 7.7 12.9 N ote: T h e n o m in a l ex ch an g e rate (in p e so s p e r dollar) w a s d e fla te d by a sim p le av erag e o f th e c o n su m e r p ric e in d e x a n d th e d o m estic c o m p o n e n t o f th e w h o le sa le p ric e index, a n d in fla ted by an index o f e x te rn a l p ric e s, th e b ase o f b o th in d ex e s b e in g 100 for th e 1977 av era g e. T h e m eth o d o lo g y for e stim a ­ tin g th e in d ex o f e x tern al p ric e s is d e sc rib e d in R. F fre n c h -D a v is, Políticas económ icas en Chile, 1952-1970 (S antiago, C h ile , E d ito ria l N u e v a U n i­ v e rsid a d , 1973), a p p e n d ix 1, T h e d a te s co rre sp o n d to c h a n g e s in e x ch an g e policy. 7T h e re su lts are e x tre m e ly se n sitiv e to th e in d ex o f d o m e s tic p ric e s u s e d as a d e fla to r, e sp e cially d u rin g 1974. H e re , th e c o m b in e d in d ex d e s c rib e d in th e n o te to ta b le 2 w a s u se d . CEPAL BE VIEW N.° 9 / D ecem ber 1979 98 liberalization o f access to the purchase of foreign exchange. T his is reflected, for exam p le, in the increase in the foreing ex­ ch an ge allow ance available to C hilean tourists and th e reduction o f controls on obtaining foreign exchange to pay for imports. Certain controls still rem ain, how ever, on the contrac­ tin g o f d eb ts abroad and the purchase and sale o f foreign currency. 2. T rade expansion an d the balance o f p a ym en ts As already noted, trade w ith the exterior has b e e n affected by a num ber o f econom ic policy m easures. L et us now see what effects th ese h ave had on th e volum e o f trade. Practically all trade operations w ith the exterior have expanded during the last five years, particularly in the fields o f imports and non-traditional exports. T he m ost notable ex cep tio n is th e low real le v e l o f imports o f m achinery and equipm ent. In the field o f imports, the behaviour o f th e different categories o f goods is very h etero gen eou s. Imports o f m achinery and equipm ent sh o w a d eclin e o f over 15% b etw een 1970 and 1978, T h e se imports not only w ent down com pared w ith other purchases abroad (their share in total imports dropped from 20% to 12%), but also fell in absolute terms (measured in dollars o f constant purchasing power). This d eterioration reflects the scanty investm ent w h ich has accom panied the present econom ic p o licy , sin ce dom estic production o f capital goods also w en t dow n during this time. In contrast, imports o f non-food consum er good s — a category w hich includes most, if not all, im ports o f luxury goods— rose by 112% and a ccou n ted for 15% o f total imports in 1978, i.e., m o re than to ta l im p o rts o f m ach inery and eq u ip m e n t. T o sum up, then, C h ile is now importing on a large scale many kinds o f goods w hich d om estic industry had b een supplying to an in creasin g extent for decad es past, and a large proportion o f th ese “non-traditional imports” h ave taken the place o f dom estic products w h ich , in n orm al conditions (“reasonable” le v e ls o f protection and a lev el o f total demand w h ich is not depressed), could b e manufac­ tured efficien tly. T his topic, how ever, like th ose o f imports o f luxury goods and the most efficien t way o f replacing those types o f pro­ duction w h ich really w ere inefficient, w ill not b e tackled here so that w e may return without d elay to th e consideration o f the topic o f exports. Non-traditional exports underw ent a marked expansion, w hich was particularly notew orthy in 1975 and part of 1976, in spite o f th e recession on international markets. With th e notable exception o f som e agricultural products and on e m ining product, however, m ost o f th e non-traditional exports have shown som e slackening o f their growth rate from the secon d h a lf o f 1976 onwards (see table 4). This is exp lain ed by four factors: the recent reactiva­ tion o f d om estic dem and, the withdrawal from th e A ndean Pact, the exchange rate revalua­ tions, and the extrem ely low rate o f dom estic investm ent. A ll th ese factors have joined togeth er to operate sim ultaneously as a brake on th e sustained expansion o f non-traditional exports. W e shall return to this topic in the next section . Table 3 BALANCE OF PAYMENTS, 1977-1978 (In m illio n s o f d o lla rs a t c u rre n t prices) 1977 Exports FOB Imports C IF T ra d e b a la n c e Interest and profits Others (freight charges, tourism, etc.) B a la n c e o n c u r re n t a c c o u n t Non-compensatory capital (Direct investment) Balance-of-payments position 1978 2 177 2 244 -6 7 -3 6 2 2 480 3 002 30 -5 2 2 -4 6 3 392 (19) 170 — 815 1432 (162) -7 617 -3 9 9 Source: C e n tra l B ank o f C h ile . T h e figures c o rre sp o n d to a n e stim a te b a se d on figures g iv en in th e B oletín M ensual, J u n e 1979, a n d d a ta on e x te rn al trad e in d ic a to rs o f th e sam e d a te . T h e n o m in a l p rice o f c o p p e r in 1977 an d 1978 w as 59.3 a n d 61.9 US c e n ts p e r p o u n d , re sp ec tiv e ly . EXPORTS A N D INDUSTRIALIZATION IN AN ORTHODOX M ODEL / Ricardo Ffrench-Davis T h e balance o f paym ents sh ow ed deficits on th e trade and current accounts in both 1977 and 1978, and both th ese deficits show a te n d en cy to increase. O bviously, however, their future size w ill d ep en d on the evolution o f th e p rice o f copper and th e way in w hich the ec o n o m ic p olicies w hich m ost directly influ­ e n c e the behaviour o f the external sector are applied: the d esign o f p olicies relating to total d em an d , le v e l o f investm ents, industrial d ev elo p m en t strategy, exchange rate, tariffs, etc., w ill have a d ecisiv e influence here. In sp ite o f th ese deficits, the Central Bank accum ulated a h igh le v e l o f gross international reserves in 1977 and large gross and net reserves in 1978. T his was due to an extraor­ dinary in flow o f financial funds (above all from banks) w h ich cam e to more than double 99 the am ortization payments on the external debt sch ed u led for 1978. Part o f the surplus was tapped by the Central Bank, w hich thus in ­ creased its international reserves, w hile the rem ainder o f this greater gross indebtedness on th e part o f C h ile was used to cover the grow ing expenditure on imports and the co n seq u en ts balance-of-paym ents current accoun t déficit. D irect foreign investm ent has recorded m inim al le v e ls during the five-year period, in sp ite o f the adoption o f increasingly favourable rules for foreign capital. E ven in 1978, w hen th e total am ount w as more significant, the net in vestm en t still represented only one-fifth of th e external saving received by C h ile, and m ost o f that corresponded to the purchase by Exxon o f a C hilean copper m ining company. II C om position and le v e l o f exports In this section the behaviour o f C hilean exports b e tw e e n 1965 and 1978 w ill be exam ined from th ree an gles. Firstly, their evolution w ill be an a ly sed according to w hether the exports are traditional or new; secondly, the contribution o f th e industrial sector to exports w ill b e exam in ed , and lastly, the available information w ill b e broken dow n according to markets o f d estin ation. Since w orld inflation was signifi­ cant during the period studied, all the m one­ tary values w ill be expressed in terms of constant purchasing power.8 T h e breakdow n by categories o f products and by markets o f destination, together with th e correction for the devaluation o f the dollar, 8 I t s h o u ld b e n o te d th a t w e a re sp e a k in g o f real values a n d n o t th e v olum e o f ex p o rts. T h e in d ex o f e x tern al p rice s u s e d in th is stu d y sh o w s th a t th e p ric e s in th e in d u stria ­ liz e d c o u n trie s d o u b le d b e tw e e n 1970 a n d 1977 a n d in c r e a s e d b y a factor o f 2.59 b e tw e e n 1965 a n d 1978. T h is in d e x w as c o n stru c te d on th e b asis o f th e ex p o rt u n it prices o f th e c o u n trie s w h ic h a re m o st re p re se n ta tiv e in trade w ith C h ile . A c o m p a riso n o f th e re su lts g iv e n by d iffere n t in d e x e s a p p e a rs in “ I n d ic e d e p re cio s ex tern o s y valor real d e l c o m e rc io in te rn a tio n a l d e C h ile ” , C IE P L A N , Santiago, N o ta s Técnicas, N .° 15, A pril 1979. m ake it p ossib le to evaluate more accurately th e actual evolu tion o f exports and to identify the variety of ten d en cies show n by their various com ponents. 1. N o n -tra d itio n a l exports T h e exports o f d ev elo p in g countries are fre­ q u en tly classified as “traditional” and “n e w ”, or “major” and “minor” . T he classification is naturally an arbitrary one. In the case of C hile, up to 1973 the traditional exports com prised cooper, m olybdenum , iron ore, nitrates and io d in e, all o f w h ich are products o f m ining origin. P u b lic agen cies now also include in this category fish m eal, paper, w ood pulp and pa­ perboard, w h ich are products w h ose export w as d ev elo p ed in ten sively during the previous d ecad e. Non-traditional exports cover all other products,9 9T h e s e o th e r p ro d u c ts in c lu d e su c h item s as len tils a n d w ool, w h ic h h a v e b e e n e x p o rte d for m any years past, b u t o n a m u c h sm a lle r scale th a n th e exports classified as tra d itio n a l. T a b le 4 E V O L U T IO N O F E X P O R T S {Millions o f dollars a t 1977 prices) Y ears 1965 T ra d itio n a l exportd* C opper S em i-tra d itio n a l e x p o r t^ N o n -tra d itio n a l exports F r e s h fru it M o n te re y p in e S e m i-m a n u fa c tu re d c o p p e r M o ly b d e n u m o xide Sugar O th e r s T o ta l exports 1974 1970 1975 H alf-y ears 1976 1977 1978 1976 (II) 1977 (I) 1977 (II) 1978 (I) 1978 (ID 1 3 6 7 .6 (1 0 7 5.3) 1 897.0 (1 672.9) 2 257.1 (2 070.2) 1 1 2 9 .9 (920.5) 1 5 4 5 .7 (1 342.5) 1 377.1 (1 178.1) 1 2 3 3 .6 (1 049.7) 807.8 (689.9) 724.3 (626.7) 652.8 (551.4) 6 0 3 .4 (518.3) 6 3 0 .2 (531.4) 4 1 .2 9 3.2 174.5 129.4 210.7 215.0 226.7 112.9 105.0 110.0 107.3 119.4 142.2 2 0 .0 3 .8 2 1.1 6,1 2 2 5 .9 2 3.5 7.4 28.1 9.5 293.7 22.3 11.6 36.8 24.7 510.3 58.0 21.4 49.0 23.2 644.9 90.6 65.1 40.1 62.4 9.9 376.8 240.9 14.7 12.5 31.6 12.5 299.9 45.6 27-4 22.8 14.0 — — 3 58.7 588.5 64.1 54.5 45.3 30.9 12.4 381.3 169.6 190.1 288.6 18.5 27.1 22.5 16.9 12.4 191.2 348.0 71.8 3 5.8 18.4 2 8.6 4 .8 188.6 2 9 6 .9 18.8 2 9.3 2 1.7 3 3 .8 5.1 188.2 2 266.7 2 180.6 2 105.2 1 161.6 1 129.2 1 051.4 1 058.7 1 046.5 — — 9 1.2 157.4 198.3 440.5 42.8 21.4 25.7 31.0 42.5 277.1 1 551.0 2 216.1 2 725.3 1 699.8 —. Source: “ E s tr u c tu r a y d e s tin o d e la s e x p o rta c io n e s c h ile n a s : 1965-78” (m im eo), (S a n tia g o , C h ile , C IE P L A N , M a rc h 1979), T h e fig u re s fo r n o n -tra d itio n a l e x p o rts u p to th e first h a lf o f 1976 a re fro m th e D e p a r tm e n t o f C u sto m s a n d th e b a la n c e -o f -p a y m e n ts re p o rts o f th e C e n tra l B an k , w h ile from th e s e c o n d h a lf o f 1976 th e y a re fro m th e C e n tra l B a n k ’s re c o rd s o f s h ip m e n ts . — ^ C o m p ris e c o p p e r , m o ly b d e n u m , o th e r c o p p e r b y -p ro d u c ts , iro n o re , n itr a te s a n d io d in e . b C o m p ris e fis h m e a l, p a p e r , p a p e r b o a r d a n d w o o d p u lp , EXPORTS A N D INDUSTRIALIZATION IN AN ORTHODOX MODEL I Ricardo Ffrench-Davis In this study w e w ill use three categories: (i) traditional exports, corresponding to the d efin ition used in the 1960s, plus various by­ products o f copper production (such as s e le ­ nium , gold and silver); (ii) semi-traditional exports, w h ich com prise the most dynamic products o f the 1960s (paper, paperboard, w o o d p u lp and fish m eal), and (iii) non-traditional exports, covering the rest of the products exported. Total exports have undergone pronounced ups and dow ns from on e year to another, clo se ly linked to the variations in the price of copper, w h ich has b een the main Chilean export throughout the period,1 0 L eavin g aside the fluctuations recorded, C h ilea n exports have show n a marked increase in th e non-traditional categories, as may be see n from table 4, and their share in the gross d o m estic product (G DP) rose by 3 points b e tw e en 1970 and 1977 n As a result, total exports cam e to 18% o f the G D P in 1977. In recent years, it has b een common p ractice to m easure the expansion o f non-traditional exports w ith respect to 1973. This gives an erroneous v iew o f the matter, however, sin ce in the years 1972 and 1973 sales abroad w ere at abnorm ally low lev els w hich under­ estim ate the country’s export capacity. This capacity is more adequately illustrated by the real exports recorded in 1970 or 1971. In order to giv e a broader view , table 4 also includes figures for 1965, so as to reveal w hether nontraditional exports sh ow ed som e dynam ism before the p resent experience. W ithin this category, the four item s w hich w ere most 10T h e fig u re s e x p re ss e d in c o n sta n t p u rc h a sin g p o w e r a re c o rre c te d for th e d e v a lu a tio n o f th e d o llar, b u t th is does n o t e lim in a te th e e fec ts o f real flu ctu atio n s in th e p ric e s o f th e v a rio u s e x p o rt item s. T h e real p ric e o f c o p p e r was q u ite h ig h in 1968-1970, a fte r w h ic h it w as b e lo w norm al levels u n til m id -1 9 7 3 ; d u rin g th e first y e a r of th e p re s e n t régim e it r e a c h e d u n p re c e d e n te d m axim um lev els, b u t d u rin g th e la s t fo u r y e a rs it has flu c tu a te d a ro u n d lev e ls w hich m ay b e e s tim a te d a t b e tw e e n 15 a n d 25% b e lo w th e norm al. 11T h e G D P w as e stim a te d a t U S$ 14,500 m illio n and th e total v a lu e o f e x p o rts w as re ca lc u lated , re p la cin g the a c tu a l v a lu e o f c o p p e r e x p o rts by th e norm alized value, fo r w h ic h p u rp o s e a p ric e o f 80 US c en ts p e r p o u n d o f e le c tro ly tic c o p p e r w as u se d , th is b e in g c o n sid e re d a n o rm al v a lu e for 1977. T h is c a lcu la tio n gives a lev e l o f e x p o rts U S$ 400 m illio n h ig h e r th an th e valu e actually r e c o rd e d in th a t year. 101 important at the end o f the period b eing stu d ied have b een separated out: fresh fruit, M onterey pine, sem i-m anufactured copper and m olyb denu m oxide. Separate figures are also giv en for exports o f sugar, w hich involve the refining o f im ported raw material and w ere b egu n in 1975 but subsequently underw ent large fluctuations.12 F inally, the “O thers” h eading, w hich covers the rest o f non-traditional exports, com prises many hundreds o f articles as d iverse as len tils and boilers. Table 5 sh ow s the annual rates of variation of the item s d ealt w ith in the previous table. T h e information set forth in these two tables show s that significant growth rates had already b een recorded before 1974. Thus, although the total am ount was only small, nontraditional exports grew at the rate o f 10% per year b etw e en 1965 and 1970, w h ile the “O thers” group grew at the rate o f 12%. T he expansion o f exports o f manufactures was even greater, as w e shall see later. C onsequently, th e export sector was already show ing som e dynam ism before the application o f the present m od el. In 1971 many export lines continued their exp an sive ten d en cy but non-traditional exports as a w h ole recorded a le v e l similar to that o f the year before. T he prolonged freezing o f the nom inal exchange rate and a persistent in ­ crease in total dem and h elp ed to explain the gen eralized contraction in non-copper exports in th e follow in g two years. This tendency was drastically reversed w h en the present eco ­ nom ic m od el began to be put into effect. B etw een the end o f 1973 and 1976, the expan­ sion in sales abroad was very pronounced: m any n ew lin es o f exports appeared during this period, and there was a generalized increase in th e various non-traditional lines. T he overall grow th con tin ued in su b sequ en t years, al­ though at a more m oderate and dim inishing rate. F in ally, trends differ b etw een different products. T able 4 show s that the rapid expan­ sion o f exports continued until 1978 in the case o f three item s, nam ely fresh fruit (mainly grapes and apples), M onterey p in e (round- 12T h e figures for exports in c lu d e th e gross F O B v a lu e o f sa le s o f sugar, w h ic h is classified as a m anufacture. 102 CEPAL REVIEW N.® 9 / D ecem ber 1979 T a b le 5 A N N U A L G R O W T H R A T E S O F M A IN E X PO R T S (R eal v a r ia tio n , p e r c e n t) 19701965* I. T ra d itio n a l E x p o rts C opper 11. S e m i-tra d itio n a l exports I I I . N o n -tra d itio n a l ex p o rts (e x c lu d in g sugar) F re s h fru it M o n te re y p in e S e m i-m a n u fa c tu re d c o p p e r M o ly b d e n u m oxide O th e rs IV. T otal 6.8 (9.2) 17.7 9.7 3.3 14.3 5.9 9.3 11.5 7.4 19741973b 19751974 19761975 19771976 19781977 1978(1) 1978(11) 1977(1) 1977(11) 19.0 - 4 9 .9 (23.7) ( -5 5 .5 ) 36.8 - 1 0 .9 - 1 0 .4 - 1 6 .7 (45.8) (-1 2 .2 ) (-1 0 .9 ) ( -1 7 .3 ) 55.4 87.2* - 2 5 ,8 62.8 2.0 5.4 2.2 8.5 16,3 35.5 30.0* - 5 .1 91.9 56.8 84.5 31.0 - 3 0 .2 42.8 25.5 12.5 39.7 26.0* 28,2 12.9 10,2 14.4 5.6 35.5 41.3 19.4 - 1 1 .5 101.9 - 1 .2 57.5 30.7 - 1 9 .3 104.3 - 0 .8 1.6 8.1 90.7 - 2 5 .2 29.4 10.5 154.7 - 7 .6 33.2 6.3 33.4 - 3 .8 - 3 .5 - 6 .2 20.5 23.0* - 3 7 .6 0.0 - 3 .5 ( - 3 .6 ) - 3 .6 100.0 - 1 .6 - 0 .5 Source: T a b le 4. a A n n u a l c u m u la tiv e rate. ^ T o ta l ra te o f v a ria tio n w ith re s p e c t to an e stim a te o f th e “ n atio n al e x p o rt c ap a city ” ex istin g in 1973. T h is c ap acity w as c a lc u la te d o n th e b a sis o f th e a ctu al exports re c o rd e d in 1970 a n d 1971, se le c tin g th e v a lu e s c o n s id e re d to b e m o st “ n o rm a l” in e a c h year. W h en th e “ ex p o rt c a p a c ity ” c o in c id es w ith th e real a ctual v alu e for 1970, only o n e ra te is g iv en for e a c h ite m , b u t w h e n th e v a lu e s do n o t c o in c id e , th e total rate o f variatio n b e tw e e n 1970 a n d 1974 is also sh o w n , a n d is m a rk e d w ith an a sterisk . T h e “ e x p o rt c ap a city ” w as e stim a te d in a very co n se rv a tiv e m an n e r, so it te n d s to o v e r-e stim a te th e g ro w th ra te o f exports d u rin g th e p e rio d c o n sid ere d . w o o d and sim ply worked wood) and m olyb­ d en u m oxide. In contrast, the growth rate o f the rest o f th e non-traditional exports (“Others”) fell o ff considerably after 1976 and was prac­ tica lly stagnant during the last 1 1 /2 years o f the p eriod .13 I f the information is broken dow n by half-yearly periods, as in tables 4 and 5, the stagnation recorded in th e last three half-year p eriod s can b e seen very clearly. T o sum p up, then, som e export item s of primary sector origin continue to grow rapidly, w h ile th e rem ainder seem to have grown at a d efin itely slow er rate after 1976. It should be n oted that w h ile in the “O thers” group there are m any item s w h ich continue to expand, there are also many w h ich w ent dow n in the cou rse o f the last four half-year periods covered by this study. In this context, it is the continued increase o f three item s based on natural re­ sources (fruit, w ood and m olybdenum oxide) w h ich explain w h y non-traditional exports as a w h o le still show appreciable growth rates up to th e present, although th ese rates show a m arked slackening com pared w ith 1974-1976. 2. In d u stria l exports 13T h e ra te o f c h a n g e d e p e n d s on th e d e fin itio n a d o p te d fo r th e “O th e rs ” g ro u p . I f m o ly b d e n u m oxide is in c lu d e d , th e 1978 g ro w th ra te rise s to 6.6% , w h ile if sem i­ m a n u fa c tu re d c o p p e r is in c lu d e d in ste a d th e ra te d ro p s to —2.3%. In the foregoing classification, m ining and agricultural exports are m ixed with exports o f EXPORTS A N D INDUSTRIALIZATION IN AN ORTHODOX MODEL / Ricardo Ffrench-Davis m anufactures.14 T able 6, how ever, concen­ trates on exports o f industrial origin, classified in accordance w ith the ISIC definition. Sepa­ rate figures are given for the six main item s, all o f them strongly base on natural resources w h ich are abundant in C hile. T w o o f them , h o w ev e r — paper and w ood pulp— involve significant m anufacturing processes, although m o st o f th e production capacity existing in 1978 for th e se item s was constructed or begun in the p reviou s decade. As regards another two im portant item s— fish m eal and sem i-manu­ factured copper— it w ill b e noted that the value o f exports o f th ese item s fluctuates very con­ siderably, In th e case o f fish m eal, the fluctua­ tions are d ue to the unforeseeable changes w h ich take place in the availability o f raw m aterial (m ainly anchoveta) and the pro­ n o u n ced variations in w orld prices. T he latter factor also affects sem i-m anufactured copper and m ost o f the exports based on natural resources. As far as m olybdenum oxide is co n cern ed , there have b een more recent increases in production capacity. It should be borne in m ind, h ow ever, that the value added to m olyb d en u m concentrate, a by-product o f cop p er obtained by C O D E L C O , is normally le s s than 10% o f th e gross value.15 Moreover, th e p rice o f both th ese products increased by m ore than 50% in real terms b etw een 1974 and m id -1978 and the upward trend on the w orld market was further accentuated in 1978, thus largely exp lainin g the higher value o f exports o f both concentrates and oxide. F in ally, exports o f un worked w ood have in crea sed rapidly, esp ecially in the last year, and th e prospects seem to indicate that this te n d en cy w ill continue. 14T h e " O th e r s ” g ro u p in ta b le 4 c o n ta in m in in g a n d a g ric u ltu ra l e x p o rts w h ic h , to g e th e r, re p re s e n t a b o u t oneq u a r te r o f th is g roup. 15T h is m ea n s th a t w h e n 20 m illio n do llars o f c o n c e n ­ tra te a re c o n v e rte d in to m o ly b d e n u m oxide in C h ile a n d e x p o rte d in th is form , e x ports o f th e " tra d itio n a l” p ro d u c t m o ly b d e n u m go d o w n b y 20 m illio n dollars a n d th o se o f th e " n o n -tra d itio n a l” p ro d u c t m o ly b d e n u m oxide go u p by b e tw e e n 2 1 a n d 22 m illio n d o lla rs, so th a t th e n e t b a la n ce , in th e c a s e o f th e e x a m p le g iv en , w o u ld n o t com e to m ore th a n 2 m illio n d o lla rs o f v a lu e a d d e d . T h e v a lu e a d d e d at in te rn a tio n a l p ric e s d e p e n d s on th e situ atio n o f th e ex­ te rn a l m ark e ts: so m e tim e s th e gap b e tw e e n th e p rices for th e tw o p ro d u c ts in c re a s e s c o n sid e ra b ly , e sp e c ia lly in th e c a s e o f sa le s o f m arg in al volum es. 103 T able 6 also show s the evolution o f the “R est” category o f exports o f manufactures, w h ich includ es a great many item s, som e o f them w ith high lev els o f processing. Their evo lu tio n could b e an indication o f the future beh aviou r o f industrial exports proper. T he annual growth rates o f this group o f exports w ere as follows: 16% per year in 1965-1970; 15% in 1974;16 40% in 1975; 48% in 1976, and 3% in 1977 and 1978. T h e d eclin e in the growth rate o f nontraditional exports and exports in the “R est” category o f industrial products is to be ex­ p lain ed by th e behaviour o f a certain market o f destination: the sam e on e w hich grew fastest b e tw e en 1974 and 1976. 3. M arkets o f d estin a tio n D u rin g the period under consideration, there w as an expansion in exports to all regions o f the world. Marked diversification thus occurred, w ith the appearance o f many new markets o f destination. It w as the sales to the Andean Pact market (B olivia, Colom bia, Ecuador, Peru and V e­ n ezu ela) w h ich recorded the biggest expan­ sion , particularly in the two-year period 19751976. D uring th ese two years, the Andean market absorbed 37% o f the increase in all nontraditional exports, as show n in tables 7 and 8. In th e case o f the “O thers” category o f nontraditional exports, the share o f this market in th e expansion rose to 42%. Thus, the contribu­ tion o f th e Andean Pact market to the expansion o f n ew exports w as very significant, esp ecially as regards manufactures, for in 1976 over half th e total m etal products and machinery exports w e n t to the Andean Pact countries. T he rapid exp an sion o f th ese exports cam e to an abrupt halt, h ow ever, w ith C h ile’s withdrawal from th e A ndean Pact in O ctober 1976.17 Indeed, in th e follow in g years C h ile’s (real) non-tradi­ tional exports to this market w en t dow n by 2% 16T h e to ta l gro w th ra te w ith re sp e c t to 1970 w as a s s ig n e d to 1974. 17An a n aly sis o f th e re aso n s for C h ile 's w ith d raw al a n d th e e c o n o m ic costs w h ic h th is h ad for th e c ountry is g iv e n in R. F fre n ch -D av is, “ P acto A nd in o y librecam b is m o ” , in M ensaje, S antiago, O c to b e r 1976, a n d E studios Internacionales, B u en o s A ires, A p ril-Ju n e 1977. 104 CEPAL REVIEW N.° 9 I D ecem ber 1979 T a b le 6 IN D U S T R IA L E X PO R T S (M illio n s o f d o lla rs a t 1977 prices) 1965 Paper W o o d p u lp F is h m e al W ooda S e m i-m a n u fa c tu re d c o p p e r M o ly b d e n u m oxide R e st o f in d u s try 1974 1975 1976 1977 1978 130.6 T o ta l in d u s tr ia l e x p o rts 1970 248.8 371.8 428.0 561.4 625.8 681.9 16.6 5.7 19.0 7.9 21.1 6.1 19.1 32.7 30.9 17.3 28.1 9.5 54.1 111.2 30.4 94.1 42.5 15.2 36.8 24.7 128.1 30.6 65.4 27.4 26.4 25.7 31.0 179.0b 35.6 94.9 65.7 28.4 49.0 23.2 264.6 33.6 85.2 86.4 60.3 45.3 30.9 271.7b 24.6 101.1 92.3 72.2 40.1 62.4 279.3b Source ; C e n tra l Bank, Balanza de Pagos, u p to 1975; Boletín Mensual a n d Embarques, 1976-1978. ‘‘C o m p ris e s M o n te re y p in e a n d o th e r w oods, u n sa w n or sim ply w orked. k E x c lu d e s re-ex p o rts of sugar, w h ic h a m o u n te d to US$ 42.5 m illion in 1975, US$ 12.4 m illio n in 1977, a n d U S$ 9.9 m illio n in 1978. T a b le 7 M A R K ETS O F D E S T IN A T IO N O F N O N -T R A D IT IO N A L E X PO R T S (M illio n s o f dollars a t 1977 p rices) C o u n try o r g ro u p in g V a lu e o f e x p o r ts A n n u a l g r o w t h r a te s (% ) 1970 1974 1976 1977 1978 74/70 76/74 76/70 77/76 78/77 40.8 45.7 125.8 123.3 108.7 2.9 65.9 20.6 - 2 .0 - 1 1 .8 (14.3) (24.4) (91.4) (88.2) (75.1) (14.3) (93.5) (36.2) 41.8 16.9 37.7 15.4 30.7 42.6 64.8 34.9 55.8 15.7 30.6 46.2 86.0 104.0 61.7 61.5 30.3 51.1 116.6 129.4 53.8 70.8 31.8 98.6 151.8 11.6 19.9 10.3 0.5 - 0 .1 15.2 8.7 17.6 12.8 41.2 77.2 18.5 72.7 88.9 Total non-traditional exports 225.9 293.7 510.3 588.5 (O th e r n o n -tra d itio n a l e x p o rts) (157.4) (198.3) (358.7) (381.3) A ndean Group (O th e r n o n -tra d itio n a l e x p o rts) E u ro p e a n E co n o m ic C o m m u n ity B ra zil A rg e n tin a Japan U n ite d S ta te s R est ( - 3 .5 ) ( -1 4 .9 ) 2.0 20.9 49,8 - 2 0 .3 63.8 25.3 31.2 24.4 - 1 2 .8 15.1 5.0 54.1 38.7 16.0 12.7 3.1 15.5 13.0 644.9 6.8 31.8 14.5 15.3 9.6 (376.8) (5.9) (34.5) (14.7) (6.3) ( - 1 .2 ) 8.6 8.2 30.2 Source: C IE P L A N , “ E stru c tu ra y d e stin o d e las e xportaciones c h ile n as: 1965-78” , op. cit. and 12%, resp ectively (see table 7). T he signifi­ ca n ce o f th e Andean market for C h ile is even greater if exports based on the inten sive use o f natural resources are excluded, as the advan­ tages g iv en by the preferential access to this m arket have less in cid en ce in this case. T h e diversification o f markets is reflected in the expansion of the “R est” group, w hich in c lu d ed som e 70 countries in 1977. D esp ite th e increase in this num ber o f countries and C h ile ’s withdrawal from the Cartagena Agree­ m ent, how ever, the Andean Group countries EXPORTS A N D INDUSTRIALIZATION IN AN ORTHODOX MODEL / Ricardo Ffrench-Davis 105 Table 8 S H A R E O F E A C H M A RK ET IN T H E G R O W T H O F N O N -T R A D IT IO N A L E X P O R T S (M illio n s o f dollars a t 1977 p ric e s) C o u n try o r g ro u p in g A m ount o f in c re ase P e rc e n ta g e sh a re in g ro w th 19741970 A n d e a n G ro u p ( O th e r n o n -tra d itio n a l ex p o rts) E u ro p e a n E co n o m ic C o m m u n ity B razil A rg e n tin a Japan U n ite d S tates R e st T o ta l ( O th e r n o n -tra d itio n a l e x p o rts) 19761974 19771976 19781977 19741970 19761974 19771976 19781977 4.9 80.1 - 2 .5 - 1 4 .6 7.2 37.0 - 3 .2 - 2 5 .9 (10.1) (67.0) ( -3 .2 ) ( -1 3 .1 ) (24.7) (41.8) (-1 4 .2 X --2 9 1 .1 ) 23.0 18.0 18.1 0.3 - 0 .1 3.6 67,8 21.2 6.3 21.4 18.0 20.5 - 1 5 .7 2.8 11.8 42.1 42.7 216.6 18.4 27.7 78.2 25.4 - 7 .9 9.3 1.5 7.5 35.2 56.4 33.9 26.6 26.7 0.4 - 0 .1 5.3 100.0 9.8 3.0 9.9 1.3 19.4 19.7 100.0 23.0 26.2 - 2 0 .0 15.1 23.5 35.4 100.0 45.0 - 1 4 .0 16.5 2.7 13.3 62,4 100.0 (40.9) (160.4) (22.6) ( “ 4.5) (60.3) (74.1) (28.9) ( - 8 .0 ) Source: T a b le 7. still had m ore w eig h t than the “R est” in 1977, although th e difference b etw een the two groups o f countries, w h ich was extrem ely m arked b etw e en 1974 and 1976, was dras­ tica lly redu ced after C h ile w ithdrew from this integration sch em e, and the proportion was reversed in 1978. T o sum up, the loss o f the formal and inform al preferential treatment w hich C hile had enjoyed in th e m ost dynam ic o f its markets o f destin ation had negative repercussions on th e exports involvin g the h igh est degree o f p rocessin g (or value added on the natural resource com ponent), w h ich are those forming the majority o f the “O thers” group o f nontraditional exports and the “R est” group in exports o f manufactures. I ll E ffects o f exports and future prospects T h e external and internal econom ic framework w ith in w h ich th e export process has been carried out has influenced the behaviour o f this variable, and the exp licit consideration of this framework makes it p ossib le to appraise both th e effects w h ich exports could have had on national d evelop m en t and the future prospects w h ich th ey may offer. 1. The econom ic fra m ew o rk T h e external situation faced by exports un­ d o u b ted ly in flu en ces their evolution. Since 1975, conditions on international markets have b eco m e more unfavourable for the expansion o f the exports o f non-oil-exporting d evelop in g countries, and this has naturally also affected C h ile in various export lines. T h e d om estic context, for its part, shows a num ber of outstanding changes. Although m ost o f th ese had a negative effect on the national econ om y and the d evelop m en t o f the country, som e o f them , such as the depression o f d om estic dem and and the deterioration of w ages, did facilitate the expansion o f exports. A m ong the features w h ich have n egatively 106 in flu e n c ed exports, apart from the withdrawal from th e A ndean Pact, are the absence o f ec o n o m ic growth in th ese five years and the lo w le v e l o f dom estic investm ent.18 T h e C h ilean econom y has suffered a seriou s d ep ression in effective demand, caused m ain ly by th e w ay econom ic policy has b een run.19 After som e d egree o f “normalization” o f ec o n o m ic activity during the first year o f ap plication o f th e current m odel, a sharp drop in d em an d led to a 13% fall in the per capita gross d om estic product in 1975.20 In th e follow in g three years, the official figures sh ow a significant reactivation, but it m u st b e repeated that the p er capita G D P has still not recovered the le v e l o f 1974. In other w ords, th e effective production o f the country has not grow n during the five years o f applica­ tion o f th e p resent econ om ic m odel, so that the in crease in exports has b een ach ieved either through a change in the com position o f the G D P , or at th e ex p en se o f dom estic consum p­ tion , or thanks to the under-utilization o f the in sta lled capacity for the dom estic market ca u sed by th e econom ic policy. T h ese three factors are present, although in different pro­ portions, in m any o f the n ew exports; tw o sig n ifican t cases w ill b e exam ined later. In th e labour field , on the one hand trade u nion activity has b een drastically restricted, w h ile on the other open unem ploym ent rose from historical le v e ls o f the order o f 6% to around 20% o f th e labour force in 1975, Sub­ seq u en tly , th e em ploym ent situation improved a little, and sin ce the en d o f 1976 the un­ em p lo y m en t has b een around 13%, but even so this is over doub le the- unem ploym ent rate o f 18T h e fact th a t th e re w as so m e in v e s tm e n t in th e p ro d u c tio n o f e x p o rta b le goods d o e s n o t signify a co n trad ic­ tio n w ith th is sta te m e n t, as w ill b e sh o w n later. ^ S e e J. R am os, “ E l c o sto social: h ech o s e in te rp re ­ ta c io n e s ” in Estudios de Economía , U n iv e rsity o f C h ile , S a n tia g o , s e c o n d h a lf o f 1975, a n d A. Foxley, “ Inflación c o n re c e s ió n : las e x p e rie n c ia s d e B rasil y C h ile ” in Colección Estudios CIEPLAN, N .° 1, S antiago, 1979. 2t)T h e s e a re official O D E P L A N e stim a te s, re p ro d u c e d in is s u e s o f th e Boletín Mensual o f th e C e n tra l Bank. T h e fig u re s r e fe r to th e c o n c e p t o f G D P e x p e n d itu re : th at is to say, th e loss o f in co m e re c o rd e d in 1975 d u e to th e d e te rio ra tio n in th e term s o f tra d e c a u s e d by th e d ro p in t h e p r ic e o f c o p p e r a n d th e rise in th e p ric e o f oil has b e e n d e d u c te d from th e m . CEPAL REVIEW N.° 9 / D e c e m b e r 1 9 7 9 th e p revious five-year period.21 Finally, w ages u n d erw en t a marked drop in real terms in 1974, and although by 1978 they had gradually recovered according to the official index of w ages and salaries, their lev els was still only clo se to that o f 1970. Over the last five years, the ratio o f th e exchange rate to w ages was favour­ ab le to th e former, thus raising the profitability o f exports. From a purely econom ic point o f v iew , and in the short run, th ese three aspects — repression o f trade union activity, unem ploy­ m ent and low w ages— facilitated the expan­ sion o f th e export sector. L astly, in vestm ent w as at a depressed le v e l throughout the period. In 1978 — once again according to the official figures o f O D E P L A N — gross fixed dom estic investm ent am ounted to less than 12% o f the G D P. This p ercen tage is markedly b elo w historical lev els, and is barely enough to com pensate for the attrition o f the stock o f capital. In reality, after five years n eith er foreign direct investm ent nor d om estic private investm ent have com e up to th e expectations o f the supporters o f the eco­ n om ic m odel. Regardless o f the political and eco n o m ic system follow ed by C h ile, there can b e no doubt that an increase in investm ent is e ssen tia l if th e rapid expansion o f exports as a w h o le is to b e supported and the effective grow th o f production is to b e reinitiated. 2. O rigin o f exports As already noted, an increase in exports may be d u e to greater utilization o f production capaci­ ty, an increase in such capacity, or a reduction in d om estic consum ption.22 A lthough the depression in the dom estic market had negative econom ic and social con- 21T h e s e fig u res are tak e n from th e d a ta p u b lis h e d q u a te rly b y th e D e p a rtm e n t o f E co n o m ics o f th e U n iv e rsi­ ty o f C h ile , w h ic h re fe r to th e city o f Santiago, w h e re a p p ro x im a te ly 40% o f th e e co n o m ica lly a ctiv e p o p u latio n liv e . U n e m p lo y m e n t in th e re st o f th e u rb a n c e n tre s o f th e c o u n try is e v e n g re a te r, a cc o rd in g to su rv e y s b y th e sam e in s titu tio n a n d b y th e N a tio n a l S tatistical In s titu te (IN E ) c o v e rin g th e y e ars 1977 a n d 1978. 22A n e x p a n sio n in e x p o rts can also d e riv e from an in c re a s e in sa le p ric e s g re a te r th a n th e in cre ase in th e index o f e x te rn a l p ric e s u s e d to d e fla te a ll th e m o n etary v a lu e s, o r from a c h a n g e in th e stru c tu re o f co n su m p tio n . EXPORTS A N D INDUSTRIALIZATION IN AN ORTHODOX MODEL / Ricardo Ffrench-Davis s eq u en ces, it facilitated the increase in exports. From another angle, the expansion in exports p rovid ed an ou tlet for production surpluses w h ich w ou ld otherw ise not have found a market, b ecau se th e excessive restriction of d o m estic dem and, particularly during the p eriod from m id -1974 to 1976, left a significant proportion o f C h ile ’s econom ic activities with u n d er-u tilized production capacity. T he sim ul­ tan eou s existen ce o f a rising real exchange rate and th e access to the Andean market during this period m ade it p ossib le to provide an outlet for part o f th ese production surpluses. Broadly speaking, then, it can b e said that in th e se circum stances the expansion of nontraditional exports m ade it p ossib le to increase th e efficien cy o f assignm ent o f resources, m ain ly through increasing their rate o f utiliza­ tion. D u rin g a period o f shortage o f foreign exch a n g e, as was the case in 1975, the new exports also h e lp e d to reduce the severity o f the b o ttlen eck brought about by the balance-ofpaym en ts situation that year, and subsequently th e exp an sion o f exports ten d ed to make it ea sier to obtain external credit. Naturally, the su b sequ en t reactivation o f d o m estic dem and tends to bring about the o p p o site effect as regards the exportable surplus, sin ce it h elp s to reduce the volum e of exports. T h e symmetry in this case is only partial, h ow ever, sin ce C h ile ’s export potential w as insu fficien tly u tilized at the beginn in g o f th e p eriod. It is therefore likely that a consider­ a b le proportion o f the exports facilitated by the 1974-1976 d ep ression w ill continue to b e avail­ a b le afterwards, although their growth rate w ill not b e as h igh as in those years. T h e production capacity o f the national eco n o m y as a w h o le has stagnated during the last six years, although its com position has te n d ed to change in favour o f certain export activ ities. T h is process has b een slow and lim ited b eca u se o f the scanty dynam ism o f the national econom y, sin ce the restructuring o f production capacity is easier in an econom y w h ich is grow ing rapidly and has a high rate o f in vestm en t. N eith er o f th ese tw o conditions w as p resen t during the period under consider­ ation. T h e export incen tives did, how ever, en cou rage som e investm ent in this activity and th e production capacity o f som e sectors was 107 increased.23 Am ong the n ew investm ents, referen ce may b e m ade to on e substantial in vestm en t project, com pleted in 1978, w hich w as carried out by the State-ow ned steel com pany (CAP) and was d esign ed to produce p ellets from dom estic iron ore. A nother two areas in w hich investm ent w as significant during recent years are planta­ tions o f tim ber trees and orchards and v in e­ yards. Approxim ately h alf o f the planting o f tim ber trees was carried out directly by the State, w h ile 75% o f the cost o f the investm ent m ade by the private sector in this field w ere covered by su bsid ies. Both ways o f promoting in vestm en t constitute exceptional situations in v ie w o f th e econom ic m odel, and ind eed it was an n ou n ced that direct public sector investm ent in forestry activities w ould b e term inated as o f 1979. B etw een 1968 and 1972 quite large plan­ tations o f orchards and vineyards w ere carried out under th e encouragem ent o f the fruit­ grow ing d evelop m en t plan then in force, and thanks to selec tiv e credits, the construction of fruit packing centres, and investm ents in areas affected by the process o f agrarian reform, there w as an increase o f 60% in the area planted with fruit trees and vineyards b etw een 1965 and 1974.24 S in ce 1976 this type o f investm ent has regain ed im portance and is increasing. R ecent plantations have b een carried out and financed m ain ly by the private sector and are located in m any m ediu m -sized units in various regions o f th e country. It goes w ithout saying that the expansion recorded up to 1978 in exports was not d ue to th ese more recent investm ents, b eca u se o f the period n eed ed for th ese planta­ tions to com e into production. Moreover, in the case o f plantations o f tim ber trees, the period is m uch longer: M onterey p ine, for exam ple, takes b etw e en 18 and 25 years to reach its opti­ m um p oin t for exploitation as timber. C onse- 23As th e n e t d o m estic in v e s tm e n t has b e e n in sig n if­ ic a n t in m ac ro -ec o n o m ic term s, p a rt o f th e d e p re c ia tio n o f o th e r p ro d u c tio n sectors has b e e n re in v e s te d in export a c tiv itie s. T h e re has a lso b e e n som e c o n v ersio n p ro m p te d by th e b ig c h a n g e s in re la tiv e p ro fita b ility g e n e ra te d b y th e e c o n o m ic policy. ^ F i g u r e s q u o te d in J. F ra n c o M esa, “ E l d e sa rro llo a g ríc o la e n e l p e río d o d e refo rm as” , M ensaje, N .° 274, N o v e m b e r 1978. 108 q u en tly, the expansion o f exports in recent years has b een d ue to investm ent made before 1973, although th e substantial investm ents m ade in both field s in the follow in g five years w ill m ake p o ssib le future exports. In order to identify more accurately the sou rces of the expansion o f exports, it w ould be n eccessary to have information on the produc­ tion (and/or dom estic consum ption) and in­ v estm en t recorded in the various export fields. T his inform ation is unfortunately very scanty and often d eficie n t in quality, but som e data are available on certain sectors. T he information b e lo w refers to tw o items: w ould pulp and tim ber. T h e production o f w ood pulp acquired im portance during the past decade, w hen there was a con siderab le increase in the value of exports o f this item . Its expansion was more m arked b etw een 1974 and 1977, however, w h en w ood p ulp alone accounted for onesev e n th o f all industrial exports. This expan­ sio n was d u e to th e initiation o f production at tw o w ood p ulp plants prom oted by the public sector in the 1960s and sch ed u led to begin activities in 1972 and 1973, respectively, al­ though in actual fact they began commercial production in 1974 and 1976. T h e exports by th ese tw o plants, w h ich cam e to US$ 54 m illion in 1977, account for practically all the real ex p a n sion in this item sin ce 1974. Exports o f tim ber com prise two main com ­ p onents: saw n w ood and roundw ood (trunks). Inform ation on the production o f sawn w ood is m uch scantier b ecau se o f the large number of saw m ills w h ere it is cut. At all events, the available figures indicate that the installed capacity is m uch greater than the actual pro­ d uction, so that, w ithin certain margins o f sale p rices, the production d epends to a d ecisive ex ten t on dem and. D o m estic dem and for w ood is very sen si­ tiv e to th e le v e l o f activity in the construction of d w e llin g s and th e manufacture o f furniture. B oth sectors have b een in markedly depressed co n d ition s, both w ith respect to 1974 (a year o f in ten se activity in construction) and in com ­ parison w ith im m ediately p receding years. T hu s, consum ption o f sawn w ood in C hile in 1977 is estim ated to have b een 35% b elow the average for the period 1970-1974. T he volum e CEPAL REVIEW N.° 9 i D ecem ber 1979 of exports, in contrast, increased about five­ fold.25 T his expansion m ade it p ossib le to com pensate for the drop in dom estic demand and provide an additional market for an in­ crease in production o f around 30%. The in creased exports are therefore due, in relative­ ly sim ilar proportions, to a reduction in dom es­ tic dem and and an increase in production. Sawn w ood represents about 10% o f nontraditional exports, an sawn w ood and wopd p ulp together am ount to a quarter of total exports o f manufactures.26 C onsequently, in v ie w o f their significant w eigh t in exports, the information on th ese two item s gives a picture of the behaviour o f an important segm ent o f the increased national exports, their production and their d om estic consum ption. M oreover, what happened in the forestry sector suggests the direction o f the predom­ inant trend w h ich w ill be follow ed by exports under the current m odel. T he production of w ood p ulp — i.e., a p rocessed forest product— increased b ecau se of the existen ce o f establism ents w h ose construction was d ecid ed upon and b egu n in the 1960s. This means that any further expansion o f the installed capacity is subject to n ew investm ents, w hich are not under w ay and w hich, even w hen made, w ould require a long lead tim e. T he item with the h ig h est growth rate in 1977 was sawn wood, w h ich has a very low lev el of processing. M oreover, the m ost dynam ic item in 1978 was roundw ood, w h ich does not require any pro­ c e ssin g at all.27 In short, a tendency is visible towards an increasing preponderance o f ex­ ports w h ich make inten sive use o f natural resources w ith a generally decreasing lev el of processing.28 T his hypothesis is backed up by th e notably slow er growth displayed in 1977 and 1978 by exports in the “R est” section of industrial goods (table 6). 25T h e in c re a se in v alue in real term s w as 250% . 26T h e IS IC c lassification lists sim p ly w o rk e d w ood as a n in d u s tria l p ro d u c t, in sp ite o f its m in im al d e g re e of p ro c e ss in g . 27 E x p o rts o f ro u n d w o o d b e g a n in 1976 after th e p ro h ib itio n w h ic h h a d p re v io u sly p r e v e n te d th em h a d b e e n lilte d . T h is item , too, is in c lu d e d u n d e r in d u stria l e x p o rts. 28T h e re a re ite m s involving a h ig h e r g ra d e o f p ro c e s­ sin g in w h ic h in v e s tm e n ts are in pro g ress, such as pap er: th is is w h y w e are sp e a k in g o f tendencies a n d averages. EXPORTS AND INDUSTRIALIZATION IN AN ORTHODOX MODEL / Ricardo Ffrench-Davis 3. S om e com parison s w ith the experience o f o th er cou n tries A com parative analysis w ith the experience of other countries involves very great difficulties b eca u se o f the large num ber o f variables affectin g the behaviour of exports and the solid ity o f national d evelopm ent.29 H ow ever, com parison o f som e basic data does serve to dem ostrate that export promotion can b e incor­ porated in m od els w h ich are very different from each other and that the promotional effort d o es not o f itself ensure sustained d ev el­ opm ent. In th e case o f two countries — Brazil and South Korea— w h ich w ere successful in ex­ p and ing their exports over a long period, this exp an sion took place in conjunction with a sign ifican t increase in the national product and in th e in vestm en t rate (table 9).3 Regardless of (J th e nature o f the causal relationship b etw een th e se variables, there can b e no doubt that the three p h en om en a m utually support each other. T h e in creased exports w ere concentrated in m anufactures, esp ecially in South Korea (a country w h ich does not possess abundant natural resources), and the expansion in ex­ ports w as accom panied by vigorous d evelop ­ m ent o f industrial production. In both coun­ tries, export promotion included numerous in cen tiv es, and it did not involve any indis­ crim inate liberalization o f imports. T h e expansion o f South Korean exports, w h ich began from insignificant levels, is con­ centrated on labour-intensive manufactures. 29An additional problem arises from the considerable differences betw een different sources of information and the marked influence exerted by the period selected for study in each case. 30Recent analyses on South Korea are given in Ch. Frank and others, “Foreign Trade Régimes and Economic D evelopm ent: South Korea”, New York, National Bureau of Economic Research, 1975, and in Balassa, op. cit., chapters 8 and 9. With regard to Brazil, see E. Bacha, “ Issues and evidence on recent Brazilian economic growth”, and P. Malan and R. Bonelli, “The Brazilian economy in the seventies: old and new developments”, in W orld D e ve lo p m e n t , January-February 1977; H. Garcia, “ La política de promoción de exportaciones de manufac­ turas en Brasil” ; CEPAL (ed.) Políticas de prom oción de exportaciones, Santiago, Chile, 1978, Vol. V; and A. Fishlow, “ Foreign trade régimes and economic devel­ opment: Brazil” (mimeo), 1976. 109 T h e growth in th ese exports has b een extra­ ordinarily rapid: b etw een 1963 and 1973 real total exports grew at a cum ulative rate o f almost 40% per year, and manufactures amounted to 88% o f total exports in 1973,31 T he main market for the n ew exports was the U nited States, fo llo w ed by Japan. At the same tim e that exports w ere expanding, the gross dom estic product also grew rapidly at rates o f the order o f 10% per year during a w h ole decade. As regards import policy, it should be n oted that export incen tives w ere u sed w hich m eant that the effective exchange rate tended to b e relatively eq u ivalent to that correspon­ d in g to imports in the sam e line. That is to say, th e protection for exports and for import subs­ titutes w as, on average, relatively similar. This took p lace, how ever, w ithin the context of d iffe r e n tia te d protective tariffs w h ose levels ranged from 0 to 15%, a substantial proportion o f the item s b eing located b etw een 30 and 60%.32 A lthough a certain proportion o f these tariffs w ere redundant, the fact remains that export prom otion in South Korea is not carried out in a traditional context o f free trade.33 In the case o f Brazil, w hich also achieved notew orthy expansion o f its production and exports, its real total exports grew at the rate o f 9% per year b etw een 1963 and 1973, w h ile exports o f manufactures grew by 23% per year. T h e m ost important market for the new exports, e sp ec ia lly for m achinery and transport equip­ m ent, w as the Latin American Free Trade A ssociation (LAFTA). In contrast, the markets o f the d ev elp ed countries are of greater relative im portance for exports o f industries making in ten siv e u se o f raw materials (foodstuffs, footwear, w ood, textiles). T he expansion of exports took place against the background o f a 31See Ch. Frank and others, ibid., table 6.1. It should be borne in mind that the use of 1973 as the terminal year tends to overestimate the rate of increase because oí the conditions then prevailing in the international market. 32B. Balassa, op, cit., table 9.4. 33In the specific field of exports, as well as direct monetary incentives there are other incentives connected with government attitudes and methods. Thus, for ex­ ample, firms which fulfil the goals of the national export plan “receive more favourable treatment from tax inspec­ tors, which is an important incentive in a country where the effective rates of taxes are fixed through administrative procedures rather than by law” . Ch. Frank, op, cit., p. 233. Of course, this is not the best promotion mechanism. 110 CEPAL REVIEW N.° 9 / December 1979 Table 9 PRODUCTION, INVESTMENT AND EXPORTS IN SOUTH KOREA, BRAZIL AND CHILE Investment coefficient (1) Annual growth rates ------------------------------------------------------------------GNP Industrial Exports_____ production Total Exports of exports manufacturers (5) (2) (3) (4) South Korea 1963-1968 1968-1973 17.5 25.1 11.0 9.5 17.4 17.5 39.4 37.3 52.9 41.0 18,0 22.4 24.6 4.9 10.3 9.3 5.9 12.6 10.3 5.6 13.3 9.8 20.1* 22.8 13.6 10.6 10.6 1.9 1.1 0.6 -0.2 1,6 -1.4 34.9 18.9 Brazil 1963-1968 1968-1973 1970-1975 Chile 1973-1978» 1973-1978b Sources: S o u th Korea: Ch. Frank and others, op. cit., tables 2.4 to 2.8 and 6.2; B. Balassa, op. cit., p. 132. Brazil: H. Garcia, op. c i t , tables 7 and 8 ; A. Fishlow, op. cit., Tables A.I and A.III. Column (4) includes manufactures and semimanufactures, and the asterisk indicates that the figures refer to the period 1964-1969. Figures for the period 1970-1975 were added to show the situation after the world trade boom which came to an end in 1974. C hile: Columns (1) and (2) were calculated on the basis of official ODEPLAN estimates; column (3) comes from the index published by the Sociedad de Fomento Fabril (SFF), and columns (4) and (5) have the same sources as tables 4 and 6 . In columns (2) to (5),a measures the annual rate of variation with respect to the actual value for 1973, w hile '1estimates the “normal” level for 1973 on the basis of the actual values for 1970-1971. N ote: Column ( 1) measures the gross domestic fixed capital investment as a proportion of the gross national product (GNP). Columns (2) to (5) indicate the cumulative annual rate of variation for each period. sig n ifican t increase in the gross dom estic pro­ duct, w h ich increased at the rate o f 8% per year b e tw e e n 1963 and 1973. T he import policy, lik e that referred to in the case o f South Korea, also differs from the traditional free trade recipe; although the restrictions on trade w ere redu ced, m any manufactures are protected by im port tariffs o f the order o f 80%. A com parative evaluation o f the experien­ c e o f th e three countries in question w ould require a great deal o f additional information in order to answ er such questions as that o f the role p layed by the restrictions on political and trade u nion activities, the differences in per­ sonal and regional incom e distribution, the im p lication s o f the special relationship b e­ tw e e n South Korea and the U nited States, and th e role o f foreign direct investm ent and finan­ cial capital. T h e features described, however, d o exem p lify som e key aspects w h ich reveal d ifferen ces b etw een th ese two cases and that o f C h ile. T h e p resent econom ic policy has only b e e n in force in C h ile for a few years, so it w ou ld b e dangerous to try to draw definite con clu sion s from it. H ow ever, probable ten­ d en cies can b e determ ined if the first five years o f th e application o f this policy are compared w ith the first five years o f the p olicies in force in South Korea and Brazil.34 T able 9 show s the basic m acro-economic background information for the three coun­ tries, in values o f constant purchasing power; annual growth rates o f the gross national pro- ^ F o r the purpose of this comparison, 1964 was selected as the starting date of both experiences. EXPORTS AND INDUSTRIALIZATION IN AN ORTHODOX MODEL / Ricardo Ffrench-Davis duct (G N P, colum n 1), gross dom estic in vest-’ m ent as a proportion o f GNP for each five-year p eriod (colum n 2); and annual growth rates of m anufacturing production (column 3), total exports (colum n 4) and industrial exports (co­ lum n 5). In th e case o f Brazil and South Korea, figures are also given on the second five-year period o f the m odels in force. T h e m ost outstanding quantitative dif­ feren ces lie in th e p ositive evolution o f invest­ m ent, industrial production and GNP during th e first five years o f the Korean and Brazilian ex p er ie n c ies, in contrast w ith the evolution of th e sam e variables in the Chilean case. The beh aviou r o f industrial and non-traditional exports o f C h ile for the five-year period as a w h o le was very satisfactory and was compar­ ab le w ith Brazil, but the differences becom e n o ticeab le w h en the evolution of exports d u rin g th e five-year period are exam ined. In Brazil and South Korea the tendency is main­ tain ed b eyon d th e first five-year period and sh ow s a rising trend for products w ith a higher d eg ree o f processing, w hereas in C h ile the last tw o years sh ow a downward tendency and the reversal o f trends is m ost accentuated for 111 exports w ith a higher d egree o f processing. T hus, the extrapolation o f the prevailing p o lic ie s and o f the present tendency o f their effects indicates that C hilean exports w ill contribute to industrial d evelop m en t on a m arkedly more m odest scale than in the other tw o cases. This is connected w ith the scanty in vestm en t recorded during the five-year period, the passivity o f the public sector in line w ith th e id eology o f the official econom ic team, and the in cid en ce o f the rapid liberalization o f imports on the dem and for dom estic manufac­ tures. In th ese three aspects, the Chilean ex p erien ce is different from those o f South Korea and Brazil. T his com parison w ith Brazil and South Korea d oes not seek to present these as cases w h ich should be imitated: from both a political and an econom ic point o f view this is un­ fea sib le and/or undesirable for a country like C h ile.35 At all events, how ever, it is worth repeating that, in the case o f the first two countries, efforts w ere made to adapt econom ic p o lic ie s to national realities, and this has not b een d on e in the case o f the extrem ely ortho­ dox m od el im posed in C hile. IV Final considerations C h ile ’s exports o f primary com m odities and industrial goods have increased at a rapid rate in recen t years, this phenom enon b ein g par­ ticularly in ten se during the period 1973-1976. D u rin g th ese years, the expansion o f nontraditional exports h elp ed to reduce the nega­ tiv e effects o f the sharp restriction in effective d em an d w h ich resulted from the extreme m onetarist approach used to com bat first o f all th e inflationary process and secondly the balance-of-paym ents d eficit faced by the Chi­ lean econom y. T h e increase in exports was praiseworthy b eca u se it took place in a context o f scanty in v estm en t and an econom y w h ich was in a state o f stagnation during the entire five-year period; from this point o f view , the promotion o f exports is one o f the few positive aspects that th e econom ic policy w h ich has prévailed during the last five years can point to. To sump up, th e current policy has b een successful in th e export sector, but so far it has b een a failure as regards the creation o f n ew production capacity and the generation o f em ploym ent, d esp ite the virtually unlim ited powers w hich its executants have enjoyed.36 35See, for example, Ch. Frank and others, op. cit., especially pages 240-244, for more specific details of the Korean case. 36It should be remembered that we are not analysing here other characteristics of the current model such as the concentration of income recorded during these years, nor are we analysing the achievements registered in the reduction of inflation or the errors committed in this effort. 112 In stu d ies on import substitution, a great d eal has b een written about the “easy” stage of th e p rocess, and there is lik ew ise an initial “ e a sy ” stage in the promotion of the exports of sem i-in d ustrialized econom ies. This not to b elittle the m erits of eith er of th ese processes: on th e contrary, th ese stages involve low costs and high b en efits, so that it is clearly desirable to carry them out. T he expansion o f nontraditional exports in recent years generally falls w ith in this stage, for it has b een based on th e u se o f abundant natural resources and u n d er-u tilized installed capacity. T he under­ u tilization characteristic o f excessively protect­ ed im port substitution processes was accen­ tuated by the b ig depression in dom estic d em and, and this situation en ab led exports to b e exp an ded w ithout capital investm ent or w ith relatively m odest investm ents in some lin e s o f production. T h e factors m entioned —avaiiability of natural resources and under-utilized produc­ tion capacity— constituted conditions w hich w ere n ecessary, but w ere not sufficient on their ow n . In order to ach ieve greater exports, two additional factors entered into the situation: on th e o n e hand, an exchange policy was applied w h ich , d esp ite contradictory m ovem ents in 1976-1977, p rovided marked support for nontraditional exports,37 and secondly, C hile's m em b ersh ip o f the Andean Pact gave an ex­ p and ed market for nearly 40% o f the increase in n e w exports. E xcep t in a few cases due exclu sively to th e d ep ression o f dom estic dem and, most (although not all) o f the n ew exports, generally speaking, tend to coin cid e more or less with the exports that other m odels w ould have d evelop ­ e d too.38 In this respect —and this is worth repeating— the prom otion o f exports is not an ex c lu siv e feature o f the current C hilean m odel, and an alternative concept w ould also have tried to m ake u se o f the valuable natural 37T he exchange rate is the same for all exports, but the non-traditional exports are much more sensitive to the level and stability of the exchange rate than other products such as copper and iron ore, 38See, for example, S. Bitar, “Hacia la definición de una estrategia industrial”, in O. Muñoz, éd., Proceso a ia in d u stria liza ció n c h ilen a , Santiago, Editorial Nueva Uni­ versidad, L972, pp. 226-229. CEPAL REVIEW N.° 9 I December 1979 resources and the under-utilized installed ca­ pacity. T h e substantial differences b etw een the current m od el and the p ossib le alternative lie in other aspects: in the nature o f the action d esig n e d to back up future expansion; in the role o f exports w h ose “comparative advan­ ta g es” lie in variables other than and/or ad­ ditional to abundant natural resources; and the m easures taken to increase the m ultiplier effect on the national econom y and the degree of autonom y w ith respect to the exterior. In order to support the expansion of ex­ ports it is necessary to increase national invest­ m ent. T h e theoretical conception on which the p olicy o f the present C hilean econom ic team is based holds that resources should be oriented towards “com parative advantages” and that the play o f market forces, free o f State interference, w ill secure this objective. This theoretical version, w h ich constitutes an extrem e among th e various econom ic approaches existing at present, involves an idealized and sim ple con cep tion o f “comparative advantages”. In reality, the problem is that comparative market advantages d ep en d on the lev el and stability of the exchan ge rate, the level o f activity o f the d om estic and international econom ies, the fluctuations in external prices, the imbalances and distortions w hich are characteristic o f d ev elo p in g econom ies, and many other factors — esp ecia lly indirect effects and dynam ic con­ siderations—- w h ich provide theoretical and pragm atic justification for external trade policy seek in g to protect dom estic production on a selec tiv e basis and actively regulate the market.39 This regulation should be aim ed at increasing the social efficiency and volum e of investm ent. T he current m odel has shown unsatisfactory results in both respects: the rate of investm en t has b een very low , and a high proportion o f such investm ent as has b een m ade has b een in luxury goods and services. B rief m ention may be made here o f some requ isites w hich are necessary in order for exports to make a significant contribution to national d evelopm ent. 39A theoretical analysis which backs up this alternative approach is given in R. Ffrench-Davis, Econom ía interna­ cional: teorías y políticas para el desarrollo, Mexico City, Fondo de Cultura Económica, 1979, chapters IV and VII. EXPORTS AND INDUSTRIALIZATION IN AN ORTHODOX MODEL / Ricardo Ffrench-Davis Firstly, import substitution and export prom otion are not essen tially antagonistic ob­ je ctiv es. On th e contrary, industrial d evelop ­ m ent can b en efit from the dynam ic com ple­ m entation of both p olicies; a promotion strate­ gy o f this type requires a selective import substitution p olicy instead o f free trade or arbitrary and excessive protectionism . S econ d ly, many industrial exports can be prom oted through the preferential access offered by integration process and production agreem ents with other d evelop in g countries: C h ile's p resen ce in the Andean Pact clearly illustrated this possibility. T hirdly, exports do not necessarily absorb m ore labour than import substitution, since there is a broad range o f different characteris­ tics w ith in both categories: in practice, the contribution to productive em ploym ent d e­ p en d s on the structure o f each one, so that a suitably se le c tiv e econom ic policy can make it p o ssib le to im prove the contribution o f the external sector to em ploym ent. An active role in this m ust be given to indirect instruments 113 (the profile o f import tariffs and export incen­ tiv e and the stability o f exchange rate policy) and to the direct action of State bodies on in vestm en t and dem and. Fourthly, the organization and leadership capacity o f the State can have a d ecisive in flu en ce on the durability o f the exports process: w hether this process is self-sustaining or not d epends on the repercussions it trans­ m its to other sectors o f the econom y. In or­ d er for exports to b ecom e on e o f the driving forces o f develop m en t, they must be integrated in the national econom y: i.e., they must either com p lem en t import substitution, or generate surpluses w h ich are invested in productive activities in the country, or create a dem and for d om estic resources, or promote the expansion o f tech nological know-how. Lastly, the con­ tinuation and expansion o f external markets requires the State to play an active part in international m eetings, in negotiations w ith th e transnational corporations, and in the ima­ ginative search for n ew forms o f interrelations w ith other d evelop in g countries. CEPAL REVIEW Introduction* D ecem ber 1979 José Medina Echavarría: An intellectual profile Adolfo Gurrieri* José M edina Echavarría is one of the most important sociologists of Latin America, and he was the soci­ ologist who has exerted most influence in CEPAL, w here he worked with minor interruptions from 1952 until his death in 1977. This article seeks to give an overall view of his work, with the central purpose of showing the mainstream that is to be found by the serious reader of M edina’s work. M edina’s thinking forms a contribution of the highest value for all those who are seeking to formulate an integrated theory of development or social change. Medina began by giving his concep­ tion of social science a strict basis, because he considered that it constituted an essential instru­ m ent for the rational reconstruction of society (chap­ ter I of this paper); he w ent on to carry out a lengthy examination of the particular object of sociology in comparison w ith the other social sciences and es­ tablished a basic conceptual framework (chapter II); he used this conceptual framework to lay the foundation of the sociology of development, a task w hich culm inated in his presentation of the “social conditions of developm ent” (chapter III); he used these conditions as tools for analysing the history of Latin America and evaluating its present situation, and in the light of this situation, which he consid­ ered to be very unsatisfactory, he stressed above all others the intrinsic values of democracy as a form of social coexistence, underlined its compatibility w ith the pursuit of economic development through planning, and defended it from economistic attacks (chapter IV). M edina’s last work was to make a prospective examination of the hopes that exist for international détente and internal democracy in the light of the probable scenarios for the world order (Epilogue). ^Technical Secretary of the Review. This essay was presented by the author in lectures which he delivered at the Centro de Capacitación para el Desarrollo (CECADE) in Mexico in July 1979. Died, did you say ? No! all we know o f this, Is that he left us by a shining path, Charging us only that we should not mourn, B u t should rem em ber him through work and hope, Striving fo r goodness; seeking only that, W hich he so fre ely gave us: his great soul. (Antonio Machado) W e Latin Am ericans are enthusiastic devourers o f theories. W e do not savour them slow ly, en d eavou ring to extract their e sse n c e w ith p leasure, but gulp them dow n rapidly, eith er to incorporate th em w h o le or, on the contrary, to m ake them disappear and, at the sam e tim e, e c lip se th ose w h o created them . H ow social sc ie n c e has suffered —and still suffers— from this fatal com bination o f uncritical acceptance and ab solu te rejection I F or this reason th e spread o f M edina’s thought has le sse n e d markedly in recent years. It is true that M edina w as n ever a saint w ho provoked great d evotion am ong social scien ­ tists in Latin America, but h e did have his periods o f great prom inence — in M exico in the first h alf o f the 1940s, or w h en , from Santiago, h e contributed to th e vogu e o f the sociology o f d ev elo p m en t b etw e en th e en d o f th e 1950s and th e b eg in n in g o f the 1960s. H ow ever, in h is last years h e had th e fe elin g that p ub lishin g his papers w as m ore or less eq u ivalen t to throwing them into th e sea; and h e certainly b eliev ed that m any o f h is colleagu es in CEPAL, w ith w h om h e spent alm ost 25 years, shared in that ind ifferen ce. T h e fact that M edina’s approach d oes not form part o f the currently dom inant sociolog­ ical sch ool in Latin America does not provide a com p lete explanation for the fact that his v ie w s barely took h old in th ese parts. C onsid­ erin g th e u nd ispu ted potential richness o f his work, it is clear that there are other reasons *Anion g the many colleagues who kindly encouraged me and offered their comments I should particularly like to m ention R. Cibotti, N. González, J. Graciarena, A. Núñez del Prado, A. Pinto, R. Sánchez, E. Torres Rivas and M. Wolfe. G. W einberg ungrudgingly allowed me to benefit from his erudition and patience, while R. Prebisch not only discussed the entire text in detail, but also, through his example, constantly reminded me of the value of intellectual effort. 116 w h ich h in d ered its spread. Firstly, there was h is proverbial refusal to u se institutional plat­ forms to extol h is ow n ideas — an attitude w h ich , rooted in his natural m odesty, becam e further con solidated in h is mature years as a resu lt o f a profound w eariness w hich led him to avoid th e increasingly uncom prom ising id eo l­ o gical struggle. Secondly, the literary style w h ich h e u sed in many o f his works, esp ecially th o se o f h is maturity, did not h elp much to en su re that his ideas w ere understood. H is essays —-just as his classes used to be— are com p lex elaborations on a central idea; from this kernel h e m oves backwards and forwards, shifts his v iew to all the aspects w h ich strike him as relevant, and often makes u se o f d igression and parenthesis. H e scorns categorical statem ents, and alm ost n ever seeks to offend th e reader by underlining, w hich he fe lt w as like saying “attention, this is what is im portant!” A ccordingly he presents his ideas in such a w ay that the reader can penetrate to th em through eleg a n t expressions and erudite su g g estion s w h ich at tim es even seem out of p lace, ju st as reality is often discovered b ehind th e apparent disorder o f a surrealist painting. C o n seq u en tly , if this p osed difficulties for the so cio lo gists w h o surrounded him, what a prob­ lem it m u st have b een for econom ists, en g i­ n eers and planners! For this reason, th e present essay seeks to h elp to revive M edina’s thinking and the reading o f his works, by endeavouring to p resen t in a con n ected way the main ideas set forth in his m ost important writings, using the broad strokes that he h im self w ould not have p erm itted. But w ill th ese really b e his main ideas? W ill this essay m anage to grasp the core o f h is thinking, separating the essential from th e incidental? W ith a writer like M edina th ese q u estio n s w ill n ever have a final answ er,1 JThe inevitable process of elimination which has had to be carried out here has excluded not only Medina’s occasional reflexions, but also some topics —such as the role of education in economic development— which it is difficult not to regard as main ideas. The author is aware of this shortcoming, for which his only excuse is his personal judgem ent and the fact that it is impossible to further lengthen an already rather long article, and expresses the hope that other colleagues will analyse these topics them selves in order to round out the intellectual picture of Medina. CEPAL REVIEW N,° 9 / December 1979 At all even ts, w h eth er or not th ese are his m ain ideas, and w h eth er or not one agrees with them , it is certain that they cannot be gaily thrown overboard, as he u sed to lam ent had h ap p en ed to the ideas o f many classical authors in his d iscip lin e. T he w eak and repressed sociology of Latin America cannot perm it itself such w aste, nor can it spend tim e seekin g what has already b een m ade clear, and still less can th e sociologists and econom ists o f CEPAL do this, at a tim e w h en n eoclassical econom ists, w ith its sim p listic assum ptions about society and its rejection o f sociology, is taking over as a paradigm o f th e social scien ces in many coun­ tries, It is p recisely this neoclassical dom i­ nation that g iv es M edina’s work as a w h ole an u n ex p ected topicality. F ew in Latin America fought as he did for an interdisciplinary approach resp ectin g the scope o f each d isci­ p lin e and avoiding the blinkered approach o f any o f th e ism s. F ew fought so hard for an eco n o m ic sociology capable o f providing real socio lo g ica l assum ptions for use in analytical efforts in econ om ics, thus supplying the con­ crete historical con tent w hich econom ics usually lacks. F ew urged more than he did the im portance of the political framework o f ec o ­ n om ic activities, not only as a vital theoretical ele m e n t b ut also as a fundam ental body o f id eals relating to hum an coexisten ce w hich he p la ced — as in th e case o f dem ocracy— in a p reem in en t position. M edin a’s work as a w h o le represents a valu ab le contribution for all those w ho w ish to form ulate an integrated theory o f d evelop m en t or social change. It b egins by providing social sc ie n c e w ith a rigorous foundation, sin ce this con stitu tes an essen tial tool for the rational reconstruction o f society (chapter I o f this essay); it con tin ues w ith d etailed consideration o f the sp ecific object o f sociology vis-à-vis that o f the other social scien ces, and establishes its b asic con ceptual framework (chapter II); it draws on this conceptual framework in order to lay d ow n the foundations o f the sociology o f d ev elo p m en t, a task w h ich culm inates in the presentation of th e social conditions o f d e v e l­ op m en t (chapter III); it uses th ese conditions as tools for an analysis o f the history o f Latin A m erica and an evaluation o f its p resent situa­ tion (chapter IV); in the light o f this situation JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri — w h ich is not at all satisfactory, in his v iew — h e h ig h lig h ts ab ove all other values the intrinsic v a lu e o f dem ocracy as a m ode o f social c o e x iste n c e , u n d erlin es its com patibility w ith th e a ch iev em en t o f econom ic d evelop m en t through p lan n ing, and d efen d s it from attacks 117 b a sed on econ om ism (chapter V); and ends w ith an exam ination o f th e prospects for international d é te n te and internal dem ocracy in the lig h t o f th e p o ssib le w orld scenarios (Epilogue), I Science and politics in the early works T h e p o litic a l sig n ifica n ce o f the m e th o d o lo g ic a l p ro b lem s su ffered m ost from im provisation, and this is w h at it is im portant to nip in the bud am ong the y o u n g er ele m e n ts” .2 I f o n e ex am in es the w h ole o f M edina’s work, it is ea sy to co n clu d e that, although to b egin with it is d ev o te d to m eth odological problem s, as tim e g o es on it acquires an increasingly sub­ stan tive character, cu lm in ating in the treat­ m en t o f th e m ost urgent issu es o f present and future so ciop olitical organization. Or, put more sim p ly , if th e lo g ic o f the social scien ces stood at th e focus o f this concern up to 1940, that focu s w o u ld seem to have shifted towards d em ocracy in th e 1970s. T h is interpretation o f the d evelop m en t o f M ed in a ’s th ink in g is correct provided it is b orn e in m in d that this variation d oes not m ean a radical ch an ge o f p ersp ective, but m erely a m od ification o f th e angle from w h ich he per­ c e iv e s th e sam e problem s. T his is so b ecau se in h is th ink in g, as in that o f m any illustrious p red ecesso rs, th e logic o f scien ce and political organization, reason and dem ocracy, are inti­ m ately link ed . In th e P reface to Sociología: teoría y té c n ic a , M edin a em p h asizes that the social s c ie n c e s sh ould b eco m e true scien ces, and that for this purpose th ey m ust m eet the necessary th eoretical and tech nical requirem ents — in o th er w ords, p o ssess a carefully prepared sys­ tem o f categories and a u nifying sch em e, in ad d ition to su bjectin g research to th e strictest ru les. W h en transform ed into scien ces they w ill b e ab le to avoid the action o f the charlatan and th e 'm ountebank’, w h ich is particularly im portant for sociology, sin ce it “has always But does M edina investigate the p hilo­ sophical depths o f m ethodological problems on ly in order to provide social scien ces with a rigorous foundation? Although this aim alone w o u ld justify the undertaking, M edina does in fact go further, sin ce h e holds that the social scien ce s should possess the b est possible scien tific foundation in order to play their instrum ental function properly: in a tim e o f crisis th e social scien ces must respond better than ev er to the dem and that they should serve as a gu id e for hum an action. Like Comte, a century earlier, h e dem ands that the social scien ce s, transformed into gen u in e scien ces, sh ould offer substantial assistance in the for­ m ulation o f a rational policy, in the sound m anagem ent o f hum an affairs. H e n c e th e urgent and dramatic nature o f m eth odological problems: scientific rigour m u st b e a ch iev ed not just as a value in itself, b u t as a foundation for a n ew way o f organizing hum an co ex isten ce. “T o perm it social scien ce to com m it su icid e is eq u ivalen t to declaring the d e c lin e o f our civilization to b e in evitab le.”3 T h e in d isso lu b le union b etw e en scien ce and 2 Sociología: teoría y técnica, 2nd. ed. (Mexico City, Fondo de Cultura Económica, 1946), p. 8. (The first edition dates from 1941.) 3“Reconstrucción de la ciencia social” (1941), in R esp o n sa b ilid a d de la inteligencia. Estudios sobre nuestro tiem p o (Mexico City, Fondo de Cultura Económica, 1943), p. 62. CEPAL REVIEW N.° 9 i December 1979 118 p o litics is u n d ou b ted ly on e o f the basic keys to M ed in a ’s en tire thinking. In th e face o f th e spectre raised b y the g en era l crisis o f th ose years, M edina therefore reaffirm s th e rationalist ideal o f the n eed for the scien tific organization o f society on the basis o f th e k n o w le d g e su p p lied by the social scien ces. A nd in his first w ritings, b etw e en 1939 and 1943, h e elaborates upon and exam ines more d e e p ly w h at m ust, in his v iew , b e dem anded o f th e social scien ce s in scien tific and instru­ m ental terms. T h ese dem ands are very numer­ ous, very com plex and not always consistent, so that in an alysin g them M edina is ob liged to en ter d e e p ly into many o f the problem s related to th e em b od im en ts, forms and lim its o f reason. It is true that M edin a’s propositions can p rove utopian and at tim es even som ew hat contradictory — contradictory b ecau se o f the in c o n siste n c ie s w h ich may arise from the s c ien tific and instrum ental dem ands h e places on th e social sc ie n c e s — but there is no doubt that th ose first essays represent on e o f the m ost p rofound explorations o f the logic o f the social s c ie n c e s ev e r carried out in H ispanic America. T he c risis as a b a ck d ro p T ow ards the en d o f th e 1930s and the b egin ­ n in g o f th e 1940s it w as alm ost im p ossib le to a void th e fe e lin g o f livin g in a critical period; M ed in a is no excep tion, and he adds his p erson al ex p erien ce o f the Spanish conflict and e x ile to th e m ore w idespread exp erience o f ec o n o m ic chaos, the disintegration o f many liberal dem ocratic régim es and war. T h is aw areness o f crisis is the point o f departure for his thinking, and always remains th e backdrop; h ow ever, h e n ever analyses the crisis co m p reh en siv ely b ecau se h e feels that, to a large extent, th e task has already b een done by others, “A nalysis o f the crisis has b een carried out from various view p oin ts, and all the m en o f m y gen eration have had to deal w ith the su b ject in som e w ay.”4 N e v erth ele ss, the topic has a central place in M ed in a’s thinking, and it m ust b e recon­ structed on th e basis o f the various references h e m akes to it. In p rinciple, and w hatever the content o f th e crisis, h e n ever regards it as a certain indication o f a disaster w hich cannot be overcom e. For exam ple, in the first pages of S ociología: te o ría y técn ica h e analyses the situation through w h ich sociology was passing at th e b eg in n in g o f the 1940s, under the su b title “con tin uity or crisis?”, and em phat­ ica lly asserts the prim acy o f the former. It is true, h e says, that sociology is suffering from a crisis o f ob jectives and m ethods, but the crisis is not o f a fundam ental nature —as was asserted b y O rtega— b eca u se it does not arise from d ea lin g w ith a n on-existen t object or using ab solu tely inappropriate m ethods. It is, rather, a crisis o f growth sin ce “as a scien ce it is pursuing a process of maturity that marks a line o f p erfect continuity reflected in the constant purification o f its scien tific con scien ce and o f th e appropriate m eth od s” ,5 If M edina’s th in k in g on this subject is to b e understood correctly, it m ust not b e forgotten that, in his v ie w , th e foundations regarding the m ethods and purpose o f sociology w ere laid by Comte, and th e “ lin e o f p erfect continuity” starts with him . In th e sam e w ay, w h en in his last essay he returns to th e “crisis o f W estern dem ocracy”, h e em p h a sizes that th e crisis m ust b e d efin ed “ in its strictly etym ological sen se, as m eaning a particular stage in the evolu tion o f a system w h ich is marked by su fficien t sym ptom s o f vacillation and disturbance to indicate a state o f transition, ruling out neither the recovery and reinvigoration o f the system o f its final d isin te­ gration and co lla p se” .5 B ut w h at is in crisis? Am ong the various com p on en ts o f th e crisis on e em erges w hich, b eca u se o f its im portance, makes it p ossib le to p lace all th e others in order; reason. H e c o n c e iv e s th e crisis as a phenom enon (or p rocess) in w h ich reason (or the process o f rationalization) plays a fundam ental role. 5Ib id ., p. 15. 6“ Notes on the future of the Western democracies”, C EPAL R eview , N.° 4 (second half of 1977), p. 119 (United 4Sociología: teoría y técnica, op. cit., p. 12. Nations publication, Sales N.: E.77.II.G.5). JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri I f reason is at th e centre o f the crisis, what d o es h e understand by reason? It is difficult to an sw er, b eca u se over the years M edina ch a n g es h is v ie w o f th e nature and relations o f th e various m anifestations o f reason. In this w ay, it m ay b e said that if all the com ponents o f th e crisis b eco m e im b ued w ith significance in th e lig h t o f th e role w h ich reason plays in them , all th e m anifestations o f reason are ordered on th e basis o f w h at M edina calls formal ratio­ nality. From th e sociological view p oin t, M edina d ifferen tiates — follow in g W eber— b etw een various m anifestations o f reason w h ich con sti­ tute ty p es o f rational action.7 A m ong th ese ty p es h e h igh ligh ts formal rational action, w h ic h is that d e sig n e d to ach ieve a giv en end by m eans o f rational calculation (efficient or op tim u m adaptation o f m eans to en d s, p redic­ tion o f co n seq u en ces, and so on) and the fu n ction al organization o f the elem en ts w hich go to m ake it up (each com pon en t o f action has a d efin ed role and a d efin ed function). Formal rational action is th e ideal type o f action in the fie ld o f sc ie n c e , tech n ology and econom ics, and for that reason is usually p resen ted as the paradigm for any rational action; such expres­ sion s as rational action con sisten t w ith aims (M. W eber), logical action (Pareto), econom ic action (R obbins), and tech nical or tech n olog­ ical or instrum ental rationality, are m erely d ifferen t nam es for it. T o a large exten t formal reason is th e cause o f th e crisis, but it is also the appropriate means o f su ccessfu lly tackling it. “O f course, it is to reason that w e ow e the conditions o f this great crisis. For it has b een the thriumphs achieved by reason in its tenacious confrontation with im placable nature w hich have made man ex­ c e s s iv e ly pow erful in a partial aspect of his life: th e m ost external and fragile aspect. But only reason, in turn, can re-establish the balance b e tw e e n th e intim ate, repressed springs o f action and th e m echanism produced by a 7M edina formulates and presents this typology in his essay “La planeación en las formas de racionalidad” (1969), which appeared in D iscurso sobre política y planeación (Mexico City, Siglo XXI Editores, 1972), but it is clearly implicit in his early writings, though in a rather embryonic form. 119 unilateral in v e n tiv en ess.”8 In other words, “in order at least partially to dominate the social, c o lle c tiv e situation, man must use the same m eans h e u sed su ccessfu lly to im pose his w ill to som e exten t on his natural, physical cir­ cum stances: patient study, previous devotion to reality as it really is ... the d ep loym en t in the face o f social reality o f the scien tific attitude, already w e ll tested in other problem s” .9 T here is no doub t that th e M edina o f those years places enorm ous trust in the positive role w h ich th e d ep loym en t o f formal reason co u ld have for man, or, exp ressed in his own w ords, in th e valu e o f scien ce for human life. N ev erth eless, on e m ust not fall into the error o f assu m in g that, in those initial stages, M edina is n a iv e ly con vin ced o f the gradual advance o f reason in history, for a reality as com plex as that o f th ose years naturally ruled out any evolu ­ tionary, linear v ie w o f human events. From his very first w ritings, M edina observed the dif­ ficu lties provoked by the d ep loym en t o f reason, and w ith the p assin g o f the years reaffirms that conviction. In his first writings M edina suggests that th e principal m eanin g o f the crisis o f reason is n o n e other than that o f a unilateral d e v e l­ op m en t o f reason in favour o f the dom inion o f nature w ithout a parallel concern for man and society. Broadening this point o f view , in an essay dating from 1939 h e sketches an approach to th e crisis w h ich centres around th e process o f rationalization and com bin es the vertical and horizontal p ersp ectives o f social ch an ge.10 In form ulating his approach M edina was probably in flu en ced by K. M annheim 's theory of th e disproportion b etw e en the h igh lev el reach ed by man in the k n ow led ge and dom i­ nation o f external nature —w h ich is expressed in th e d ev elo p m en t o f the natural scien ces and o f th e tech n iq u es link ed to them — and the poor progress h e has m ade in k n ow legd e and control o f h im se lf and society. M oreover, there are 8“ Reconstrucción de la ciencia social”, in Responsa­ b ilid a d de la inteligencia, op. cit., p. 63. 9“ Sentido y función de la Sociología” (1939), in R esponsabilidad de la inteligencia, op. cit., pp. 79-80. 10“Confïguraciôn de la crisis” (1939), in R esponsa­ b ilid a d de la inteligencia, op. cit., pp. 157-182. 120 CEPAL REVIEW N.° 9 / December 1979 in d ica tion s that h e also considers the thesis, so th e con d itions and co n seq u en ces o f econom ic com m on in th e E nglish -speakin g world in d ev elo p m en t.11 th o se years, w h ich contrasts the great progress H ow ever, for many o f those w ho have o f ‘m aterial’ culture w ith that o f ‘spiritual’ reflected on this subject, the problem s gener­ culture; in other w ords, th e im balance b etw een sc ien tific and tech n ical d evelop m en t and the ated by the d ev elo p m en t o f formal rationality d e v e lo p m e n t o f the p rinciples w h ich guide are not lim ited to disproportions in its applica­ p o litica l, educational, religious, fam ily and tion to nature, society and culture, but also arise in relation to its ‘e x c e sse s’ and the results o th er activities. w h ich th ese may have on the other forms o f N e v erth ele ss, as already noted, M edina rationality or other types o f rational action. d o es not share the evolutionary assum ptions W hen M edina raised th ese problem s for the w h ich u n d erlie m any o f th ese theories. F ol­ first tim e, tw o critiques o f the process o f formal lo w in g in th e steps o f Alfred W eber, he holds rationalization w ere very m uch in vogue. On that hum an history is m ade up of three funda­ th e on e hand, M annheim 12 argued that togeth­ m ental p rocesses — civilizing, social and cu l­ er w ith formal rationality —w h ich he called tural— but on ly the first o f these, w hich has functional— there existed substantial ratio­ scien tific and tech nical d evelop m en t as a nu­ nality, w h ich h e d efin ed as “an act o f thinking c le u s, can b e co n ce iv e d as linear and evolu ­ w h ich reveals an in tellig en t v iew o f the rela­ tionary, w h ile th e others, though they m anifest tions existin g b etw e en the facts in a given features reflectin g a d egree o f evolution, tend situ ation ” . T his “in tellig en t v ie w ”, w hich is to b e sp ecific to each o f the ‘historical b o d ies’. n ecessary to gu id e human action, requires a As a result, from this view p oint, the crises fairly full p ersp ective o f the situation, but the sh o u ld b e interpreted as m aladjustments or sh ap in g o f this p ersp ective is, paradoxically, contradictions w h ich occur b etw een scientific d isturbed by the d evelop m en t o f formal ratio­ and tech n ica l progress and the socio-cultural nality, w h ich , w ith its constant d ivision o f tasks order in w h ich this progress occurs. and functions, m akes k now led ge partial, pre­ ven ts the majority o f the population from Furtherm ore, th ese contradictions m ust not b e p erceived only ‘vertically’, over a period h avin g a reasonably com plete v iew o f the o f tim e w h ich is th e sam e for all m en, w hatever so ciety as a w h o le, and concentrates the pow er their civ iliz in g , social and cultural differences, and the substantial rationality in the ruling but also horizontally, in other words as a result m inority. M edina does not deal w ith this ver­ sion o f th e crisis o f reason in his first writings, o f th e co e x isten ce o f groups or ‘p e o p le s’ w ith but it is clear that he b eliev es that the social d ifferen t historical tem pi. This coexisten ce of d ifferen t and u nequ al groups and p eop les sc ie n c e s can contribute to m eetin g Mann­ lea d s to a w id e variety o f relationships — from h e im ’s dem and that a better balance should th e ‘d issem in a tio n ’ o f ideas and institutions to b e a ch iev ed b etw e en formal and substantial ec o n o m ic and p olitical conflict— w h ich usual­ rationality. M edina feels that the role o f scien ce in th e d ev elo p m en t o f formal rationality is ly p rod u ce profound disturbances. u n d en iab le, but it is important to em phasize in C o n ce iv e d in this way, w ithin a m ulti­ ad dition th e role it plays in relation to substan­ d im en sio n a l p ersp ective w h ich com bines the tial rationality. F o llo w in g D e w ey , h e affirms horizontal and vertical approaches, this con­ ce p tio n o f th e m aladjustm ents o f the process o f rationalization is o f great theoretical impor­ 11This is also a very important point oí contact between tan ce for M edina, to such a point that it w ill economic and sociological theory in CEPAL thinking, since the multidimensional perspective for the analysis of appear later in h is first essays on the sociology social change proposed by Medina has much in common o f d ev elo p m en t. T h e social conditions o f scien ­ with the viewpoint used by Prebisch in considering tific and tech n ical d evelop m en t, social adapta­ economic development: that of the penetration of technical tion to th e n ew type o f life w h ich is b ein g progress into the peripheral social structure. 12L ib erta d y Planificación Social, translated by Rubén created, and its p ositive and n egative social Landa (Mexico City, Fondo de Cultura Económica, 1942), effects, form th e background to the theory o f p. 52. JOSE MEDINA ECHAVARRIA; AN INTELLECTUAL PROFILE / Adolfo Gurrieri that “ at this point what matters is not the p rese n t results o f scien tif ic research, its body of d octrin e, so m uch as the scien tific attitude, that p o sitio n o f th e spirit and behaviour w hich, am on gst other features, is m anifested in the capacity to u se ideas as h ypotheses subject to verification and proof, and not as dogmas. In this regard th e f uture o f dem ocracy d epends on th e grow th and predom inance of the scientific a ttitu d e” .13 O ther writers — notably W. D ilth ey— hold that formal rationality, as a result o f its origin in th e natural scien ces, is content to provide k n o w le d g e o f m eaningless em pirical data — th e d isen ch an ted w orld of W eber— and that, accord in gly, another rationality (later called by M ed in a ‘m aterial’) is n eed ed to make it p os­ sib le to grasp the ‘m eanin g’, ‘significance’ or ‘v a lu e ’ o f hum an activities. M edina considers this point o f view and d ev o te s a large part o f his works o f those years to d em o n stratin g— in this case follow in g in the step s o f Max W eber— that w h ile many o f the ‘data’ o f social scien ce, in contrast to those of natural scien ce , are d efin ed by their m eaning, this in no w ay m eans that they cannot be scien tifica lly analysed. Material rationality — co n c e iv e d as interpretative rationality or u nderstanding— m ust b e com bined w ith the exp lanation and prediction sp ecific to formal rationality in the m ethodical p erspective of so cia l scien ce . E veryth in g indicates, then, that this sec­ o n d form o f v iew in g the crisis o f reason — w h ich critically analyses the evolution of formal reason in order to point out its lim its (w hat it can not offer) and its ex cesses (what it cla im s to offer w ith ou t b ein g able to do so)— is on ly h in ted at in M edina’s early thinking and that, in addition, h e feels that the problem s this raises w ill b e so lv ed to a large extent through th e proper d ev elo p m en t o f the social scien ces. N e v e r th e le ss, as the years pass M edina gives this v ie w o f th e crisis an increasingly important role as a co n seq u en ce o f a clearer and less o p tim istic v ie w o f th e function of formal reason in hum an life. 13“John Dewey y la libertad” (1939), in Responsabili­ d a d de la inteligencia, op. cit., p. 269. 121 The fa ilu re o f the social sciences After this rough outline of the backdrop of his thinking, w e m ust p ose the sp ecific question w h ich occupies M edina in those years. In his words: “ is the already intolerable state reached by our civilization su scep tib le o f b ein g cured by reason, or m ust w e abandon ourselves h ope­ lessly to th e play o f b lin d forces?” ;14 “how can w e understand on e another am idst this chaos and disorder?” ; “how can w e renew our history w ith ou t d estructive con vu lsion s?” .15 S in ce w ith in this “cure by reason” scien ce is th e fundam ental m ed icin e, w e m ust ask: w h at has b e e n and w hat should b e the role o f social scien ce?; how has it responded to the ch a llen g e o f the crisis?; m ust it b e reconstruc­ ted so that its contribution is in line w ith w hat is ex p ected o f it?; and if so, how should w e gu id e this reconstruction? For M edina, the resp on se of social scien ce to the crisis has b een and rem ains rather discouraging, sin ce he see m s sure of the “com p lete u selessn ess of social sc ie n c e for solving the real problem s o f our everyd ay liv e s ” ,16 T he su ccess o f natural sc ie n c e in the n in eteen th century in the sphere o f nature fed h opes o f a sim ilar triumph in the hum an scien ces; but on ce th ese cam e up against th e crisis, the result was “frankly n eg a tiv e” . T here are three reasons for this failure. Firstly, the poor links b etw e en theory and praxis, the “u nbridgeable distance b etw een w h at appears as a scien tific construct and what w e exp erien ce and p erceive as reality”, b e ­ tw e en ex p erien ce o f life and what seem s n oth in g m ore than an ‘honourable fantasy’. T he construction o f theory in the social scien ces w as gu id ed by the d esire to “refine as m uch as p o ssib le th e traditions inherited from the vari­ ous sch o o ls” ,17 and in this task it has b een usual to g et lost in “‘profound’ thinking w hich, rooted in a vitally urgent hum an n eed , hoists 14“En busca de la ciencia del hombre” (1942), in R esponsabilidad de la inteligencia, op, cit., p. 29. ^ “ Responsabilidad de la inteligencia” (1941) in the book of the same name, op. cit., p. 16. ^ “Reconstrucción de la ciencia social” (1941), in R esponsabilidad de la inteligencia, op. cit., p. 42. 17Ib id ., pp. 43 and 46. 122 itself up, in fascinating attraction, until it finally hangs over a b ottom less vo id ” .18 T his abysmal su g g estio n o f th ose w h o practice such ‘in tel­ lectu a l m ountain clim bing' has carried social theory aw ay from th e urgent d ecision s o f every­ day life and has d iscred ited intellectuals in the e y e s o f th e com m on man. T h is gap b e tw e en theory and praxis takes d ifferen t forms in th e different social scien ces. In eco n om ics, con ven tion al econom ic theory effects an alyses w h ich appear fragmentary, in that th ey can not take into account all the sign ifican t factors in a very com plex situation; out o f date com pared w ith reality, b ecau se of th e great dynam ism o f the latter; and too gen­ eral to d eal su ccessfu lly w ith problem s w hich arise in u n iq u e circum stances. For that reason, ec o n o m ic theory —tim eless, clo sed in its d e­ d u ctiv e co n sisten cy , and free o f em pirical contrasts— is not valid for a reality w h ich is “ in terd ep en d en t, dynam ic and capable o f b e in g grasped on ly in the fu lln ess of its circum ­ stan tiality” .19 T h e gap b e tw e en political theory and reality d o es not ev en have the excuse o f b e in g b a sed on a m eth odological position, sin c e it often on ly represents the d efen ce o f an in a p p lica b le general formula, and historical th eory converts it into antiquarian ism and eru d ition , en a b lin g th e past to attract and ‘e n s la v e ’ th e present. T h e secon d cau se o f the u selessn ess of social sc ie n c e lie s in the w idespread accep­ tan ce am ong scien tists o f the criterion o f ob­ je ctiv ity b ased on neutrality in values, i.e., the v ie w that scien ce n either can nor should d e c id e w h ich values should gu id e co n d u ct But th e facts o f social scien ce are m ostly values, and as a result accep ting th ese facts w ithout su b jectin g them to rational analysis m erely am ounts to u p h old in g the sta tu s quo. “If this is all your objectivity am ounts to, then you can k eep it, b eca u se it seem s u seless and suspi­ cio u s to us is the reaction, and in d eed the at­ titu d e is not alw ays lim ited to or satisfied w ith su ch m oderate w ords.”20 Such a criterion 18“ Responsabilidad de la inteligencia”, in the book of the same name, op. cit., p. 17. ^ “Reconstrucción de la ciencia social”, in R esponsa­ b ilid a d de la intelig en cia , op. cit., p. 49. 20lb id ., p. 54. CEPAL REVIEW N.° 9 1 December 1979 m igh t have b een con sidered acceptable in the historical circum stances w hich produced it, b u t has led to suicidal inhibitions; the refusal o f scien tists to participate in d ecision s based on valu es w eakens their ability to d efen d their ow n right to truth and freedom o f research — w h ich is the value that justifies their exis­ ten ce— and leaves the field open for other, less vacillating forces to take the d ecisions. T h e third cau se, clo sely linked to the first, is th e ‘anarchy o f sp ecialization ’, the marked a b sen ce o f links am ong the various social sc ie n c e s “w h ich sterilizes their results, by not m utually fertilizin g them ” .21 It is true that one cannot think w ithout concepts, w hich are alw ays an abstraction, and that it is im p ossib le to m ake progress in scien ce w ithout sp ecial­ izin g, b ut it is necessary to seek m ethods w hich avoid the ‘phantasm al m onsters’ produced by short-sighted and com partm entalized sp ecial­ ization. T h e se reasons explain w hy the social sc ie n c e s have proved in effective in d ealing w ith th e u rgent problem s o f everyday life, and w h y there has b e e n a progressive loss o f trust in reason. Practical d ecision s, lacking this g u id e, have b een based on elem entary em pir­ icism , routine or im provisation, and the man in th e street has often en d ed up accepting the “m iraculou s” solutions o f ‘political m iracle w orkers’, and ev e n supporting the w ell-k n ow n aphorism about th e revolver and culture. In th e face o f a social scien ce w h ich is unreal, fragmentary, neutral and therefore u se­ le ss, tw o reactions have occurred, w h ich M e­ d ina also firm ly rejects. Firstly w hat h e calls ‘m ilitan t s c ie n c e ’, w h ich abandons the extrem e o f abstraction to giving over to that o f ideolog­ ical b ellig eren ce. It should not be forgotten that “d en y in g neutrality in values is not eq u iv ­ a len t to p roclaim ing the unrestrained rule o f partisan interests, but on the contrary the p os­ sib ility o f fin d in g a lim it to it” ;22 and the lim it is that o f scien tific rationality. Secondly, in the face o f th e ex cesses o f theory, it is declared that th e scien tist should d isp en se with theory and d eal on ly w ith facts. T his ‘in n ocen t em 2ilb id ., p. 56. 22I b i d p. 29. JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri piricism ' p iles up data in an unconnected m anner w ith ou t ob servin g that data or facts are n ot primary com pon en ts o f exp erience but, in ev ita b ly , constructs w h ich derive from h y­ p o th e se s or theories. T he re c o n stru c tio n o f the social sciences It is im p erative to reconstruct the social sci­ e n c e s, b eca u se th ey m ust play a fundam ental role in th e ‘cure by reason1 o f ailing society; and th is reconstruction im p lies, firstly and in a strict se n se , their conversion into scien ces. T h ey w ill b e g en u in e scien ces w h en they satisfy tw o con d ition s, w h ich are so closely related that th ey are more like the two sides o f a sin g le coin: their results m ust have b een o b ta in ed u sin g th e ‘scien tific m ethod', and th eir practitioners m ust be gu id ed by a ‘scien ­ tific a ttitu d e7.23 T h e scien tific m ethod, as a w ay o f gaining k n o w le d g e o f reality, is not substantially dif­ feren t from th e p re-scien tilie procedures by w h ich m an seek s th e sam e end. K now ledge o f reality is alw ays a product o f the com bination o f practical action and sym bolism , but the form­ e r — practical action, ‘praxis', in short, the exer­ c is e o f an activity— p reced es the second; in th e co g n itiv e construction o f reality “a real ob ject is, first and forem ost, that w h ich opposes us, in oth er words w h ich stim ulates and resists our a ctiv ity” .24 Practical activity has purposes — aim s, in ten tion s— w h ich gu id e its ‘direc­ tio n s’ and g iv e rise to a selection o f the data w h ich can b e sen sed ; this selection shapes or ty p ifies th e reality, h igh lightin g the aspects w h ic h h ave th e greatest influence on the a ctiv ities b ein g carried out. T hus, reality is ‘constructed' by praxis as a set o f ‘shapes' or ‘form s7. S ym b ols, esp ec ia lly language, not only ex p ress fe elin g s and em otions but also make it p o ssib le , firstly, to ‘so cia lize’ reality, to share it, s in c e “ each w ord includ es the sym bol o f an e x p er ie n c e com m unicated and shared” ;25 and, ^ “ E n busca de la ciencia del hombre”, in Responsabi­ lid a d de la inteligencia, op. cit., p. 30. 24Sociología: teoría y técnica, op. cit., p. 101. *Ibid., p. 102. 123 seco n d ly , to order and formulate coherently th e reality p reviou sly shaped by th e praxis. T h is ‘reality7 o f a practical-sym bolic origin is th e foundation for any con ception o f the world, and th e basis for scien tific k now ledge. It is necessary to underline the relation­ ship b etw een praxis and sym bol w hich M edina sets forth — in w h ich the former precedes and p redom inates over the latter— in order to d isp el th e assum ption that he shares the em ­ piricist v iew — still very w idespread in the p h ilosop h y o f scien ce— that it is in the process o f acquiring k now led ge that man constructs his reality. Practical activity precedes and orients k now led ge, and the sym bols which k n ow led ge u ses —concepts and their relation­ ships— do not derive from the arbitrary interest o f the researcher selectin g among an amor­ phous mass o f em pirical data, but from a reality p reviou sly shaped by the praxis. H ow ever, on ce this fundam ental idea has b een clarified, it is also necessary to underline that all real flesh-and-blood m en m eet, in their praxis and their know ledge, an already con­ structed situation w here the ‘forms' com bine in a very clo se and only analytically distin­ gu ish ab le w ay both the praxis w hich gave rise to the reality and the sym bol w hich denotes it. I b e lie v e that M edina w ould agree that his analysis o f th e relationship b etw een praxis and sym bol has a great formal similarity to that w h ich m any econom ists establish b etw een material and social conditions o f production. A nalysis o f th e econom ic activity carried out by an isolated individual, “Robinson C rusoe” not con sid ered as livin g in a society serves to sh ow th e material basis o f the process o f pro­ d uction, w h ich , in a subsequent stage o f the analysis, is “socialized ” . H ow ever, this ana­ lytical recourse should not lead one to forget that in concrete econom ic activity, the process of production appears from the outset to the real flesh-and-blood man as an alm ost insepa­ rable union o f material and social conditions. T h e sam e occurs w ith the relationship b etw een praxis and sym bol; the praxis shapes reality and the sym bol reflects this shape, w ith greater or lesser fid elity, but for the man o f flesh and b lood , th e situation is practical and sym bolic from the outset. It m ight therefore be said that, for M edina, 124 CEPAL REVIEW N.° 9 / December 1979 there are various le v e ls o f k n ow ledge o f reality; a ‘p re-sym b olic’ lev el, w h ich is that o f many non-hum an liv in g beings; a ‘sym bolic-com ­ m o n ’ le v e l, w h ich is that typical o f language; and a ‘sy m b o lic-scien tific’ lev el, w h ich is sci­ en tific k n o w led g e proper; in other words, the k n o w le d g e w h ich is obtained u sin g the sci­ en tific m eth od is only a refinem ent o f the con­ n ex io n b e tw e e n sym bol (concept, hypothesis) and praxis (experim ent). T h e p rec ed en ce o f praxis over sym bol is m a n ifested in scien tific k now led ge in the fact that th e latter is alw ays p reced ed by a ‘prob­ lem atical situ ation ’. “I f there w ere no problem ­ atical social situations, social scien ce w ou ld not ex ist” ,26 sin ce they serve as a spur to know l­ e d g e , T h e theoretical ‘solu tion ’ o f the problem ­ atical situation often requires a process o f ‘dril­ lin g ’ w h ich en ab les the analysis to penetrate to e v e r-d ee p e r layers o f reality. O f course, in order to avoid in tellectu al abstruseness, the theory sh ou ld also alw ays offer a practical solu­ tion to th e problem w h ich gave rise to it. T h is process o f drilling through reality in th e search for an explanation capable o f provid­ in g a practical solution to the problem is not g u id ed by th e facts th em selves, as the p osi­ tivists b e lie v e d , but by a ‘provisional k ey’ —an a p r io r i h yp oth esis or prejudice— w h ich acts as a g u id e to k n ow led ge. In the cross-fertiliza­ tion b e tw e e n h yp oth esis and reality (‘experi­ e n c e ’) th e theory is originated, but this theory n ev er lo se s th e hypothetical character it had at its origin, h o w ev er large the num ber o f ‘con­ firm ation’ o f it, b ecau se “there is no con clu sive ex p erim en t, nor can it ever b e ruled out that so m e alterations in it w ill invalidate totally o r ... partially our theoretical construct” ,27 and it is therefore n ecessary to resign o n e se lf to the “relative truths o f experim ental in telli­ g e n c e ” .28 Problem atical situation, hypothesis, relation sh ip b etw e en hypothesis and experi­ en c e , theory, practical solution, hypothetical nature o f th e theory and attainm ent o f truths w h ich are on ly provisional: th ese are som e o f 2(iIb id ., p. 126. 27Ibid ., p. 128. th e fundam ental aspects o f the scien tific m eth­ od su g g ested by M edina. T h e scien tific attitude o f the researcher sh ou ld co n sist fundam entally in accepting and practising the norms o f the scien tific method; it follow s from this that the scien tist m ust not b e ‘free o f va lu es’ but, on the contrary, should vigorously uphold those w hich are specific to scien tific enterprise. O f th ese values, M edina em p h asizes the importance o f two: hum ble su bm ission to the verdict o f exp erience over and above any personal preference, and accep­ tance o f theories as hypotheses and not as esta b lish ed dogmas, for all know ledge is only relative and provisional. M edin a h olds that the social scien ces sh ou ld g en u in ely transform th em selves into sc ie n c e s, w h ich m eans accepting and practis­ ing the scien tific m ethod, and although they sh ould not im itate the natural scien ces in e v ­ erything, they m ust “apply to the social datum th e procedures o f conceptual construction used in that scien ce [p h ysics] w ith evid en t suc­ c e s s” .29 T h e scien tific m ethod is the sam e for all th e scien ce s, w hatever their subject, and no sp ecial m ethod can b e d erived for each on the basis o f th e a lleg ed special character o f its subjects. H ow ever, in sisten ce on the ‘unity o f the scien tific m eth od ’ does not lead him to forget th e sp ecial d ifficu lties w hich arise in applying it in th e social scien ces. On the one hand, the con cepts that they use are usually sym bols o f other sym bols, b ecau se social phenom ena are to a large exten t sym bolic; on the other, they are u sually very sim ilar to the terms o f the com ­ m on language and, m oreover, refer to a com ­ p lex and chan gin g reality w h ich can very rapidly make them ob solete. At all events, although th ese d ifficu lties can prevent the pure application o f the scientific m ethod to the social scien ce s, th ey do not make it less n eces­ sary that they should be subject to its general p rin cip les. The in stru m en ta l ch a ra cter o f the social sciences S cien ce in general stands at the service o f man, and m u st m aintain this instrum ental character 28“ E n busca de la ciencia del hombre”, in Responsabi­ lid a d de la in teligencia, op . cit., p. 31. 29Sociología: teoría y técnica, op. cit., p. 126. JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri by h elp in g him to alleviate his problem s. In th e case o f sociology, how ever, this require­ m en t is still more im perative, since it is im p o sed by th e very nature o f this discipline's subject: th e forms o f hum an life. “What is asked o f it is an orientation for life. This orienta­ tion is, at th e sam e tim e, a rational clarification o f th e con d ition s and trends encom passed by th e social circum stances in w hich our actions occur.”30 In other words, the instrumental nature o f sociology is d efin ed as the rational clarification o f th ese social circum stances, but w h at d o es M edina understand by th ese terms? a) The so cia l circu m sta n ces an d th e ir variou s leve ls o f a n alysis M edin a exp ects that social scien ce should g u id e m en n ot on ly in a general way, but also in their con crete and everyday reality and, ac­ cordin gly, that it sh ould h elp them to under­ stand th e sp ecific social situation in w h ich they fin d th e m se lv e s and provide a little security for th eir b eh aviou r in it. T his social situation or circum stan ce appears as a ‘concrete w h o le’, w h ich m ean s, firstly, that its parts are inter­ related (‘w h o le ’), and secon d ly that it p ossesses particular features w h ich make it a ‘historical in d iv id u a lity ’ d ifferen t from those in the past and in th e future (‘con crete’).31 For this reason, so c io lo g y m ay b e term ed a ‘concrete scien ce’, b eca u se it endeavours to understand and ex­ p lain th e ‘real structure’, the fundam ental nature o f th e con crete social circum stance, its d erivation from another structure and its ten­ d e n c ie s. B efore sketching som e o f the m ethodolog­ ical problem s presented by this concrete nature o f sociology, it is necessary to em pha­ siz e h o w m uch in advance M edina’s thinking w as. In th e sam e w ay that, in relation to the sc ien tific m eth od, h e w as far-sighted enough to in c lin e towards an approach o f the “d ed u c­ tiv e h y p o th etica l” type —w h ich w ou ld only b e c o m e w id esp read m any years later— w h en th e pred om in ant approaches w ere em piricist or ‘c o m p r eh en siv e’, his in sisten ce on the con ­ ^ Ib id ., p. 71. 3lIbid., p. 74. 125 crete nature o f sociology led him to propose an approach w h ich was to spread in Latin Am erica w ith great su ccess many years afterwards, u nd er th e nam e o f ‘histórico-structural’. For th e last ten years or so this p ersp ective has p red om in ated in social scien ce in Latin Am eri­ ca as the principal banner in the m ethodolog­ ical struggle against ‘structural-functionalism ’, but no on e rem em bers that M edina p rop osed it as early as 1940. It is also e v id e n t that the far-sighted nature o f M ed in a’s th ink in g is d ue in good m easure to th e p o sitiv e in flu en ce o f Max W eber. H ow ever, it w o u ld b e a m istake to think that M edina accep ts uncritically and in a w h o lesa le manner all th e p ropositions m ade by that thinker. It can on ly b e m aintained that M edina w as a ‘W eb­ erian ’ if that is taken to m ean that h e adopts W eb er as a “ referent” , in other words as the interlocutor w ith w hom he w ish es to discuss all significant problem s. T his ‘d eb ate’ pro­ d u ced agreem ents and disagreem ents, includ­ in g am ong th e latter som e w h ich are found in the approach w h ich W eber proposes for as­ certain in g th e ‘historical ind ividu ality’ o f social circum stances. Max W eber b e lie v e d that the natural and social sc ie n c e s w ere clearly differentiated by their theoretical intention or aim. T h e natural sc ie n c e s, u sin g th e principle o f causality, at­ tem p t to form ulate general law s (valid for all tim es and p laces) w h ich make it p ossib le to exp lain th e relationship b etw e en p henom ena and to control or dom inate reality. For the natural scien ce s, individual phenom en a are o f in terest on ly as ‘ca se s’ w h ich b elon g to general ‘c la sse s’, and the relationships b etw een them on ly in so far as th ey are manifestations o f a gen­ eral law. T he social scien ces have a different aim, sin ce they attempt to understand and ex­ plain historical individualities; they do not aim to formulate general laws, but sp ecific relation­ sh ip s b e tw e e n individual phenom ena, and as a result their p rinciple o f causality takes the form of a ‘con crete im putation’; w hat is o f m ost interest in their analysis is that w h ich is indi­ vidual and particular, w h ile that w h ich is gen eral is on ly a ‘m eans’ or a ‘prelim inary task’ for gain in g k n ow led ge o f society proper. Both u se th e scien tific m ethod, but w ith a very dif­ ferent approach. CEPAL REVIEW N.° 9 / December 1979 126 M ed in a fu lly agrees w ith W eber that it is n ecessary to analyse concrete situations in a sc ien tific m anner, but h e d oes not accept the sharp d istin ction that W eber draws b etw een natural and social scien ces. In his view , the natural sc ie n c e s are also interested in individ­ ual p h en o m en a and the social scien ces in gen eral p h en om en a, and m oreover it does not see m correct to him to agree that som e are in tere sted on ly in ‘dom inating' reality and others on ly in understanding it. W ith regard to this p oin t there are two interpretations o f M edin a’s thinking. If one accep ts th e h istoricist version o f M. W eber’s v ie w p o in t as p resen ted by M edina in his early w ritin gs, there is no doubt that M edina’s m eth o d ological p osition falls b etw een the tra­ d itio n s o f W eb er and Com te. M edina h im self g iv es grounds for this interpretation w hen h e states that b e tw e e n them they drew the picture o f th e m eth od ological problem s o f present and future social sc ie n c e .32 If, on the other hand, as se e m s m ore correct, W eberian thinking is c o n c e iv e d as a com bination fluctuating b e­ tw e e n th e analytical and the concrete ap­ proaches, on e m ay con clu d e that M edina in ­ h erited from W eb er the problem o f the coexis­ te n c e o f th ese approaches, both necessary but w ith d ifferen t m eth odological requirem ents. At all ev en ts, by refusing to accept the e x iste n c e o f a sharp d ivision b etw een the approaches o f th e natural and social scien ces, and by u n d erlin in g the p rinciple o f the unity o f th e scien tific m ethod, M edina substantially in creases th e requirem ents p laced on the social sc ie n c e s, sin c e th ese m ust satisfy both the requ irem en ts for the generalization o f the scien tific m eth od typical o f the natural sci­ e n c e s and th e requirem ents for particulariza­ tion in th e con crete analyses called for by the instrum ental nature o f social scien ce. In other w ords, th ey m ust com b in e general w ith cir­ cum stantial k n ow led ge. M edin a points out clearly the tension p rod u ced by the tw ofold requirem ent o f grasp­ in g th e general law and guid in g m en o f flesh and b lo o d in concrete circum stances. In the particular case o f sociology, h e b e lie v e s that 32I b i d p. 24. th e solution consists in d evelop in g approaches at various le v e ls of generality, w hich h e calls h istorical, structural and analytical. Each pos­ se sse s its ow n sp ecific concepts and laws, but th ey m ust m aintain clo se links in order to crossfertilize each other. In his later writings there are fe w sp ecifically historical analyses, and he d evotes on ly on e work to presenting the funda­ m ental con cepts o f the analytical approach, thus clearly indicating that h e prefers the structural approach. W ith regard to this latter approach, he reiterates the n eed to explore thoroughly th e su ggestion m ade by J. S. M ill, and d ev elo p ed by M annheim , o f the ‘principia m e d ia ’, i.e., th ose relationships am ong p h e­ n om en a w h ich , though linked to general laws, are sp ecific to a certain le v e l o f d evelop m en t or a giv en historical phase. At all even ts, how ever, the path towards th e structural and historical approaches m ust b e o p en ed by th e strict and general categories p rovided by the analytical view p oint. I f it is n ecessary to ch oose b etw e en them b ecause th e instrum ental aspiration contradicts the sci­ en tific requirem ents, th ese latter m ust b e pre­ ferred. T h e concrete or instrum ental nature o f sociology “ind icates only an orientation and a service, sin ce as a scien ce it aspires to theory and is subject to the norms for the construction o f sc ie n c e in gen eral” .33 b) R a tio n a l cla rifica tio n : fo rm a l o r m a teria l? T h e ten sio n b e tw e en the analytical require­ m ents o f the scien tific m ethod and the n eed for th e k n o w led g e p rovided b y it to b e capable o f p rovid in g gu id an ce in concrete situations o b lig es M edina to diversify the approaches o f so cio lo g y in order to respect both aims and avoid a co llisio n b etw e en them or the predom i­ nance of on e to th e detrim ent o f the others. H ow ever, th e d efinition o f the con cep t o f ‘rational clarification’ presents him again w ith th e prob lem o f th e inconsistency b etw e en the scien tific and instrum ental aims o f the social sc ie n c e s, sin ce th ey rest on different con cep ­ tions o f reason. It has already b een said that in those years 33Ibid., p. 82. JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri h e p la c e d great trust in the role that scien ce co u ld play in hum an life, asserting that it is b u ilt by m eans o f a ‘m eth od ’ and an ‘attitude’ b a sed on a con cep tion o f reason w h ich h e calls ‘form al’. T h e so le asp ect o f this conception w h ich h e rejects tim e and again is its ‘neutrali­ ty in term s o f v a lu e s’, b ecau se that d ecisiv ely affects th e instrum ental p ossib ilities o f sci­ en tific k n o w led g e. What is the purpose o f the rational clarification o f scien ce if it does not p ro v id e gu id an ce concerning what m ust be d o n e? H ow ever, and here is the problem , the esta b lish m en t o f a norm ative scien ce is based on a co n cep tion o f reason w h ich is different from, and often op p osed to, th e formal con cep ­ tion. In a rather sim p listic w ay it can b é said that this is a d istin ction b etw e en material (absolute, total, d ia lectical, critical, objective, substantial, etc.) reason and formal (relative, partial, instru­ m ental, su b jective, etc.) reason. T h e con cep tion o f material reason holds that it is a “p rinciple inherent in reality” (H orkheim er), and accordingly exists not only in in d iv id u al con sciou sn ess but in the natural and social ob jective world. T he proper u se o f h is rational capacity en ab les man not only to gain k n o w le d g e o f the ‘gen u in e b e in g ’, the ‘real natu re’ o f things, but also to obtain the criteria w h ich w ill en ab le him to gu id e his co n d u ct properly. T o act in a rational m anner m ean s to do so in harmony w ith that broader order in w h ich man and his purposes are in clu d ed . T his con cep tion originated w ith the G reek s, w h o w ere d azzled by the p ossib ilities offered by th e Socratic discovery o f the ‘con­ c e p t’, w as stren gthened w ith the R enaissance d isco v ery o f th e ‘exp erim en t’, received the support o f th e major part o f the rationalists and co n tin u es to th e p resent day in the w id est variety o f forms, including those rooted in u tilitarianism and H egelian marxism. T h e con cep tion o f formal reason also m ain­ tains that it can play an important role in human life , although m uch more lim ited than that im p lie d by th e first conception. Formal reason, c o n c e iv e d as th e su bjective capacity o f the in tellect, can h elp us to dom inate the natural and hum an w orld, to select in the most appro­ priate w ay the m eans o f attaining the ends w e have set ou rselves, to foresee the conse­ 127 q u en ces of our actions, to clarify what are the values or the conception of the world which g u id e our actions, but it w ill n ever perm it us to learn the ‘m eanin g’ o f the world in w hich w e liv e, not its gen u in e nature nor w ill it be able to indicate to us what w e should do. ‘O bjective’ k n ow led ge, the ‘ab solu te’ truth, the ‘essential’ reality, ‘correct’ values are elu sive, timid crea­ tures w h ich can never be com pletely pinned d ow n by formal reason. Although its back­ ground is also longstanding, this school has its theoretical foundation in the illum inists, Hum e and Kant and extends as far as to predom inate in the p resent philosophy o f science. It w o u ld b e a profound m istake to b e lie v e that th ese con cep tion s o f reason are m erely resp on ses to p h ilosop hical su btleties w hich cou ld b e left aside; on the contrary, they exp ress a problem o f considerable political im portance, w h ich stands at the focus o f all contem porary doctrines and clo sely links the p h ilosop h y o f scien ce w ith political ideals. It is clear that M edina fluctuates b etw een th em b eca u se, w h ile the secon d conception see m s to him to b e the appropriate foundation o f th e scien tific nature o f th e social scien ces, th e first is the appropriate foundation for its instrum ental nature. And this latter nature, in th e full m eanin g in w h ich he u ses it — of g u id an ce for th e proper organization o f human affairs, for a reconstruction o f hum an coexis­ ten ce— cannot b e recon ciled w ith a scientific reason w h ich ‘abstains’ at the lev el o f values, w h ich d oes not clearly indicate w h ich are the d ecisio n s w h ich should b e taken, and w hich can on ly a ch ieve relative and provisional k n o w led g e. It has alw ays b een ev id en t that the con cep ­ tion o f m aterial reason underlying the instru­ m ental character w h ich M edina dem ands from th e social scien ce s is clo sely linked to political d octrin es w h ich firm ly aim both at the uphold­ ing and at the transformation o f a given sta tu s qu o. T h e nam es o f Plato, H egel or Marx are su fficien t exam ples. In th ese cases, political doctrine dem ands the legitim acy su p p lied by th e p o ssessio n o f the absolute truth and, if the foundation o f this truth is reason, u se w ill be m ad e o f a p h ilosop h y w h ich ensures that reason p rovides th e m eans o f attaining that 128 truth, from w h ich is d erived not only objective k n o w le d g e o f reality but also the principles for g u id in g action. H ow can on e firm ly justify doctrinaire p rinciples if one is not certain o f p o sse ssin g th e truth? But o f course, if the com ­ m on ep istem o lo g ica l derivative o f this con cep ­ tio n , w h ich b e lie v e s that it can reach absolute truth, is dogm atism , then its political derivative — or a n teced en t— is absolutism ; if the proper u se o f reason m akes it p o ssib le to p ossess the truth, w h y sh ou ld it not b e im p osed on others, w h o , g u id ed by their interests or b lin k ed by ignorance, do not w ish to se e it as it is? T h e con cep tion o f formal reason is stren g th en ed in th e fight against dogm atism , w h ic h alw ays lies in am bush for material reason, and offers a path o f tolerance and effort to reach a provisional truth b y m eans o f ex p e­ rien ce. Form al reason opposes innate ideas, revelation , self-ev id e n t principles, and the p red o m in an ce o f experim ental reason. H ow ­ ev er, this con cep tion has an obvious ‘electiv e affin ity’ w ith certain p olitical doctrines, e sp e ­ cia lly som e m o d em varieties o f liberalism , w h ic h lim it th e p olitical action w h ich can be carried ou t to th e strict lim its o f the provisional truth su p p lied to us by scien tific reason. Sci­ e n c e can in no case tell us what w e should do, s in c e th is d ecisio n b elon gs to the sp ecific area o f hum an liberty; it can only indicate to us w h at w e can do. H ow ever, this indication is also very lim ited , b ecau se o f the provisional and relative nature o f the k n ow ledge w hich scien tific reason can provide. If through it it is o n ly p o ssib le to attain a very fragile truth, it w ill n ev er b e p o ssib le to h old that there is a sc ien tific b asis for a p olitical strategy o f largesca le transformation. In such circum stances, th e rationabor scien tific m anagem ent o f human affairs sh o u ld b e lim ited to the application o f very restricted social en gineerin g. Years after th e first works o f M edina, K. Popper h igh ­ lig h te d w ith his political proposals the close rela tio n sh ip w h ich exists b etw een an ep is­ te m o lo g ica l con cep tion based on formal reason and m oderate p olitical doctrines. T his con cep ­ tion rep resen ts an effort to lim it th e harmful p o litic a l effects o f th e excesses o f material reason — w h o se suprem e exam ple is ‘terror’— and to legitim ate scien tifically a latitude for action w h ich is important for human liberty, CEPAL REVIEW N.° 9 / December 1979 but rapidly slips towards the im plicit defence o f th e sta tu s q u o . B oth con ception s o f reason have their virtues and d efects w h en th ey are con ceiv ed as co g n itiv e and political principles. Formal reason is a d isso lv en t o f all kinds o f dogmatism, at th e sam e tim e as it h elps man to reach his goals, b ut on th e plane o f values and o f ethical and p olitical d ecision s it forbears, giving p rec ed en ce to the free expression o f w ill. This ‘neutrality in va lu es’, w h ich for its adherents is a guarantee o f freedom , is for its critics its fundam ental d efect, sin ce it im plies retreating b efore th e d e c isiv e problem o f the ch oice o f en d s and leavin g the w ay clear not for liberty b ut for irrationalism or technocratism . W ho­ ever, lik e M edina, has w atched the spectacle o f groups and classes destroying each other b eca u se o f their incapacity to reach agreem ent on th e en d s to b e pursued —as in the case o f th e W eim ar R epu b lic and in that o f Spain at th e tim e o f the civil war, to cite only tw o exam p les w h ich w e ig h e d h eavily on him — or th e sigh t o f in tellectu als refraining from offer­ in g solution s, protected by the neutrality in values o f formal reason, can have no doubts about th e danger o f con ceivin g it to b e the on ly typ e o f reason p ossib le. W hen the free exp ression o f individual interests leads to social harm ony, in accordance w ith th e b eliefs o f th e original econ om ic liberalism , all that is n e e d e d is formal reason to en ab le m en to attain as efficien tly as p ossib le the ends w h ich they have freely proposed; but w h en the con flict o f in d ivid u al and social interests leads not to harm ony but to chaos and anarchy, formal reason sh ow s that it is not the appropriate instrum ent for overcom ing the crisis o f the liberal dem ocratic régim es. Again and again, in various forms, the co n cep tio n of m aterial reason recurs in w estern th ou gh t to fill th e trem endous void left by formal reason. Its greatest prom ise lies in b ridging that gap satisfactorily, but its critics do n ot fail to p oin t out that always inherent in it is th e very danger w h ich it was the function of formal reason to avert; material reason might m ask b eh in d an appearance o f rational or scien tific k n ow led ge what is in fact the product o f m ere irrational and interested d ecision s. T he history o f the past and p resent forms o f totali­ JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri tarianism , w ith their p seu d o-scien tific doctrine in w h ich th ey seek justification, is the suprem e en d o rsem en t o f an attitude o f th e utm ost cau tion to th e spread o f material reason. In h is first p eriod, M edina sets out the d ifferen ces b e tw e en the scien tific and instru­ m en tal requirem ents, but does not su cceed in co m b in in g them satisfactorily. W hen it was p o in te d ou t to him —by José Gaos, for exam­ p le — that th e predom inance o f rationalist d eterm in ism w o u ld lead to automatism and th e suppression o f freedom , h e took refuge in formal reason and replied that “ ...sin ce the exh au stion o f th e scien tific fetishism o f the n in e te e n th century, present-day scien ce offers no grounds for m aintaining pretensions to a b so lu te k n o w le d g e ... S cien ce was the first to b e co n v erted to historical reason; but it saves its relativity in th e test o f ex p erien cie” .34 There is no reason to fear that know led ge o f the social sc ie n c e s w ill threaten freedom , sin ce ‘it is not thus that G od p u n ish es u s’; the problem s do n ot d erive from the scien tific nature o f the so cia l sc ie n c e s, but from the ab sen ce o f such a nature. Id eally, scien ce should offer us the so lu tio n to our problem s, sin ce “rationalism and h um anism are so intim ately united that sc ie n c e w o u ld lo se its raison d ’ê tre if it aban­ d o n e d all h o p e o f on e day rationally governing our so cial life. H ow ever, in its p resent state so cio lo g y cannot com p letely fulfil this assign­ m ent, and w e m u st con tent ou rselves largely w ith d em an d in g from it and the social scien ces th e fu llest p o ssib le rational analysis o f the co n d itio n s o f our action ” .35 129 o f w h at m ust b e done— remains outside the sp h ere o f scien ce. N everth eless, it is not b e ­ yond th e lim its o f reason, sin ce it is su scep tib le or rational interpretation by material reason. Paraphrasing th e aged M ill, M. W eber said that w h en em ergin g from pure em piricism on e falls into th e polytheism o f values, and a struggle am ong th e gods is then inevitable; but M edina b ecom es progressively convinced that th e on ly w ay o f avoiding this struggle is the proper u se o f material rationality. In accep ting that ‘valu es’ and ‘m eanings’ are su scep tib le o f material rational analysis — if not, h ow cou ld on e determ ine w hich problem s are socially important and w h ich are not?— M edina m oves away from the n eo­ p o sitiv ist p osition s h e h eld in h is early writings and m oves closer to the ‘critical p hilosop hy’ o f th e Frankfurt school. T o grasp th e m eaning or valu e o f a social action is not the sam e as agreein g w ith th e m anifest m eaning expressed b y th e actor, nor agreeing to place this action in th e m an ifest social w h o le o f w h ich it is part. Rather, it is necessary to u se the critical battering ram o f material reason to penetrate through th e layer o f rationalizations and id eo lo ­ g ie s until on e reaches th e profound m eaning w h ich gu id es th e social action. Material reason and critical reason appear in M edina’s mature thinking; here h e not only continues to recog­ n iz e the ach ievem en ts o f formal rationality, b ut also ack n ow led ges its limits and above all th e danger that formal rationality, after the fact has b e e n separated from the value, the theory from th e d ecision , and after the ch oice b etw een H o w ever, th ese favourable assertions vis- valu es has b een p laced in th e sphere o f irratio­ à -v is formal reason do not leave him satisfied nality, m ay occup y w ith its ow n peculiar values eith er, and con seq u en tly M edina returns to — e sp ec ia lly that o f ‘effectiv en ess’— the gap th em repeated ly in h is later writings and left by m aterial rationality. Already, in 1969, reform ulates his considerations concerning the h e p oin ts to th e danger o f the destruction o f p rob lem s o f reason on the basis o f a clear any form o f reason w h en “ it goes beyond the d istin ction b e tw e e n formal and material ratio­ fie ld o f its effective potentiality” ,36 and in his nality. H e co n ce d e s that, in a strict sen se, and last essay h e reiterates that the “revitalization in accordance w ith th e prevailing philosophy o f dem ocracy” d ep en d s to a large extent on a o f scien ce , scien tific reason is only formal w ill “to transcend instrumental rationalism and rationality, and accordingly the m om ent o f the o n ce again found th e legitim acy o f dem ocratic d e c isio n w h ich in volves values — the ch oice rule on th e suprem e values o f a form o f human 34“E n busca de la ciencia del hombre” , in Responsa­ b ilid a d de la inteligencia, op. cit., p. 31. ^Sociología: teoría y técnica, op. cit., p. 74. ^ “ La planeación en las formas de la racionalidad” , in Sociología; teoría y técnica, op. cit., p. 100. 130 CEPAL REVIEW N.° 9 I December 1979 so ciety w h ich has a real significance for man and his com m u nity” ,37 In short, as regards the p ossib ility of a ‘rational p o lic y ’ it is clear that M edina always sought, through all th e forms o f rationality, the m ost appropriate m eans o f rationally guiding con d uct. At th e ou tset h e placed his trust in the rationality o f scien ce; later, w h en he recog­ n iz e d th e lim its o f that type o f rationality — its in ev ita b le ‘neutrality in v a lu e’— and the dan­ gers o f its ex c esses, he endeavoured to inte­ grate it w ith material rationality, in order to fin d a settin g w h ich afforded scope for rational d isc u ssio n and agreem ent, not only on the formal relation o f m eans w ith ends, but on the en d s th em se lv es. H ow ever, w h en h e turned to m aterial reason and the analysis o f the social con d ition s in w h ich it can exist and d evelop , h e k n ew that h e had com e to the very heart o f his ow n cogn itive and political utopia. T he rational conduct o f human affairs is p ossib le by m eans o f formal and material rationality — in other w ords, rational d ecision s can be reached on the technical and political lev els— but it is in d isp en sab le to create such social con d ition s as w ill perm it the d ep loym en t o f both rationalities. In the absence o f th ese con d ition s, and d esp ite all M edina’s efforts and h op es, there w ill b e ‘no eb b in g o f the tow erin g w ave o f irrationality that is engulfing u s’, sin ce th e d estin y o f dem ocracy is on e w ith th e d estin y o f reason. II In search of the object of sociology E v e n a superficial reading o f M edina’s initial w orks clearly indicates that they are d evoted to ju stifyin g and firmly d efen d in g the scientific nature o f sociology and clarifying its object of analysis. U nfortunately, this is not a d iscipline w h ich has an object and a m ethod w hich are co n so lid a ted and accepted, but on e full of a cad em ic and id eological conflicts. For this reason his task consists not in m o v in g forward easily along the path b uilt by h is p red ecessors, but in overcom ing w ith d ifficu lty a d en se theoretical and m ethodo­ logical tangle in order to establish firmly the esse n tia l foundations for the d evelop m en t o f a rigorous social scien ce: the appropriate use o f th e scien tific m ethod and the precise d elim i­ tation o f its object. W ithout doubt it w ould h ave b e e n ea sier for him to accept from the o u tset som e particular theoretical position, w ith o u t asking it or h im self bothersom e q u es­ tions con cern in g the philosophical assum p­ tions on w h ich it was based; but such super­ 37“ Notes on the future of the Western democracies”, C EP A L R ev iew , N.° 4 (second half of 1977), p. 134 (United Nations publication, Sales N,°: E.77.ILG.5). ficiality w as not com patible w ith M edina’s tem peram ent, nor w ith the principles w hich, in his v ie w , d efin e the task o f an intellectual. H e had to s e le c t the m ost correct ‘solution’ on ly after a thorough exploration o f all the options op en to him; each o f them had to be an alysed and evaluated in order to grasp and retain its p ositive aspects. This process o f analysis and evaluation ob liges him to go d e e p ly into philosop hical labyrinths from w h ich it is difficult for him to em erge un­ scathed, as has already b een pointed out in th e previous chapter d evoted to outlining the foundations on th e basis o f w hich M edina affirms th e scien tific nature o f sociology. T he task is difficult both for him and for anyone w h o proposes to follow the evolution o f his thinking clo sely and in detail, sin ce in this explanatory process it is p ossib le to lose o n e ’s bearings, d evote part o f the tim e to penetrating along paths w hich turn out to be dead en d s, or to allow o n e se lf to be guided by brilliant lights w h ich prove to be m ere w ill o ’ th e w isp s. All this happens to M edina w h ile h e is seek in g the object o f the social scien ces, and sin ce this search is reflected in his writ­ ings, th ey can prove tiresom e for anyone who JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE I Adolfo Gurrieri is not d eterm in ed to travel together w ith the author along th e w in d in g road. Furthermore, sin ce h e is subject to various influences, and his in tellectu al h onesty and scientific zeal alw ays prom pt him to set out all those w hich h e d eem s important, som e of his texts can give th e le ss alert reader an im pression o f tiresom e erudition. After an alysing the problem s relating to th e scien tific nature o f sociology set out above, M edin a d evotes the first stage to clarifying the sco p e o f th e social scien ces and precisely o u tlin in g th e sociological perspective. H e b eg in s this work in a system atic way in the m id -1930s — his first sociological work had already b e e n w ritten by 1936— continues m o u ld in g his ideas through books and articles durin g h is stay in M exico, and shapes them fin ally — as far as this subject is concerned— towards the en d o f the 1940s in his Lecciones d e so cio lo g ía (L ectures in sociology) given at th e U n iversity o f Puerto Rico, o f w hich only an in co m p lete typ ed version exists. It has already b een m entioned that be­ ca u se o f h is character, op en to any useful contribution, h e is subject to many influences from differen t ideological or academ ic back­ grounds. It seem s clear that even in the initial years h e is in flu en ced by som e authors from G erm any (M. W eber, K. M annheim , H .F r e yer), France (A. C om te and E. Durkheim), E n glan d (H. Spencer and M. Ginsberg) and North Am erica (J. D e w e y , F. Znaniecki and T. Parsons). H is mature version o f the sociological p ersp ective basically consists o f a com bination o f various E uropean schools o f thought, esp e­ cia lly th e W eberian school, w ith contributions from th e North Am erican school, the latter no d ou b t an alysed in detail during his stay in P uerto R ico b e tw e en 1946 and 1952. As is w e ll know n, this theoretical com bination has not b e e n attem pted only by M edina, since various thinkers, each in his ow n way, have en d ea v o u red to follow the same path, among th e m ost outstanding exam ples in the U nited States b ein g T. Parsons, C. W. M ills and R. B en dix. Parsons’ influence on M edina is ob v io u s — at least in the 1950s— but as far as th e others are concerned, there seem s to have b e e n , rather than a direct influence, the affinity typical o f th e m em bers o f a sin gle school of thought. 131 S ocial fa c ts: a ctio n an d situ a tio n 1. A clear id ea can be gained o f M edina’s con cep tion of the object o f the social scien ces i f h is b asic assum ption is follow ed through from th e beginning: just as all the social scien ce s m ake u se o f th e scien tific m ethod, th ey also share a sin gle o b jec t— ‘social reality’, ‘social facts’— although they differ in the type of social facts w ith w hich they deal and/or the p ersp ectiv e from w h ich they study them. B ut w hat does h e m ean by social reality, social facts? B asically th ese are hum an activi­ ties, actions, behaviour, by m en w ho act in various w ays; in short, a “fabric o f hum an acts w ith their an teced en ts and results” .38 T h ese hum an acts, therefore, do not occur in a vacuum b u t have as a framework and influence ‘ante­ c e d e n ts’ o f various kinds and, in addition, generate as a product o f their ow n d evelopm ent ‘resu lts’ w h ich can b e transformed into the con d ition s for n ew actions. H ow ever, in his first w ritings h e em ph asizes that the nucleus o f social reality, hum an action, m ust be d is­ tin g u ish ed from its anteced en ts and its results, and firm ly rejects all conceptions w h ich claim to ‘re d u ce’ such action to the latter. ‘Naturalist reduction’ asserts that social facts are natural phenom en a w h ich can be grasped w ith th e conceptual instrum ents o f natural scien ce and, therefore, that the social sc ie n c e s are natural scien ces. T his conception has a num ber o f variants d ep en d in g on the natural p hen om en on in w h ich it is sought to b len d th e social fact; the m ost w idespread in clu d e th ose w h ere human behaviour is a m anifestation o f th e organic constitution of man, an exp ression o f instincts or ten d en cies w h ich constitute his dynam ic principles; and th ose w h ich con sider it to b e a con seq u en ce o f th e natural or physical en viron m en t T h e ‘culturalist reduction’ regards the social fact as ‘cultural’ or ‘spiritual’, as a m anifestation o f culture or o f the spirit. This con cep tion also has a num ber o f variants — historicism , H egelian ism , p henom enology, and so on— w h ich postulate the existen ce of totalities o f m eaning, m anifestations o f the o b jective spirit or spiritual esse n c es such as 38Sociología: teoría y técnica, op. cit., p. 56. CEPAL REVIEW N.° 9 / December 1979 132 art, law or m orals, and im agin e th em as ab­ stract, c lo se d and in d ep en d en t entities. M ed in a rejects both reductions. It is u n d en ia b le that hum an b ein gs are on e with th eir ‘an im ality’ and for that reason are subject to te n d e n c ie s sim ilar to th ose o f other sp ecies, but hum an action includ es som ething more than th e natural conditions in w h ich it is carried out. It is also true that man is im bued w ith or in flu en ced by culture, and that the exp ression s o f culture can be ‘grasped' from th e so ciety in w h ich they arose and can b e c o n c e iv e d as more or less consistent, ordered and in d ep en d en t w h oles. H ow ever, here too it sh o u ld not b e forgotten that they are human products and that what is important for the so cia l scien ce s is not th ese cultural en tities in th e m se lv e s, but th e activities by m eans of w h ich th ey recreate and actualize th em selves, taking form in hum an behaviour. T he ‘culturalist reduction' tend s to “cut off culture from its vital roots, then bring man face to face with it and finally, very often, attribute to any one o f th e cultural products a d ecisiv e pow er over m an h im s e lf ’.39 It is true that natural and cultural elem en ts are so in terlin k ed that it is often p ossib le only to d ifferen tiate them analytically; the origins o f m any cultural expressions can be traced to their natural basis, w h ile many m anifestations o f internal and external nature are m ere by­ products o f culture. But hum an activity cannot b e red u ced to either, or to any com bination o f th e tw o. T h e irreducible nucleus o f action by m an is the action itse lf — w ith its content o f in ten tion , purpose, aim, m eaning— and th o se a n teced en ts and results are only stim uli, m ean s, ob stacles to it. T im e and again M edina reiterates that to a large exten t man —con ceived generically as a species-^- creates h im self by constructing through h is activities the circum stances w hich in flu e n c e his behaviour. Accordingly the approach o f th e social scien ces should analyse h o w natural and cultural conditions m ould hum an behaviour, and also h ow man uses these co n d ition s — w ith in the framework o f his sp ecific so ciety — to ach ieve the aims he has 39/¿»Í£Í., p. 6. set h im se lf or ch osen , sin ce it is through this ch o ice that h e can express his relative freedom from th ese conditions. H um an activity is in clu d ed in physical and biological nature but transcends it because o f its ‘m eaning', w h ose importance is not p erc eiv ed by naturalism . Culturalism , for its part, crystallizes, ‘substantializes' this m ean­ ing, w ith ou t p oin tin g out that social reality is activity and not crystallized culture. Nature and culture are com ponents o f human activity, b ut th e n u cleu s o f the latter cannot be under­ stood through the separate consideration o f its com pon en ts, nor through the exclusive anal­ ysis o f its products or results. T h e con cep tion form ulated by M edina in his first socio lo g ica l w ritings on social facts is clarified w h en it is com pared w ith those o f M. W eb er and E . D urkheim . T he former holds that th e sp ecific object o f analysis in sociology — in so cio lo g y alon e, and not in the other social scien ce s— is ‘social action'. Taking the total set o f hum an actions h e establishes a d istin c­ tion b e tw e e n actions w ith m eaning and b e­ haviour w h ich represents a m ere reaction. A ctions w ith m eanin g are those to w h ich the actors carrying them out give an orientation in accordance w ith certain criteria or principles (w h ich are not n ecessarily nor usually ethical), w h ile reactions are m ere responses, largely autom atic, to internal or external, natural or cultural stim uli. A m ong actions w ith m eaning h e d istin g u ish es social action, w h ich are those w h ere th e m eanin g granted to them by the actor relates to, or takes into account, the actions o f others. In other words, a social action is not a m ere reaction to internal or external stim uli, but has an orientation, a m eaning, w h ich takes into account the actions o f others. M edin a agrees w ith W eber that actions w ith social m eanin g — i.e., those related to the b eh aviou r o f others— are the nucleus o f so­ cio lo g y (and, in h is v iew , the other social scien ces), but d oes not follow him in the sharp d istin ction h e proposes b etw een actions with m ean in g and reactive behaviour, or, as a result, in a sociology w h ich leaves aside considera­ tion o f the natural conditions o f human action. In other w ords, w h ile he does not agree that hum an action sh ould b e redu ced to its natural b asis, nor d oes he feel that it is desirable that JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri th e latter sh ould disappear from the analytical p ersp ec tiv e o f sociology. A ccording to D urkheim , in all spheres of hum an activity there are ‘social facts’ w hich are th e subject o f sociology — custom s, prac­ tices, habits, con ven tion s, legal norms, ways o f acting, th inking and feelin g, and so on— and w h ich are ob jective in nature, that is to say, ex ist in d ep en d en tly o f the individual and, to a large extent, are im p osed on him. T hese social facts p o ssess an ‘ob jective’, ‘real’ nature; th ey h ave b een created by man but have b eco m e in d ep en d en t o f him and assum ed their o w n ex iste n c e. T o man th ey appear as ‘objects’, w ith th eir particular nature, their internal lo g ic and their im perative character, esp ecially w h en th ey have reached a high le v e l o f con­ solid ation , as occurs w ith language or legal norm s. T h ey are not ‘m aterial’ facts lik e natural facts, but th ey are ju st as real; and they are not hum an action, although they m anifest them ­ s e lv e s through it. W here M edin a differs from D urkheim is clear: for th e latter social facts are the con­ so lid a ted ‘in stitu tion s’ in w h ich human activity takes p lace, w h ile for M edina they are human action itself, th e actualization o f those institu­ tions. 2. As early as in his first book, w h en trying to en com p ass in a sin gle term the particular features o f social facts —and esp ecially how th ey differ from natural and cultural facts— M edin a terms them ‘forms o f life ’. 4 T he echoes 10 o f E. Spranger in this term do not appear to be a ccid en tal, sin ce that author also seeks to esta b lish a d eg ree o f order in the m ultiplicity o f in d ivid u al forms o f behaviour through the con struction o f id eal types o f ‘m en ’ — theo­ retical, econ om ic, political and so on— w h ich characterize their conduct through the predo­ m in an ce o f on e giv en orientation o f m eaning and value. M edin a indicates som e characteristic features o f th ese ‘forms o f life’, w h ich differen­ tiate th em from natural and cultural facts. It is true that they are less consistent than the latter, b u t they have a characteristic internal 40Panoram a de la sociología contem poránea (La Casa de España en México, Mexico City, Fondo de Cultura Económica, 1940), p. 208 e t seq. 133 nature. Natural and cultural objects are ‘exter­ n al’ to hum an b eings, but social facts are “ sp ecific m odes adopted by existence in realiz­ ing itself” , and they cover all human life b eca u se “th ey w ou ld have no existence w ith ou t us and w e w ou ld have no reality w ith ou t th em ” . W e cannot stand outside them and ob serve them as if w e w ere observing a storm or a picture, and for that reason they form a ‘vital reality’ w h ich is the object o f ‘con tin uou s hum an execu tion ’; their destiny is lin k ed to the d estin y o f m en, and “T he forms t hum an activity ] takes are forms or m odes o f hum an life i t s e lf ’.41 H ow ever, it should be m en tion ed that his form ulation o f social facts varies over the years; this is not suprising, sin ce h e analyses this su bject in w ritings ranging from 1936 to 1955. T h e form ulation ou tlined above corresponds to that o f th e first works, b etw e en 1936 and 1941, and there on e can clearly see his ea­ gern ess to p reven t the social scien ces from b e in g d evou red b y som e o f the naturalist or culturalist ‘redu ction ism s’ so prevalent at that tim e. A lthough h e indicates the important in flu en ce o f natural and cultural ‘con d itions’ on social action, the im pression som etim es rem ains that h e focuses less interest on them b eca u se h e h igh lights th e sp ecifically social com ponent, hum an behaviour, always in action, in fie r i. In su b seq u en t w ritings he continues to affirm th e creative and innovative p ersistence o f hum an activity, b ut d evotes m uch more sp ace to th e con d itions w h ich gu id e it and restrict it, and also m akes m uch more frequent m en tion o f D urkheim and his in sisten ce on th e im perative nature o f th ese conditions. For exam ple, in his L eccion es d e sociología o f 1948 (p. 36 e t seq.) h e reform ulates the condi­ tions o f hum an activity w ith his concepts o f m entefacts, artefacts and sociofacts.42 41Sociología: teoría y técnica , op. cit., p. 59. 42Mentefacts are the products of thought, especially ideas, which appear in the form of objectified and ins­ trum ental symbols; artefacts consist of anything which man has made with his hands, from the simplest tools to the most complicated machines; and sociofacts are the “construc­ tions of social coexistence” , everything which constrains behaviour, from the most elementary customs to the most complex institutions. They are all creations of man which 134 E v e n in that text, and more clearly in another w ritten in 195543 h e m odifies the m ea n in g o f his con cep t o f ‘forms o f life ’ to in c lu d e not on ly hum an action but also the co n d ition s in w h ich it is carried out. T h ese cultural, m aterial and social conditions are the co m p o n en ts o f th e forms o f life w hich shape hum an conduct by their com pulsory nature. In addition, there are forms o f life w h ich are total — th ose w h ich are sp ecific to the various ty p es o f civilization s— and partial, w hich corresp on d in particular to the various social in stitu tion s and roles prevailing in a given so ciety; analysis o f the latter was later to co n stitu te on e o f the favourite subjects of an alysis in his sociology o f d evelop m en t. At all ev en ts, w hatever em phasis M edina d e e m e d it ad visab le to p lace on analysis o f the co n d ition s at various stages in the evolution o f his th ink in g, there is no doubt that he always regarded action, ‘social b eh aviour’, as the ce n ­ tral n u c le u s o f th e object o f the social sci­ e n c e s .44 3. ‘S ocial facts’ are n ever finally facts but have to g en erate th em se lv es every day in the re­ p ea te d acts w h ich give them reality. But this d o es not p reven t them from occurring in a rela tiv ely ordered form; on the contrary, they p resen t ‘form s’ w h o se con sisten cy derives from th e various m eanings o f the action. If the n u c le u s o f social facts is m ade o f activities w ith m eanin g, the various m eanings o f the exert a wide, changing and omnipresent influence on his behaviour. 43 “Tres aspectos sociológicos del desarrollo econó­ mico” (1955), in A sp ecto s sociales del desarrollo económ i­ co (Santiago, Ed. Andrés Bello, 1955), p. 82 et seq. 44In his Lecciones he once again emphasizes this subject with particular brilliance: “ ...from the perspective of life in general man appears to us as a being in a situation. And from this situation, for which in principle he is not responsible, he can only escape in order to fall into another” . But this situation “is in addition something open and unfinished, movement within the movement, the present moment of the history which we represent. Thus we make our history w ithin the history which has made us... W ithin the limits of this fate, within the framework of this situation, however, operates the freedom which makes us w hat we are and shapes and modifies the situation itself. It is a creative liberty, it makes our personality, society, history; but it is not an unlimited and omnipotent freedom, for it can never go beyond its situation” . Lecciones de sociología, (mimeographed version of his lectures at the University of Puerto Rico, 1948?), pp. 189-190, CEPAL REVIEW N.° 9 í December 1979 action are also the criteria on the basis o f w hich th e various types o f social facts, the different forms o f life, are differentiated. M edin a d istin gu ish es tw o aspects in the orientation or m eaning o f actions, w hich con stitu te an essen tial foundation for his con cep tion o f the object o f the social scien ces. T h e various types o f action can be differentiat­ ed according to their con tent or purpose — for exam ple, econom ic, political, religious, m ili­ tary, and so on— and by the m ode or form in w h ich they are carried out (for exam ple, ra­ tional, traditional, affective, and so on). M edina finds in the first o f th ese criteria the key w hich en ab les him to d istin gu ish the various spheres o f ordered hum an activity. In other words, the individual social scien ­ ce s concentrate on the study o f special types o f social action differentiated by their aim or content. E con om ics analyses those activities o f m an w h ich are aim ed at satisfying his material n eed s ; p olitical scien ce th ose w hich are aim ed at m e etin g requirem ents in organization and control; and sim ilarly for the other individual d isc ip lin e s w h ich “ set out a list o f issues focu sed around a particular type o f human action ” 45 A n a ly tic a l sociology a n d con crete sociology I, But what is the sp ecific object of soci­ ology? T his question is usually given three typical answ ers w h ich are not necessarily mutually exclu sive: firstly, sociology m ight attempt to d efin e its object by d elim itin g a range o f activities characterized by their ‘social’ pur­ p o se, in contrast to those w h ich have econom ic, p olitical or other purposes; secondly, it might focus on the study o f a formal aspect or d im en ­ sion p resent in all hum an activities, w hatever their purpose; or, finally, it m ight claim that its object is the overall social structure in ­ v o lv in g th e partial spheres to w hich all the ind ividu al social d iscip lin es relate. M edina rejects the first answ er and, fo llo w in g M annheim , holds that sociology con stitu tes its object on the basis o f the per­ sp ectiv es im p lied in the tw o rem aining replies; 45Sociología: teoría y técnica, op. cit., p. 92. JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri in other words, it is at on ce ‘analytical’ and ‘co n cr ete’. H o w ever, th ese concepts require clarifica­ tion. T aking on e step beyond what has already b e e n said in the previous chapter, and inter­ p retin g to som e exten t M edina’s im plicit think­ ing, w e m ay assert that th ese concepts are located in an area crossed by two fundamental d im en sio n s. On the on e hand, the approaches vary w ith the le v e l o f abstraction (or con­ creten ess) used: there are approaches, con­ cep ts and th eories w h ich are ‘general’ in that th ey refer to p h enom en a characteristic o f any hum an society; ‘typ ological’ in that they en d eavou r to grasp social facts w hich are sp ecific to certain types o f society, such as, for exam p le, the peripheral capitalist societies; or ‘in d iv id u a l’ in that they are interested in p h en o m en a b elon gin g to a given society. On th e other hand, the approaches also vary with th e u nit o f analysis regarded as appropriate: in this case th ey range over the broad area ex ten d in g from ‘m icro-social’ analysis o f social actions and relations at the interpersonal level to the ‘m acro-social’ study o f broader forma­ tions — groups, institutions and their relation­ sh ip s— at the structural level. M edina makes m any o f his m eth odological considerations by taking as a reference the extrem es o f this co m b in ed classification: the general and inter­ personal approach, w h ich he usually sim ply calls analytical, and the historical and struc­ tural approach, w h ich h e usually terms con­ crete. A nalytical sociology has a tw ofold attrac­ tion for M edina: its constituent elem en ts are a n ecessary con d ition for any theoretical formu­ lation, so that the effort devoted to them is n ev er w asted, and, m oreover, how elegant th eir con cep tu al constructions are! W hen in Panoram a de la sociología con­ tem p o rá n ea (p. 203 e t seq.) he review s the analytical p ersp ective, h e does so on the basis o f th e th ink in g o f G. Sim m el, on e o f the m ost e n erg etic b uilders o f this theoretical path. S im m el reacts against the encyclop aed ist te n d e n c ie s o f m any classics in the d iscip lin e, d efin es social facts in a ‘sp ecial’ and not ‘total’ w ay, and op p oses the theory o f socialization to th e theory o f society. H e does not try to find a n ew object for sociology, but sets out the 135 sociological p ersp ective on the basis o f w hich it is p o ssib le to analyse the objects already in vestigated by the other social disciplines. He b e lie v e s that he can found this p erspective on th e already ou tlined separation b etw een th e ‘con ten t’ or purpose o f the action and the ‘form ’ or m ode in w hich it is carried out; sociology should study the forms assum ed by hum an action, w hatever their content — in short, d evote itse lf to analysis o f the ‘forms o f socialization ’. Sub seq u en tly, in Sociología: teoría y técn ica , M edina returns to the subject w h en a ssessin g the contribution o f F. Znaniecki. T his author m aintains that, w h ile each o f the ind ividu al social d iscip lin es has its own sphere, there exist sim ilarities o f structure b e tw e e n them w h ich derive from the fact that all study human action, and, for that reason, a d isc ip lin e is n eed ed w h ich formulates a gen ­ eral theory o f action. For his part, M edina em ph asizes: “ ...beforehand, and as a founda­ tion for the d etailed research undertaken by th e individual social scien ces on the various classes o f action, it is p ossib le and necessary for so m eo n e to study social action in itself and construct its theory” ,46 and this som eone is th e analytical sociologist. All the individual social scien ces formulate their theories on the b asis o f assum ptions relating to human action — thus th ey postulate the existen ce o f ‘ec o ­ n om ic m an’, ‘political m an’, and so on— w hich m ay not b e valid or acceptable, and m ust therefore b e analysed by this general theory o f action or analytical sociology. In M edina’s v iew , this sociological per­ sp ective offers an important point o f departure for understanding o f the social world, but does not exhaust the role that sociology can play, sin ce it is not capable o f overcom ing all the shortcom ings of the partial view p oints o f the ind ividu al social scien ces. T h ese scien ces “work w ith their backs turned to the situation as a w h ole, on th e basis o f artificial construc­ tions im p osed by their fragmentary point o f v ie w ” .47 T he ‘sp ecia l’ actions w h ich they study im ply abstractions in a dual sense; on the one 4& id., p. 93. Ib 47Ib id., p. 96. 136 hand, there is a sin g le answ er o f the actions w h o, although h e pursues different purposes, is an in d iv isib le 'person’; on the other, what­ ev e r th e sp ecial purpose o f the action, the overall structure in w h ich it is carried out has a d e c is iv e in flu en ce on it. For this reason, in order to understand a social action it is n ece s­ sary to k now the relationship it has w ith other actions and w ith th e w h o le —person, institu­ tion, group and social structure— within w hich it is in clu d ed . A d iscip lin e is required, there­ fore, w h ich su cceed s in ach ievin g a persp ec­ tiv e o f th e w h o le, w h ich studies society as a w h o le, and w h ich does not claim to expel or replace th e other social scien ces, but makes u se o f them : th is is concrete sociology. To u se the term inology w hich Albert O. H irschm an popularized w ith another theoret­ ical aim in v iew , the sociological perspectives w h ich M edina suggests have ‘forward’ and ‘backw ard’ link ages w ith the other social sc ie n c e s, sin ce on th e basis o f the materials w h ich th e latter p rovide, they h elp then to rev ise their assum ptions and ach ieve a synthe­ sis o f their findings. T he sociological view is alw ays a cross-section, sin ce it penetrates through th e other social scien ces and brings them lin es o f contact at the base and the peak o f their theoretical constructs. S o ciology n eed s both the analytical and th e con crete p ersp ective, but the latter is ‘its o n ly raison d ’ê tre , M edina underlines that this con creten ess w as im posed on sociology at its origins by C om te. For Com te social reality is a w h o le — a se t o f interd ep en d en t parts w h ich cannot be understood in isolation, but o n ly in th e totality o f their mutual relations— that has a historical nature w h ich must be resp ected in th e theoretical p ersp ective with w h ich it is tackled. 2. In th e L eccion es d e sociología he prepared in Puerto Rico, M edina presents his analytical so cio lo g ica l theory, m ade up o f a set o f general and system atic concepts. After h is lon g preoccupation w ith social action it d oes not seem strange that h e should construct his analytical sociology on the basis o f it, sin c e h e regards it as the “irreducible u n it” o f social reality. As a result, on the basis o f social action and follow in g the main thrust o f th e W eberian orientation, M edina puts in CEPAL REVIEW N.° 9 1December 1979 place th e fundam ental parts o f a theoretical ed ifice the culm ination o f w hich highlights th e con cep t o f social structure. In this way, b e tw e e n th e tiny individual social action and th e overall structure o f society are found all the con cepts w h ich , interw ined, make up his analytical sociology. N everth eless, it cou ld be argued w ith ju stification that h e m ight w e ll have ch osen the reverse route, and begun his analysis on the basis o f th e con cep t o f social structure, so as to h ig h lig h t conceptually the predom inance o f structural over analytical sociology. H ow ever, eith er from pedagogical n ecessity, or because h e w ish ed to follow the exam ple o f his teachers M. W eber and G. Sim m el, or becau se he was d azzled by the architectural elegan ce o f his constructs, h e did not b egin w ith the w hole, b ut w ith the m ost elem entary unit and, further­ m ore, sp en t m uch tim e on analyses w hich are very su ggestive, but also rather formal and abstract, in the b est style o f the second o f the teachers m entioned. At all even ts, com pared w ith previous exam ples his exposition is more rigorous and system atic, and it is p ossib le to draw from it, w ith ou t major difficulties, the fundamental con cepts w ith w h ich h e formulates his so ­ ciological theory and w h ose understanding is u nd ou bted ly ind isp en sab le in order to tackle his sociology o f d evelopm ent. After d efin in g social a ctio n , like W eber, as that action w h ose m eaning is related to the action o f others, h e d istinguishes within it tw o basic com ponents: the a cto r or person w ho carries out the action, and the social situ a tio n in w h ich it is carried out. T here are only two types o f actors or units o f action, in d iv id u a ls and groups. Individuals are by th eir very nature subjects o f action, since th ey alone possess corporeal reality, awareness and w ill, but groups also have a sp ecific reality, w h ich can b e grasped em pirically. T his reality o f th e groups d erives from the fact that they are c o llec tiv e units o f action w h ich carry out in an articulated, organized m anner activities that cannot b e carried out by individual action. T h e actions carried out by th ese individual and co llectiv e units are usually not chaotic and disordered but, on the contrary, are charac­ terized by their uniform and continuous repeti- JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE I Adolfo Gurrieri tion over tim e. T his characteristic o f social actions d erives from the circum stance that the actors conform to a greater or lesser extent to b eh aviou r patterns w h ich they find already form ed in their society. In his social situa­ tion th e actor encounters n o rm a tive orien ta­ tio n s w h ich indicate to him both what h e sh o u ld do (purpose o f the action) and how h e sh o u ld do it (technical orientation o f the ac­ tion); c o n fo rm ity exp resses acceptance o f and co m p lia n ce w ith the normative orientations o f th e social ‘m o d els’ o f action, and is in turn th e basis for th e social cohesion w hich is m a n ifested in th e fact that all actors share in th e com m on m eanings, en d s and values, and in th e force o f the links w h ich unite them . T h e fact o f conform ity is central in the so cio lo g ica l p ersp ective, since it is the prin­ cipal link b e tw e en the actor and his situation, and its in flu en ce is so profound that not only is man m ou ld ed b y society, but in m ost cases freely accepts such m oulding. T h e conform ity o f the actors w ith their norm ative orientations is produced by tw o fundam ental factors. Firstly, by social p re s­ su re , w h ich lik e atm ospheric pressure is im p ercep tib le, w idespread, constant; its con­ tribution is culture, and its constituent e le ­ m ents th e m en te fa c ts , a rte fa c ts and socio­ f a c ts already m ention ed . Secondly, by social c o n tr o l, w h ich is p ercep tib le, sp ecific, d elib ­ erate; it requires organs and instrum ents for its ap plication, and its support is pow er. T h e norm ative orientations w hich m ould th e activity o f th e individual and co llectiv e units o f action together form a sort o f overall n o r m a tiv e o rd er, but are also, at a more lim ited le v e l, grou p ed into tw o ‘units for normative co-ordination o f action ’: the roles and in stitu ­ tio n s w h ich g iv e the norm ative orientations a sp ecific shape. T h e roles are sets o f normative orienta­ tion s w h ich refer to a social activity or posi­ tion and therefore d eterm in e a given series o f rights and obligations. T he institutions are u nits o f co-ordination w h ich shape large areas o f activity; th ey are not units o f action, as is so m etim es thought, but th e units o f action act w ith in their framework, in conformity with th eir ‘institution al patterns’ (econom ic, p oliti­ cal, ed u cation al, and so on). T he con cept o f a 137 role is o f central im portance in this perspective, b eca u se not only are the institutions sets of organ ized roles for th e ach ievem en t o f a given c o lle c tiv e purpose, but in addition th ese con stitu te the basis o f the notion o f a person, i.e ., th e ind ividu al con ceived as th e support for a set o f social roles. So far all the concepts h ighlight the in­ flu en ce of the norm ative orientations on b e­ haviour; M edina holds that this is the typical sociological p ersp ective, theoretically very fruitful but also very incom plete. O f central im portance for his p ersp ective is the idea that social phenom en a are strained by opposing trends, are subject to ‘polarities’ w hich cannot b e resolved d ialectically but may at b est reach a b alance am ong th em selves. It is the already m en tio n ed interaction b etw een action and situation. Both trends are always necessary; w ith ou t conform ity societies d issolve, but w ith ou t nonconform ity there is no d evelo p ­ m en t or creation. T he sam e occurs w ith the te n d en cies p resent in any individual: the ‘m ou ld ed e g o ’ adapts and conforms to the p revailin g order and is a reflection o f its situa­ tion, w h ile th e ‘innerm ost eg o ’ rebels, inno­ vates, creates. On the lev el o f the relationship b e tw e e n units o f action and co-ordination, therefore, there exists a dual trend towards conform ity and reb ellion w h ich is on e o f the n u c le i o f M edina’s theory. H e adopts a sim ilar position w h en he an alyses som e o f the basic social relations b e tw e e n the actors. As a backdrop to all the m ost con crete social relations and an irreduc­ ib le com pon en t o f any form o f coexisten ce stand con cord and d isc o rd , w hich em erge as an exp ression o f the human passions and d em an d the formulation o f a sociology o f affective life. At a more concrete le v e l he sk etch es, in often brilliant pages, som e opposi­ tions w h ich are m anifested in classical social relations: c o n ta ct and isolation , co m p etitio n and co -o p era tio n , a u th o rity and o bed ien ce, d ifferen ces b etw e en types o f sta tu s and b e ­ tw e e n th e so cia l stra ta . T h e se social relations represent the social fabric, th e threads w ith w h ich m en w eave and unravel it, b ecau se th e ‘brilliant tapestry’ o f th e historical process always show s on its reverse sid e th e h um ble and patient fabric of 138 CEPAL REVIEW N.° 9 / December 1979 ev eryd ay actions, and they may b e view ed from a dual p ersp ective: as 'processes’ w hich u n fo ld over tim e, or as ‘stru c tu re s’ w hich are th e co n solid ated result o f this unfolding at a g iv en m o m e n t It has already b een said that M edina, for various reasons, notably the attraction exerted by th e eleg a n ce o f strict con cept and architec­ ture — as happens to many econom ists with neo­ cla ssica l th ink in g— analyses and appraises the con trib u tion o f th e interactionist school w hich con cen trates on the analysis o f social relations at th e interpersonal lev el. But he points out that so cio lo g ica l theory cannot stop there and must turn to th e study o f the co llectiv e units o f action and th e in stitution s, for only through them can th e so cia l stru c tu re b e observed. On the one hand, h e asserts that the “physiognom y o f a g iv e n so ciety d ep en d s on the character o f its predom inant, axial groups” ;48 the internal organization o f th ese groups — their values, norm s, m eans, distribution o f functions and roles— and their relationships are an essential c o m p o n en t o f th e social structure. On the other, th e institution s constitute th e broader ‘struc­ tural settin g ’ o f any society. It is true that this institution al p ersp ective should b e u sed with caution, sin ce it can lead to a very general and abstract approach or to a m istaken reification o f th e institutions —problem s w hich functional­ ism has often not b een able to overcom e— but it also p o ssesses major virtues becau se o f its structural nature. In h is su b seq u en t stu d ies on the sociology o f d e v elo p m en t M edina was to exam ine more thoroughly both the groups and the social roles s p ecific to th e econ om ic institutions and, in particular, w as to explore the relations b etw een th e ec o n o m ic institutions and political and ed u cation al institutions. F in a lly , there is a last aspect o f his analytic so cio lo g y w h ich should b e h igh lighted b e ­ ca u se o f its in flu en ce on his sociology of d ev elo p m en t. It has already b een m entioned that, for him , social actions usually include a d ual orientation con cern in g both the purpose o f th e action and th e w ay in w hich it is carried out. In this latter orientation on e may distin­ gu ish som e classical types, such as rational action and traditional action, w h ich can b e the foundation for different types o f conformity and therefore o f different types o f coh esion and social structure. W hen instrum ental rational action predo­ m in ates, w h ere appropriate, means are applied to a ch iev e a previou sly ch osen en d in the m ost efficien t w ay, this gives rise to coh esion based on con sen su al agreem ent, on the interrelation­ sh ip o f interests, w h ich generates a social structure m ade up o f a fabric o f instrumental actions w h ere th e segm entary interests o f its m em b ers are grouped and related. W hen traditional action predom inates an activity is reproduced w ithout selectio n o f m eans or en d s, w h ich does not seek to gain a b en efit or satisfy an interest but m erely to ‘repeat a cu stom ’ or ‘maintain a tradition’. T raditional coh esion is based on custom , so li­ darity and em otion, and the predom inant rela­ tion sh ip s in the social structure are o f the g e m ein sch a ft type. C on cern in g th ese types o f articulation o f hum an activities —w h ich range from the inter­ personal social relationship to the overall struc­ ture o f society— tw o approaches have arisen, both o f singular im portance in the sociology of d ev elo p m en t. On the on e hand, there is a formal and unhistorical approach w h ich ana­ ly ses th e nature of any social fact on the basis o f th e se typ es and, on the other, a historical approach w h ich con ceives the tw o types as su cce ssiv e p hases in a transition from the ‘g e m e in sc h a ft’ to th e ‘g ese llsch a ft’ society or, as M edin a w as to put it later, from the tradition­ al to th e industrial structure. 3. In his L eccion es d e sociología M edina accord in gly constructs the com plex analytical e d ific e w h ich is founded on social action and cu lm in ates in the social structure. T his socio­ logical approach is an in d isp en sab le m eans o f stu d yin g any society, since it provides the ‘framework o f con cep ts’ w h ich makes it p os­ sib le to ‘grasp reality’. “For w h ile the concepts are n ever th e reality — w h ich goes far beyond th em in its richness— reality w ou ld escap e us if w e d id not p o ssess th em .”49 48Lecciones de sociologia, typed version referred to above, p. 134. 49“Proyecto de un curso”, in Presentaciones y Plan- JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri N e v erth ele ss, it is worth repeating that, in M ed in a ’s v ie w , the analytical perspective is in su fficien t to satisfy the aspiration o f sociolo­ gy, e v e n w h en th e p reem in en ce o f the struc­ tural approach over the interpersonal approach is em p h a sized . S ociology has the duty o f p ro v id in g gu id an ce for human action, and for that p u rp ose it m ust b e not only structural but a lso con crete, historical. T h e general concepts o f analytical sociology m ust be the foundation for th e typ ological and individual concepts o f con crete sociology, since the formers, left to their o w n d e v ic e s, are em pty and formal, m ere ele m e n ts in an abstract sociology w hich is no u se in p rovidin g guidance. It has already b een m ention ed that the ty p ed version o f M edin a’s Leccion es includes o n ly h is analytical sociology, and even then in c o m p letely , but in his inaugural exposition in th e gen eral social scien ce course in Puerto Rico — w h ich appears in “Proyecto de un curso” — h e clearly ou tlines the general framework w ith in w h ich it falls, the purpose w h ich guides it and th e various parts w h ich go to make it up. T h e b a sic purpose is to encourage the students to b e aware o f th e w orld in w h ich they live, to understand th e reality w h ich surrounds them and th e cau ses o f it, and to make this awareness th e p o in t o f departure for the d evelop m en t o f th eir p erson alities. In order to a ch ieve this aim he d ivid es the gen eral social sc ie n c e course into three parts. 139 T h e first is d evoted to analytical sociology, as has already b een outlined, w hich in this case h e calls ‘theory o f society’. In the second part h e sk etches the type o f historical society ‘in w h ich w e are im m ersed’ and w hich h e calls ‘liberal society’. In this outline h e presents “w hat has b een and remains that organization, that w ay o f see in g and livin g life, ...how such a typ e o f society arose and what has b een its grow th, what thinking shaped it or expresses it, h ow and in w hat form it then enters into the situation o f change in w h ich it now appears to b e ” .50 In the third part, “contemporary so cie­ ty” , h e an alyses “the social forms w h ich are our personal ex p erien ce” , thoroughly exam ines th e “crisis o f our tim e” , highlights the m ost im portant current changes in the political, econ om ic, educational and international fields, and explores th e probable trends in their orientation. H ere th e sociology proposed by M edina and th e m eanin g and function o f its different parts are ou tlin ed clearly. T he analytical ap­ proach, w ith its vigour and architectural e le ­ gan ce, is th e appropriate instrum ent to analyse th e general social phenom en a and constitutes th e p oin t o f entry to concrete sociology w hich transforms the concepts o f the former in order to bring them closer to reality and perm it historical understanding o f the origins, present status and trends o f current societies, which m ake up the “social situation” o f m od em man. Ill The foundations of the sociology of development M ed in a’s w ritings can b e d ivid ed into two stages, th e d iv id in g point b etw e en them b eing h is jo in in g C E PA L at th e b egin n in g of the 1950s. In th e first stage, set out in the previous chapters, h e ou tlin es the p ersp ective o f sociol­ ogy and estab lish ed it as a rigorous science; in th e secon d h e lays dow n the foundations o f th e sociology o f d evelop m en t and analyses som e o f its fundam ental them es. It is necessary to ask w h eth er M edina is brought to th e sociology o f d evelop m en t as a co n se q u e n c e o f the spontaneous evolu tion o f his th ink in g — and regards CEPAL as a favour­ ab le en viron m en t to d evelop it in— or w hether, in contrast, his join in g CEPAL, prom pted by teos. Papeles de Sociología (Mexico City, Instituto de Investigaciones Sociales de la Universidad Nacional, 1953), p. 224. m lbid., p. 225. 140 other reasons, is a fact w h ich influences and g u id es h is in tellectu al activity towards the so cio lo g ica l problem s o f developm ent. It is very lik e ly that M edina thought CEPAL could offer him a safe haven, a legal and econom ic u m b rella w h ich w ou ld free him and his family from th e som etim es very abrupt changes in L atin A m erican history. T he insecurity o f his status as an e x ile and the prospect o f a wander­ in g life m ust have b een fundam ental reasons for h is d ecisio n to join a U nited Nations organization. O f course the CEPAL o f that tim e w as n ot ju st any com m on or garden internatio­ nal organization, b ut on e in w h ich original e c o n o m ic thinking w as b ein g created through in te n siv e debate: for M edina this feature m ust h ave b e e n an additional, although not d ecisive, attraction,51 C E P A L ’s interest in econom ic d evelop ­ m e n t and M ed in a’s vocation for sociology h e lp e d him to create th e hybrid field o f the so cio lo g y o f d evelop m en t. H ow ever, this was n ot a n e w preoccupation, since in som e preC E P A L essays — particularly “E conom ía y so cio lo g ía ” , w ritten in 1941— his interest in th e su b ject is already clear. M oreover, there are others w h ich also attract him , and probably, if h is in tellectu a l h aven had b een other than C E P A L , th ey m igh t have warranted h is later attention: thus, th e ep istem ology o f the social s c ie n c e s and th e sociology o f culture and o f art, am ong others, em erged strongly in his early w ritin gs, and h e w as to refer to them su b se­ q u en tly w ith a certain nostalgia. At all even ts, above and beyond the reasons w h ich prom pted him to join CEPAL and th e slant CE PA L introduced in his think­ in g, th e tw o stages o f his thinking are highly co m p atib le, sin ce th e first is characterized by th e subjects in v o lv ed in the foundation of so cio lo g y in general, and the second by the 51T he cold war and Macarthyism may perhaps have increased the uncertainty of his personal circumstances, b u t the fact is that Medina, despite his brilliant background as a social scientist, joined CEPAL in August 1952 as an editor —in other words, to improve the style of what the economists wrote— and remained in that position for some years before being accepted as a sociologist. This fact may at least serve as some consolation to all the sociologists who survive thanks to the self-sacrificing work done to improve the language of others. CEPAL REVIEW N.° 9 I December 1979 construction o f th e special ed ifice o f the soci­ olo g y o f d ev elo p m en t on those foundations. T h is com patibility m eans that w e can be certain that e v e n if M edina had not follow ed w h en h e d id the intellectual path o f his first stage, h e w ou ld have found h im self ob lig ed to do so later, w h en in CEPAL h e was faced with th e im perative o f creating a sociological per­ sp ectiv e on d evelopm ent. The b eg in n in g o f econ om ic sociology 1. W hen M edina, in CEPAL, com es up against th e n e e d to grasp econom ic d evelop m en t con­ cep tu ally, h e d oes so —and he cou ld not have d o n e so oth erw ise— u sin g the categories o f th ou ght w h ich h e had b een ou tlinin g during th e p revious 20 years. E conom ic d evelop m en t is u n d ou b ted ly a ‘social fact’, but what are its particular characteristics? Firstly, does it b elong only to the sphere o f econ om ics, or has it a broader range w hich exten d s to other areas o f social reality? E co­ n om ic d evelop m en t is largely an econom ic p h en om en om —h e was ev en to claim , in the m id d le o f the 1960s, that its ‘essential mecha­ n ism ’ is econ om ic— but its significance goes b ey o n d th ose lim its. E con om ic d evelop m en t is a “p h en om en on o f social chan ge” in w hich w h at ch an ges is “a social structure in its totality, along an id en tifiab le lin e b etw een tw o p rec ise m om en ts”,52 i.e., it is a ‘total’, ‘in te­ grated’ p henom enon. T his ‘total’ nature of d ev elo p m en t, w h ich M edina underlines from h is first w ritings in C EPA L, appears to derive from tw o assum ptions, on e historical and the oth er theoretical. On th e on e hand, econom ic d e v elo p m en t is a p ie c e o f the “general process o f rationalization”, a co n seq u en ce o f th e “civ i­ liz in g p rocess” in w h ich technical pow er and scien tific k n o w led g e converge, as he often said, u sin g th e con cepts coin ed by A. W eber. B ecau se o f th e force o f this general process o f rationalization, “a universal tend en cy in our tim e s” , history is m ovin g in a sp ecific direc­ tion: towards th e formation o f industrial socie52“Las condiciones sociales del desarrollo económico” (1955), in A spectos sociales d el desarrollo económ ico , op. cit., p. 51. JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri ty.53 B eca u se o f its total character, this process e n co m p a sses and im bues the w h ole society, in c lu d in g th e econ om ic process. On the other hand, th ere is a theoretical assum ption that also lays th e basis for this total nature o f d ev elo p ­ m ent: so ciety is a ‘system ’. “ Society is never a m ere agglom eration o f actions and p rocesses, b u t ten d s to b e or to b ecom e a system , although it perhaps n ev er su cceed s in ach ievin g this c o m p le te ly .” As a result, “from w hatever as­ p ect o n e b egin s to exam ine human life —pro­ v id e d that on e does not dally arbitrarily— on e is certain o f returning on ce again to the sam e p lace after having d escrib ed a full c ir c le ” .54 In short, not on ly do the historical roots o f eco n o m ic d ev elo p m en t m ake it n eces­ sary to regard it as a total phenom en on, but also, lik e any other social phenom en on, w h en p en e­ trating into a society w h ich is in itse lf a ‘sy stem ’, it requires ‘con d itions’ and produces ‘c o n s e q u e n c e s’ w h ich go beyon d the econom ic sp h ere. T h e formation o f industrial society in v o lv e s p rocesses o f very varied kinds, and as a resu lt “on ly in analytical abstraction is it p o ssib le to speak o f econom ic d evelop m en t as an in d ep en d en t p henom enon; in reality this p ro cess u nfold s interlinked w ith another o f a socia l nature” .55 S eco n d ly, M edina em ph asizes that, al­ th ou gh d e v elo p m en t is a real trend in the historical p rocess, it is also an objective ex­ p ressly p ursued b y the social actors. It is at the sam e tim e a real ten d en cy w h ich influences and d efin es th e concrete situation o f the social actors and an aspiration w h ich shapes the o b jectiv es th ey set th em selves; it is reality and aspiration, historical ten d en cy and normative m o d el. F or this reason, there are both on e and m any paths o f d evelop m en t, sin ce various p o ssib le courses exist, in th e selection o f w hich th ere is a m argin o f ch oice, o f freedom . E co­ n om ic d evelop m en t has its inescapable imper- 53“ El papel del sociólogo en las tareas del desarrollo económico” (1958), in A spectos sociales del desarrollo económ ico, op. cit., p. 15. 54 “Tres aspectos sociológicos del desarrollo económi­ co” (1955), in A sp ecto s sociales del desarrollo económico, op. cit., p. 70. ^ “ El papel del sociólogo en las tareas del desarrollo económico” , in A sp ecto s sociales del desarrollo económ i­ co, op. cit., p. 21. 141 atives, b ut th ese may b e com piled w ith in very varied w ays and at very varied sp eed s, and c h o ice b e tw e en them requires a substantial am ount o f hum an d ecision ; as in individual action, d ev elo p m en t com bin es n ecessity and freedom . In M edin a’s v iew , econom ic d ev el­ op m en t, qu a social ch ange, always passes via m an ’s con scio u sn ess, sin ce any social change is h istorically and ethically attributable to human d ecisio n and responsibility. In making this form ulation, h e also returns tim e and again to A. W eb er’s historical v ie w that p eo p les w ith their orientations, w h ich constitute the ‘culture p ro cess’, respond to the ch allen ge o f their ‘vital aggregates’ m ade up o f the com bination o f the ‘c iv iliz in g ’ and ‘social’ p rocesses. T h ese vital aggregates constitute the reality w h ich is avail­ a b le to b e m oulded as far as p ossib le to human aspirations and, in their response to it, m en and p e o p le s alw ays n ecessarily m anifest “a p os­ sib ility o f p reference and ch oice, o f creation and freedom ” .56 T h e se tw o features en ab le him to d efin e, in gen eral, th e role that falls to the sociologist. I f d ev elo p m en t is a total p henom en on, its stu d en t m u st take into consideration social realities as a w h o le and h igh light th e interdis­ ciplinary nature o f d evelop m en t, as an object of analysis. T his M edina d oes from th e outset o f h is interest in th e subject, but w hat is the role that falls to th e different social scien ces? H e fin ds th e answ er to this q uestion in h is preC E PA L stu d ies on th e m anner o f tackling social reality: to resp ect the approaches o f the ind ividu al d iscip lin es and m ake u se o f their results, esp ec ia lly thcfce o f econom ics, but alw ays to rem em ber their lim itations, and accordingly th e n e e d to com p lem en t them w ith th e sociological point o f v iew , both analytical and concrete. M oreover, if d evelop m en t is both a real te n d en cy and a social objective, the sociologist m u st lea v e aside th e technical attitude prompt­ ed in him by th e scien tific p rinciple o f ‘neutral­ ity in v a lu e s’ and adopt a critical posture. S in ce “this e le m e n t o f freedom is inescapable, the so cio lo g ist cannot avoid participating at the tim e o f ou tlin in g p references and d ecision s. 56Ibid., p. 27. 142 O n th e contrary, h e is ob liged to co-operate critically in m aking them w ith m aximum pos­ sib le clarity and responsibility.57 M ed in a m aintains this initial conception of -d e v e lo p m e n t and the role w h ich falls to sociol­ ogy and sociologists w ithin it in many later w ritin gs. For exam ple, h e returns to the them e o f th e sociological approaches to d evelop m en t in 1963 and d iv id es th em into tw o types; those stim u lated by praxis and those required by k n o w led g e. A good exam ple o f the first type is social p o licy , w h eth er it is con ceived as ‘social as­ sista n ce1, w h ich endeavours to im prove livin g co n d itio n s, or as, ‘hum an investm ent' w hich aim s at d e v e lo p in g and im proving those social asp ects w h ich , like education, can have a d e c is iv e effect on econ om ic growth. M edina resp ects th ese p ersp ectives, but not only gives th em little support w ith h is personal work, but b e lie v e s that th ey m ay lead to erroneous approaches. In particular, they may lead to th e social aspects b ein g regarded as ep ip h en o m en a or residual o f th e econom ic aspects, and to social ob jectives b ein g subordinated to ec o n o m ic ob jectives forgetting that the former are in d ep en d en t, respond to “w hat are regard­ ed as perm anent, paramount valu es” and “are related , not so m uch to d evelop m en t itse lf —a neutral and interm ediary m echanism — as to th e k in d o f society to w h ich d evelop m en t aspires or w h ich it is inten ded to p roduce” .58 T h e v iew p o in ts d em an d ed by k now ledge d o not refer to social problem s or hum an invest­ m e n t but en d eavou r to interpret the econom ic p rocess in relation to th e overall social struc­ ture o f w h ich it is part, and th ey take the form o f tw o variants, analytical and historical, in lin e w ith w h at has already b een said concerning M ed in a’s sociological view . 2. H is first ou tlin e o f econom ic sociology, carried out at th e b eg in n in g o f the 1940s, is d ev o te d to a study o f th e relationship b etw een eco n o m ics and analytical sociology.59 In it, he 57Ib id ., p. 28. ^ “Economic developm ent in Latin America —socio­ logical considerations”, CEPAL document E/CN.12/646, mim eographed, p. 5. 59“ Economía y Sociología” (1941), in Responsabilidad de la Intelig en cia , op. cit., 1943. CEPAL REVIEW N.° 9 / December 1979 review s th e different w ays in w h ich the rela­ tion sh ip b e tw e e n the tw o d iscip lin es at the analytical le v e l has b een con ceived and out­ lin es a general position on the problem w hich, w ith som e variations, h e w ill m aintain later in h is C E PA L w ritings. O ne may infer from his structural con cep tion o f society that it is n eces­ sary to a ch ieve the broadest p ossib le analytical p ersp ective, and accordingly that interdisci­ plinary efforts m ust b e stim ulated. For this reason, h e b egin s by rejecting the typical posture o f n eoclassical thinking in econom ics, w h ich k eep s its distance from sociology, citing the d efects w h ich that d iscip lin e is alleg ed to suffer from, such as the vagu en ess o f its p ropositions, the p reference for im precise or disproportionate objects o f analysis, internal d isagreem en t concern in g theoretical p ersp ec­ tives and interpretation o f results, and inap­ propriate u se o f the scien tific m ethod. M edina fe e ls that this is a m istaken position, and the n eoclassical criticism , w h ich m ight apply w ith som e reason to th e en cyclop aed ic sociology o f the last century, d oes not do ju stice to presentday sociology; th ose w h o n ow persist in such criticism “are not so m uch m anifesting their scien tific antipathies as d efen d in g their ow n brand o f sociology, in other words, the so ciolo­ gy w h ich is im plicit in, and a necessary as­ sum ption of, a particular econom ic system ” .60 As is w ell-k n ow n , other schools o f ec o ­ n om ic thought have em erged to overcom e this sh ort-sigh ted n ess in the neoclassical approach, su ch as the German historical school, w hich em p h asizes th e transitory and historical nature o f the alleg ed universal ‘law s’ o f econom ics — w h ich w ou ld alw ays have to b elon g to a con crete society— and North American insti­ tutionalism , w h ich op poses the ex cessiv ely abstract nature o f neoclassical thinking and u n d erlin es the n eed for a realistic interpreta­ tion o f econ om ic life. M edina b e lie v e s that the schools o f thoughts are correct up to a point, but em pha­ sizes that they in turn com m it a basic error sin ce th ey d isso lv e econom ic theory in p h iloso­ p hy, history or sociology to the point o f causing it to disappear, but at the same tim e are m lhid., p. 100. JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE I Adolfo Gurrieri in cap ab le of th em selv es form ulating a n ew and rigorous integrated theory to take the place o f th e co n v en tion al theory. For this reason he su g g ests that m ore fruitful paths should be sou ght in th e area o f the relationship b etw een eco n o m ics and sociology —paths w h ich w ould broaden, im prove and not d issolve the theory o f th e first w ith th e p ersp ective and findings of th e secon d . T h e q u est for this path is based on two profound con viction s o f M edina’s w hich must b e em p h asized . T he first is that social scien ce m u st b e first and forem ost a scien ce, and that this im perative im poses inescapable require­ m ents. A lthough it may arise from concrete, and therefore particular problem s, the scientif­ ic task m akes it necessary to rise from them to m ore general and abstract concepts and rela­ tio n sh ip s, towards those basic ‘schem atism s’ w h ich articulate any social reality. “ Under the d iversity o f th e concrete or historical structures o f th e different societies there are certain sch em atism s in the m ost elem entary attitudes and relationships w h ich ... constitute the fun­ dam ental assum ption or foundation o f all their m anifestations [and] indicate the ultim ate and d e c is iv e elem en ts in a social structure, on w h o se ex isten ce or n on-existence d epends the p o ssib ility o f sp ecific concrete realizations.”61 T o this first ep istem ological conviction M edin a adds his b e lie f that am ong the social s c ie n c e s on ly econom ics has b een able to a ch iev e fruitful results at the analytical lev el, b eca u se its theoretical construction asserts its e lf over a sm all num ber o f fundam ental schem atism s. It is true that th ese schem atism s can in turn rest on unreal assum ptions or give rise to theoretical constructions w hich are e x c e ssiv e ly clo sed in on th em selves, but in M ed in a’s v ie w th ese are not sufficient grounds for rejecting them . Rather, their success should g u id e interdisciplinary analytical efforts. “ In th e study o f econ om ic d evelop m en t as an overall p h en om en on , the d ecisiv e and central role w h ich falls to th e econom ist in this ‘inter­ d iscip lin ary’ co-operation is readily recognized by all as som eth in g obvious. It is the econom ist 61“ Las condiciones sociales del desarrollo económi­ co", in A s p e d o s sociales del desarrollo económ ico, op. cit., p. 51. 143 w h o m ust lay dow n in principle the g u id elin es for th e research, indicating the problem atical q u estion s h e considers m ost important and su g g estin g the tasks w h ich h e d eem s com p le­ m entary to his ow n work.”62 T h e greater analytical achievem ents o f econ om ics com pared w ith sociology lie, as has already b een said, in the better adaptation o f its object o f analysis to scien tific treatment, but th e greater scien tific status o f econom ics, what­ ev er th e reason for it, ju stifies both its pre­ e m in en ce and the subordination it im poses on sociology in this interdisciplinary relationship. S cien tific reason, and not the p ossib le m eaning o f its objects, is for M edina the basis for lead ersh ip in the com m on task. If sociology enters into the analytical stronghold o f eco ­ nom ics the m ost lik ely result w ill b e negative, sin ce all that it w ill ach ieve w ill b e to pull econ om ics dow n to its ow n scien tific level; it w ou ld therefore b e b est for sociology to fulfil its task from the outside, review in g and im­ proving th e foundations —the assum ptions— on w h ich econom ics rests. H ow ever, as early as in “E conom ía y so cio lo g ía ” , w h en evaluating som e works by Parsons, h e warns against the type o f analysis w h ich m aintains a high le v e l o f abstraction and d o es not seek concrete historical assum ptions. Parsons endeavours to com p lem en t con­ v en tion al econ om ic theory w ith analytical so­ cio lo g y , for w h ich purpose he p roceeds from th e basis that, qu a theories, both are inevitably analytical abstractions and not descriptions o f con crete facts. E con om ic theory is oriented towards the analysis of econom ic action — w h ich Parsons d efin es, in the style o f Rob­ b in s, as rational action, or that w h ich seeks to a ch iev e optim um solutions w ith given ends and scarce but alternative m eans — w h ile p o li­ tics is d irected towards the analysis o f political action and sociology towards the analysis o f social action in gen eral. I f econom ic theory, the theory o f rational action, does not stand up to em pirical p roof it m ust b e com plem en ted with oth er th eories o f non-rational action, esp ecially p olitical, and w ith the general theory o f action su p p lied by sociology. In this way they all 62I b i d p. 48. 144 CEPAL REVIEW N.° 9 / December 1979 rem ain autonom ous and com plem en t one another, M ed in a en d orses Parsons’ attempt to avoid th e m ergin g o f sociology and econom ic theory, b u t b e lie v e s that it w ill not b e successful if it rem ains at th e le v e l o f high analytical abstrac­ tion. “T h e social scien ce s are not purely and e x c lu s iv e ly analytical constructions, but above all co n crete sc ie n c e s ” .63 T he principles o f e c o n o m ic an alysis and analytical sociology w ill b e u sefu l o n ly w h en they make it p ossib le to gain k n o w le d g e o f concrete reality and to find o n e ’s w ay in it; b etw e e n th ese principles and reality there is a gap w h ich can only be ov erco m e b y m eans o f the 'prin cipia m ed ia ’ w h ich exp ress th e concrete operation o f the gen eral p rin cip les o f th e ‘structural conditions’ in w h ich th ey operate. T h e sociological as­ su m p tions o f econ om ic theory —as con ceived b y A. L o w e, ch an gin g w ith the changes in reality— are th ose ‘p rin c ip ia m e d ia ’ dem anded b y M edina, As is ob viou s, in his analysis o f the rela­ tio n sh ip b e tw e e n econ om ics and analytical so cio lo g y M edin a re-em phasizes the n eed for a th eory w h ich p rovides the fundam ental con­ cep ts and p rin cip les, but stresses — as h e had already d o n e in his criticism ofS im m el— that if it rem ains at this le v e l th e theory runs the risk o f “ slid in g over reality” . H en ce the n eed for th e ‘p r in c ip a m e d ia ’ w h ich m ake th ese general co n cep ts and p rinciples sp ecific in given h is­ torical so cieties. It is this concrete analysis, the u ltim ate ra iso n d ’ê tre o f sociology and the basis o f its nature as ‘k n ow led ge providing guid­ a n ce’, w h ich serves as a com plem ent for eco­ n o m ic theory by revisin g the inevitable socio­ lo g ica l assum ptions on w h ich it is founded. T h is w as, o f course, the suggestion by A. L ow e w h ich had so m uch influence on M edina. A ccording to L ow e, sociology should explore th e co n crete social assum ptions o f econom ic theory w h ich , although usually im plicit, are b asic com pon en ts o f it. C onventional econom ic th eory w as realistic w h ile its sociological as­ su m p tions corresp on ded to reality, and w ill be so again w h en th ey are again con sisten t with th e social con d itions w h ich actually exist; and ^ “ Economía y sociología” in R esponsabilidad de la inteligencia..., op. cit., p. 118. in this task o f bringing econom ic theory closer to reality sociology can provide considerable assistance. Still d ealin g w ith the analytical approach, M edina analyses the am bitious attempts w hich h ave b een m ade to incorporate sociological variables in existin g econom ic theory.64 In other words, m aintaining the nature o f eco ­ n om ic theory as a ‘m od el’ —a ‘quantified th eory’ or ‘quantified set o f h ypotheses’ w hich is exp ressed in causal or correlation relations— th ey endeavour to insert social variables in it. M edina holds that for the tim e b ein g th ese attem pts are d oom ed to fail b ecau se o f the nature o f the facts sp ecific to sociology: its com plexity, m u ltiplicity and d ifficu lties in quantification and m easurem ent do not perm it th e p recise estab lish m en t o f relationships b e­ tw e e n the sociological variables, and b etw een them and econ om ic variables. T he relation­ ships b e tw e e n th e latter are ‘functions’ w h ich m ake rigorous prediction and practical appli­ cation p ossib le, but their different nature pre­ v en ts them from form ing a com m on theory with sociological variables, u nless econom ic theory is to lo se in scien tific rigour and practical applicability. H ow ever, th ese d ifficulties in rigorously e sta b lish in g th e in terd ep en d en ce b etw e en eco n o m ic and sociological aspects have not d iscou raged sociologists ? m ost o f w hom base th eir th eories on som e assum ption about the in terd ep en d en ce w h ich w ou ld seem to exist b e tw e e n the various types o f hum an activity; w e have already see n that M edina too makes an assum ption o f this kind, starting in h is early works, in line w ith the Com tean theory o f co n sen su s. H e know s that it is not p ossib le to estab lish rigorous relations b etw e en econ om ic and sociological variables, but he asserts that th ere is an im portant con n exion b etw e e n them . H e refers to this con n exion in different ways: so m etim es h e speaks o f ‘eu functional’ rela64H e sets out these ideas in “El papel del sociólogo en las tareas del desarrollo económico” (1958), in A spectos sociales d el desarrollo económ ico, op. cit., pp. 18-19, and in “Relationship between social and economic institutions: A theoretical model applicable to Latin America”, E conom ic B u lle tin fo r L a tin Am erica., Vol. VI, N.° 1 (March 1961), pp. 27-39. JOSE MEDINA ECHAVARRIA; AN INTELLECTUAL PROFILE / Adolfo Gurrieri tion s, u sin g the strictest structural-functionalist term inology; at other tim es h e uses the W ebe­ rian co n cep t o f “con sisten cy” ; and, finally, prom pted by aesth etic zeal, he u ses, likes G oe­ th e, th e idea o f “e lec tiv e affinities” . T h is typ e o f relationship can prove in­ ad eq uate but “w ith in its lim its ... it enables d ia g n o sis to steer a fairly accurate course, in co m p lex historical situations, b etw e en the tw o extrem es o f exaggerated faith in the value o f ab so lu te p red iction — scien tific and quantifi­ ab le— and th e discouragem ent provoked by m ere grop ing in th e dark” .65 145 p ou n d s w ith greatest em phasis, b ut h e also w arns against m erely analytical treatm ent o f th e se social assum ptions: on ce it has reached this p oint, analytical sociology should prompt­ ly y ie ld to concrete sociology, for only th e latter w ill b e cap ab le o f Unking the econom ic m odels w ith th e historical reality w h ich gave rise to th em and m akes them m eaningful. It sh ould b e no surprise, therefore, that M ed in a’s first essay in CE PA L is en titled ‘T he social con d itions o f econom ic d evelop m en t’. In it h e sets out a prelim inary programme for th e study o f this top ic containing all the aspects w h ich , in his v iew , sociology can tackle in T h e so cia l c o n d itio n s o f econ om ic relation to d evelop m en t,66 I f no account is d e v e lo p m e n t taken o f th e order in w h ich the subjects are p resen ted (w hich m ust have b een a result of 1. It is clear from th e p reced in g pages that for circum stantial, factors), and if they are analysed M ed in a th e attem pts to link econom ics and in detail, it w ill b e observed that b eh in d them so cio lo g y at th e analytical le v e l have led to appears an interpretative sch em e w hich d e­ various th eoretical im passes. T hose w ho have rives from his basic sociological categories. so u g h t to u n ite them in a com plicated w ay by In p rinciple, d evelop m en t is a historical creatin g an integrated sch em e o f interpretation te n d en cy w h ich causes transformations h a v e co m e up against th e problem o f the throughout society and, as such, m ust b e anal­ d ifferen ces b e tw e e n econ om ic and social p h e­ n om en a and, at th e sam e tim e, th e different y s e d from the analytical and concrete points th eo retical treatm ents w h ich they perm it; the o f v ie w . T h e former d eals w ith the fundam ental m erg in g o f analytical econ om ics in history or in sch em atism s w h ich u nd erlie the w h o le social so cio lo g y and th e frustrated incorporation o f structure — and w h ich M edina b e lie v e s can be so cio lo g ica l variables in econ om ic m odels are grasped u sin g Parsons’ “pattern variables”— ex a m p les o f th e poor results ach ieved by w h ile th e latter incorporates the contribution o f history; w ith th e contributions o f both v iew ­ fo llo w in g th e se incorrect paths. poin ts ‘analytical typ o lo g ies’ cou ld b e con­ S o cio lo g y sh ou ld work ‘from ou tsid e’ the structed w h ich w o u ld make it p ossib le to out­ th eo retical sch em es o f analytical econom ics lin e th e orientation o f that historical tend en cy and n ot see k to penetrate into them . D esp ite and th e situation o f the Latin Am erican coun­ th is lim itation , its task o f supplem entation can tries in relation to it. b e m o st valuable: i.e., to assist in critically H ow ever, as has already b een said, d ev el­ refin in g th e eco n o m ic ‘m od el’ by indicating its op m en t is also a social objective, and accordpartial and abstract nature and avoiding the fallacy o f inappropriate concretion; to prevent th e ec o n o m ic ‘b ottlen eck s’ cau sed by insuf­ ^ M ed in a gives these social aspects various names. ficie n t or poorly adjusted social factors and the The definition most in accordance with his ideas appears to be that which reserves the terms ‘social aspects’ and ‘socio/ socia l c o n seq u en ces o f the application o f the ec o n o m ic m odels; and, above all, to uncover fa c to r s ’ for the most general characterization; ‘social a ssu m p tio n s’ for the external, but indispensable, socio­ th e socia l assum ptions or conditions on w h ich logical aspects of an economic theory; ‘social conditions’ th e se m o d els are based. It is this last type o f for the aspects which refer to a historical interpretation of a interd iscip lin ary co-operation b etw e en ec o ­ real process; and, finally, ‘socio/ obstacles’ for the social aspects w hich ham per the achievement of certain planned n o m ics and sociology w h ich M edina pro­ economic objectives or, in Medina's explicit terms, the 65‘‘Relationship betw een social and economic institu­ tions../', op. cit., p. 32. “social bottlen ecks which prevent ... the normal and unhindered flow of the desired economic process”. See “Tres aspectos sociológicos del desarrollo económico”, in A sp ecto s sociales d el desarrollo económ ico , op. cit., p. 71. 146 CEPAL REVIEW N.° 9 / December 1979 in gly it is necessary to ascertain ‘what is ject, h e says, on e calls eith er on the historian w a n ted ’, w ith all the ideological connotations or on th e theoretician. In other words, the o f th e subject, the m anner and the m eans to b e q u estio n s are asked in the concrete terms o f the u sed and the social groups w h ich w ill attempt historian or the abstract terms o f the theoreti­ it. cian, both eq u ally relevant and important. For T h e stu d ies link ed to d evelop m en t as a th e former, the fundam ental q uestion refers to te n d e n c y and as an objective, or to put it th e historical role played by concrete social another w ay, th e analytical, historical and con d ition s in econ om ic d evelop m en t, w h ile norm ative approaches im p lied in them , intro­ th e secon d focuses on the link b etw een socio­ d u ce som e o f th e problem s w hich w ere o f logical assum ptions and econ om ic theory. g reatest interest to M edina, esp ecially, as w ill A ccording to M edina, W eber supplies the b e se e n b elo w , in relation to the ‘W eberian b e st form ulation both o f the ideal historical paradigm ’. U sin g them as a basis, h e defin es ty p e o f th e origin and formation o f the W estern th e ‘m o d e l’ o f d ev elo p m en t w hich w ill serve d e v e lo p e d econ om ies and o f the theoretical as a ‘norm ative orientation’ of action by the m od el or paradigm o f the ‘liberal capitalist’ structure o f a society. In his historical interpre­ social actors. O n ce the ‘m o d el’ o f d evelop m en t has tation W eber h old s, in general terms, that as b e e n d efin ed as a real tend en cy and a social eco n o m ic d ev elo p m en t is a m anifestation of o b jective, it is necessary to analyse the social th e overall process o f rationalization o f W est­ actors w h o, in a w id e variety o f spheres o f ern culture, its cultural or spiritual nucleus has action, m u st b eh ave in a m anner appropriate b e e n ‘econ om ic rationality’ and, accordingly, to it. On th e on e hand, it is necessary to study attention sh ould focus on the conditions w hich th e actors th em se lv es —their characteristics, h ave m ade p o ssib le the em ergen ce, d ev elo p ­ b eh aviou r, m otivations and so on— w hether m ent, fu n ction in g and m aintenance o f that th ey are p u b lic or private managers, workers, rationality. In this rational orientation o f eco ­ p o litician s, bureaucrats, technicians, in tellec­ n om ic action and in the conditions w h ich made tuals and so on. O n the other, it is necessary to its con tin u ed predom inance p ossib le lies the a n alyse th e sp heres o f activity in w h ich these historical root o f liberal capitalism . T hese actors operate, such as enterprises, the State, con d ition s, in turn, are the social assum ptions scien tific , tech nic^ 1 and educational institu­ o f th e theoretical m od el o f the liberal structure, tion s, trade u nion s, political parties and m ove­ notably th e free market, full com petition, the m en ts, and so on, in addition to the relation­ com p lete appropriation by the enterprise o f the p h ysical m eans o f production, freedom o f con­ sh ip s b e tw e e n them . F in ally, the aetors and the spheres o f tract in labour relations and the ‘laissez faire’ activity ex ist and operate am idst material, cu l­ State. tural and social con d itions w h ich M edina also in c lu d es in h is list; am ong the latter he h igh ­ lights som e ‘con crete social structures’ such as so cia l stratification, the fam ily, agrarian and urban structures, and population. 2. W h en M edina endeavours to d efin e the m o d el o f d ev elo p m en t, both from an analytical and from a historical and normative point o f v ie w , and its social con d itions, he enters into a d ia lo g u e w ith M. W eber since, in his opinion, th e m ost profound analyses in this h eld w ere form ulated by W eb er w h en h e inquired into th e social assum ptions o f liberal econom ics or th e social con d ition s o f formal econom ic ra­ tionality. In see k in g gu id an ce in this com plex sub­ A fundam ental proposition clearly em erges from the W eberian thesis: econom ic d ev elo p m en t is based on the deploym ent of formal econom ic rationality, w hich is what is ach iev ed in the econom ic relations established w ith in th e liberal social structure. This eco ­ n om ic d evelop m en t is ‘liberal capitalist’ eco ­ n om ic d evelop m en t, and the conditions for the estab lish m en t o f a liberal social structure are requirem ents for the ach ievem en t o f econom ic d ev elo p m en t and social assum ptions o f the econ om ic theory. M edin a rightly terms W eber’s proposition ‘th e W eberian paradigm ’, b ecau se not only is it a historical interpretation o f the em ergence o f capitalism and an analytical theory o f the JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri b a sic e lem en ts w h ich constitute the liberal socia l structure, but it also provides, in the hands oi h is ep ig o n es, the framework for the ‘m o d e l’ of so ciety w h ich sh ould b e constructed if it is w ish e d to stim ulate econom ic d ev elo p ­ m en t. In other w ords, it is at the sam e tim e a historical interpretation, an analytical theory and th e foundation o f a p olicy for the m odern­ ization o f society. In h is early w ritings in CEPAL M edina tem porarily accep ts this proposition, perhaps b eca u se h e w as o b lig ed to create in a short tim e — p ressu red by the ‘resentful im p atien ce’ o f th e econ om ists— an econom ic sociology w h ic h w o u ld not only explain what econom ic th eory co u ld not explain, but w ou ld also make it p o ssib le to gu id e practical action.67 Its ap­ p lica tio n en a b les him to feel on safe ground b eca u se, in addition, this proposition served as a b asis for th e sociology o f d evelop m en t w h ich was b ein g form ulated in the major E n g lish -sp ea k in g academ ic centres; the work o f T. Parsons and W. Moore was w id ely known, and th e latter e v e n w rote at the request o f U N E S C O an essay on th e social frame of referen ce o f eco n o m ic d evelop m en t w hich M ed in a often u sed in those writings. An exam p le o f M edina’s acceptance o f the W eb erian th esis can b e see n in his analysis o f th e social con d ition s o f econom ic d evelop ­ m en t in B olivia. U sin g a list o f social ‘require­ m en ts’, drawn up on the basis o f the W eberian fon n u lation s o f W, M oore, he carries out an interpretation o f th e ‘ob stacles’ to econom ic d e v e lo p m e n t p resen ted by the social structure in B olivia. Property, working relationships, th e market, the p olitical order, the organization o f prod uction, p u b lic adm inistration, scientific and tech n ical ed u cation , are am ong th e aspects on th e b asis o f w h ich h e organizes his descrip­ tion and explanation o f the social situation and th e m easures w h ich can be worked out to m o d ify them if th ey are to serve as a foundation 67Years after his first writings in CEPAL he was to express regret for various of his initial lapses. The very term ‘social aspects of economic development’ was to seem of ‘extreme ambiguity’ to him, and he only justified it “as the literary recourse of a specialist wishing to col­ laborate harmoniously with otirer scientists and entering at his own risk on admittedly foreign territory” (CEPAL docum ent E/CN .12/646, mimeo, p. 1). 147 for eco n o m ic d evelop m en t. All th ese social asp ects sh ould endeavour to reproduce the liberal m od el; for exam ple, concerning the m arket h e asserts that “the type o f human rela­ tions and behaviour w h ich make the function­ in g o f a market p o ssib le constitute an inesca­ p a b le social assum ption for any econom ic d ev elo p m en t” ,68 3. H ow ever, from the ou tset M edina is aware o f th e lim itations o f the W eberian paradigm, if it is taken as a norm ative m odel. Thus, in his first work in CE PA L h e em phasizes that the tech n ical, econ om ic and social problem s o f d ev elo p m en t in Latin America “cannot b e reso lv ed by cop yin g the past or by im itating th e su p p o sed real m od els offered by the more ad vanced cou n tries” .69 T h ese m odels are usu­ ally on ly m yths or academ ic crystallizations w h ich do not exist in reality, and, as a result it is n ecessary to stim ulate ‘creative in gen u ity’ in th e task o f ‘exten d in g industrial civilization ’; but as it m ust b e an ingenu ity linked to reality, m u ch care is necessary w h en invoking history in search for the m od el o f d evelop m en t. Su b seq u en tly, in his essay ‘El papel d el so ciólogo en las tareas del desarrollo econó­ m ico’, written in 1958, M edina redirects his thinking on the basis o f a critical evaluation o f W eb er’s th esis, in w h ich h e con clu des that the th esis has b een invalidated by history. This invalidation is th e result o f tw o p rocesses, w h ich M edina analyses in various o fh is works. On th e on e hand, the transformations w hich have occurred in the ‘liberal capitalist’ social structures o f the d ev elo p ed countries have carried them away from the archetypal features prop osed by the paradigm. Am ong other as­ p ects, there has b een a marked reduction in freedom and com petition in the different mar­ kets and a substantial change in the relations b e tw e e n the State and th e econom y, and, as a result, the real so cieties w h ich the u n d erdevel­ op ed countries have before them are very dif­ feren t from the theoretical m odels w h ich they ^ “E l problema social en el desarrollo económico de Bolivia” (1956), in A spectos sociales del desarrollo econó­ m ico, op. cit., p. 115, Las condiciones sociales del desarrollo económico” in A sp ecto s sociales del desarrollo económ ico, op, cit., p. 36. 148 are urged to im itate. On the other, socialist so cietie s have appeared, w hich, d esp ite all the forecasts to th e contrary, have found their ow n path towards th e ach ievem en t o f econom ic d e v elo p m en t based on econom ic processes and social assum ptions w h ich are different from th ose su ggested by the ‘liberal capitalist’ m od el. B oth p rocesses have drastically reduced th e sco p e o f valid application o f the W eberian paradigm , sin ce from a historical, theoretical and practical m od el o f all p ossib le econom ic d ev elo p m en t, it has b ecom e lim ited to a theory relating to th e origin and foundation o f the original liberal capitalist structure; the expla­ nation refers to on ly on e o f the p ossib le types o f eco n o m ic d evelop m en t, and not to all.70 For this reason, the suggestion that in order to a ch iev e d evelop m en t it is necessary to align th e social structure w ith the dictates o f this paradigm is “ innocent enough if it w ere n o t so dangerou s”,71 and, M edina insists, the esse n tia l task o f th e sociology o f d evelop m en t co n sists in constructing th e desirable and pos­ sib le ‘n e w m o d els’ o f social structure con sis­ ten t w ith econ om ic d evelop m en t. T his reorientation o f M edina’s thinking, w h ich starts from a critique o f the W eberian paradigm , can b e understood as a reassessm ent o f th e role p layed by material reason in relation to formal reason in econom ic d evelopm ent. M en tion has already b een m ade o f the differ­ e n c e s b e tw e e n th ese types o f rationality w hen o u tlin in g M ed in a’s propositions concerning th e scien tific and instrum ental nature o f the social scien ces; tire sam e problem now reap­ pears in relation to econom ic d evelopm ent. W eb er su ggests in this regard that the only p o ssib le d ev elo p m en t is based on the stimula­ tion o f formal rational econom ic action w hich germ inates and grows in the favourable condi­ tion s o f th e econ om ic and political institutionality o f th e liberal social structure, but M edina 7(> The ‘Weberian paradigm’ is a “social model of economic developm ent which only corresponds to a very precise historical stage in that development” . “El papel del sociólogo en las tareas del desarrollo económico” , in A sp ecto s sociales del desarrollo económ ico, op. cit., p. 22. 71“Relationship betw een social and economic institu­ tions...”, op. cit., p. 30, CEPAL REVIEW N.° 9 / December 1979 is con vin ced that history has show n other paths, through th e ‘reform’ o f capitalism and socialism , w h ich are based on a com bination o f th e tw o types o f rationality different from that su g g ested by classical liberalism . E conom ­ ic d ev elo p m en t thus con ceived is not the in d irect result o f the ach ievem en t o f the par­ ticular b en efit b y th e rational econom ic agents, but — on ly or also— the planned result o f a p olitico-econ om ic rational action directly aim ed at ach ievin g it. In short, the ‘historical invalidation’ o f the W eberian paradigm leads him away from un­ critical acceptance o f the ‘liberal capitalist’ m od el o f econ om ic d evelop m en t and its social assum ptions and en ab les him to glim p se n ew subjects w ithin th e sociology o f developm ent. In particular, h e is gu id ed towards the analysis o f the ‘essen tia l m ech anism ’ o f econom ic d e ­ v elo p m en t and o f the ‘real m od els’ in w h ich it is m an ifested , sin ce th ese constitute the n eces­ sary base for d ev isin g d evelop m en t strategies, w ith their sp ecific social conditions, for the countries o f Latin America. 4. E v en so, his critique o f the W eberian paradigm does not im ply a rejection o f the m ore gen eral matrix o f this school o f thought. E con om ic d ev elo p m en t continues to b e con ­ c e iv e d by M edina as a sp ecific m anifestation o f th e overall process o f rationalization and, as such, bases its vigour on certain orientations o f th e econ om ic actions o f the important actors w h ich em erge, d ev elo p and predom inate if th ey enjoy favourable conditions and the ap­ propriate econ om ic and political institutional framework. W ithin this analytical sch em e, M edina form ulates a proposition w h ich is very impor­ tant for his sociology o f developm ent: ec o ­ nom ic d ev elo p m en t has an ‘essen tial m echa­ n ism ’ w h ich can b e operated in various ways — all o f them variations w h ich occur w ithin th e theoretical and historical space separating th e extrem e typ es o f capitalism and social­ ism — and th e m ost important ‘social conditions o f d ev elo p m en t’ are those required by this esse n tia l m ech anism , plus those link ed to the con crete forms adopted by the process. M edin a details the nature o f the essential m ech an ism ol any econ om ic d evelop m en t in JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri h is essa y “E l desarrollo y su filosofía”,72 fol­ lo w in g th e lin es o f another W eberian, E. H eim an n . B asically, h e asserts that “econom ic d e v e lo p m e n t is a con tin uin g process w h ose esse n tia l m ech anism consists in the repeated ap plication o f th e surplus for n ew investm ent, and w h ich has as a result the equally constant ex p a n sio n of th e u nit o f production concerned ... [ w h ich ] may o f course b e an entire, large so ciety ...”73 In th e so cietie s w h ich existed before the m od ern era eco n o m ic activities w ere regulated and g u id ed by th e aim s o f other institutions (p olitical, religiou s, fam ily, and so on), to w hich th ey w e re subordinated both as regards their aim s and th e m anner o f ach ievin g them ; they w e re “integrated econ om ic system s” in H eim an n ’s term in ology. T he sp ecific character­ istic o f historical capitalism —and later of so cia lism — is th e gradual loosen in g o f the ties b e tw e e n eco n o m ic activities and the other in stitu tion s and their slow ch an nellin g towards in d e p e n d e n c e , first, and predom inance, later. In its extrem e ideal type this process culm i­ nates in th e sh apin g o f pure econom ic system s, w h ich are th ose w h ere the essen tial econom ic m ech a n ism — generation and productive in­ v estm en t o f th e surplus in order to expand w ea lth to th e m axim um — predom inates over and subordinates every other aim existing in th e society. A ccep tin g the characteristic exag­ geration o f any id eal type, what is important is to u n d erlin e that all th e d ev elo p ed industrial so c ie tie s h ave had to pass through a stage w h ere their operation is fairly similar to the pure ec o n o m ic system s, characterized by the pred om in an ce o f the essen tial m echanism o f ec o n o m ic d ev elo p m en t, although su b sequ en t historical evo lu tio n and doctrinaire values h a v e le s s e n e d th e rigour o f this predom inance. T h is in ev ita b le “econ om ism ” o f any form o f d e v e lo p m e n t is m anifested in various ways historically and th eoretically, although its typi­ cal forms are th ose sp ecific to the capitalist and so cia list social structures; in the essay just referred to M edin a review s them under the titles o f “market econ om ism ” and “planning 72In Filosofía, educación y desarrollo , op. cit. ™ Ibid., p. 12. 149 eco n o m ism ” . In addition, in the final part o f “E con om ie d ev elo p m en t in Latin America — sociological considerations” , after em pha­ sizin g that there is no sin gle formula for d e v e l­ opm ent, h e an alyses the different technicoeco n o m ic, political and sociological options on th e basis o f w h ich the concrete strategies can b e articulated. W e w ill return to all this in the next chapter w h en sk etch in g M edin a’s thinking concerning th e relationsh ip b etw e en d evelop m en t and politics. For th e m om ent it is m erely necessary to repeat that it is on the basis o f the ‘essential m ech a n ism ’ o f any form o f d evelop m en t that th e m ost general and strategic factors o f any eco n o m ic process thus directed are structured. E v en if analysis o f the social aspects is lim ited to th ose link ed to the essential m echa­ nism o f d evelop m en t, it is difficult to present a sin g le list o f them , sin ce M edina u ses various lists, w ith a different num ber o f assum ptions. For exam ple, h e reduces th e dozen factors h e u ses in “E l problem a social en el desarrollo eco n ó m ico d e B olivia” (1956) to five in “Rela­ tion sh ip b e tw e en social and econom ic institu­ tio n s” (1960) and to four in “E l desarrollo y su filosofía” (1965). H ow ever, b eh in d this vari­ ab ility there is a certain constancy in orienta­ tion w h ich m akes it p ossib le to d ecid e on the g e n u in ely im portant factors. T h e first and fundam ental factor is a sort o f m otivational syndrom e w h ich M edina usu­ ally calls ‘general econ om ic com m itm ent’, in w h ich h e in clu d es both ‘econ om ic aspirations’, lin k ed to th e expansion o f w ealth and the im p rovem en t o f liv in g conditions, and a per­ sonal and c o llec tiv e sen se o f responsibility ms-d-uts the necessary and inevitab le sacrifices im p lied by econ om ic d evelop m en t. As is e v i­ d en t, this is an attitude con sisten t w ith the tech n ico-econ om ic m echanism o f d ev elo p ­ m ent, and M edina alw ays refers to it em pha­ sizin g th e aspects o f responsibility, sacrifice and effort it brings w ith it. In the formation o f this ‘ascep ticism ’ an important role may be p la y ed by the educational system , the mass m ed ia, th e p olitical and trade union organiza­ tions and th e direct exam ple of the behaviour o f th e lead in g groups; its im portance cannot b e und erestim ated , sin ce “the m ost urgent o f th e d ev elo p m en t problem s o f the least ad­ 150 CEPAL REVIEW N.° 9 / December 1979 va n ced countries d erive, or have in the past d eriv ed , from the n eed to create, shape or stim u late” .74 E uropean exp erien ce indicates that th e formation o f this attitude in the work­ ing m asses has b een a task lasting centuries, but often , in our countries, even the leading groups h ave not adopted it. In that regard, and p o in tin g to a central problem in peripheral cap italism , h e p oin ts out that “the first formula [ cap italism ] can b e attractive only if the ruling m inority, w h ich tem porarily reaps the b en efit o f th e efforts o f the rest o f the com m unity, is th e first to act w ith the proper sen se o f respon­ sibility: to put the matter in econom ic terms, profit m ust b e th e v isib le instrum ent o f rapid capital form ation and not the unethical m eans o f ostentatious exp en d itu re” .75 T h e seco n d assum ption refers to the prop­ er perform ance by th e econ om ic and political actors o f th e role w h ich falls to them in d e v e l­ opm ent. I f d ev elo p m en t is an organized pro­ cess w h ich requires th e b est en ergies o f a p e o p le , th e various econ om ic and political fu n ction s fundam ental for its su ccess m ust be perform ed w ith skill, d iscip lin e and creativity. S kill refers in particular to the scientific and tech n ical preparation required for the proper perform ance o f the various functions, d isci­ p lin e to ob servan ce o f th e standards w hich in d icate w hat are th e duties to b e performed, and creativity to th e innovative nature w hich m u st b e im parted to th e perform ance o f many fu n ction s. In “Las con d icion es sociales del d esarrollo eco n ó m ico ” M edina review s vari­ ous social groups w h ose orientations and b e­ haviour, in term s o f the tw o assum ptions referred to, are crucial for developm ent: man­ agers, workers, the State bureaucracy, the m id d le strata, the political élite and the in tel­ lectu als. B ut h e g iv es priority to the first two, th e practical skills o f th e workers and the e x e c u tiv e sk ills o f private and p ublic managers. T h e third assum ption refers to the general ec o n o m ic and p olitical institutional conditions w h ich m ake p o ssib le and provide a basis for th e p red om in ance o f th e previous assumptions. T h e various m od els o f d evelop m en t are dif­ 74“Relationship betw een social and economic institu­ tions...” , op. cit., p. 33. 75Ibid. ferentiated on e from another, in particular, by th e typ e o f institutional framework th ey im ­ p ose; h ow ever, th ey all have the sam e n eed for stability and continuity. O w nership may be p u b lic or private, the surplus may b e appropri­ ated by th e State or by individuals but, in p rin cip le, all th ese institutional norms require a m inim um o f stability —as a necessary though not su fficien t condition— to fulfil su cessfu lly their m ission o f im posing order. T he same h appens in th e political field , sin ce d ev elo p ­ m en t is such a com plex process that it n eed s to b e organized in a ‘program me’ w h ich grants regularity, continuity and the possib ility o f evolu tion to its essen tial m echanism and the m otivational assum ptions and skills w h ich ac­ com pany it; th e political order must play a fundam ental role in m aintaining this process of econ om ic and political institutional organiza­ tion. But together w ith stability in the econom ­ ic and p olitical institutional patterns M edina u n d erlin es that they m ust also b e m utually ‘co n sisten t’. In d eed , h e id entifies con sisten cy b e tw e e n the econ om ic and political rational­ ities — or b e tw e e n econom ic d evelop m en t and dem ocracy— as the crucial political problem o f d evelop m en t. At all even ts, and notw ithstanding w hat has b een said to the effect that th ese three ‘stra­ te g ic ’ aspects form a ‘leitm otiv* em ph asized m any tim es by M edina, he changes them w h en , at the b eg in n in g o f the 1960s, h e shifts h is v ie w to Latin America. T hen, he does not bring into d iscu ssion the ‘m od el’ o f d ev elo p ­ m en t to b e follow ed , but asks w h eth er any type o f d ev elo p m en t w ill b e p ossib le, w h eth er its essen tia l m ech anism can b e applied su ccess­ fully. In form ulating this concrete question con­ cern in g th e p o ssib ilities o f d evelop m en t in L atin Am erica h e d efin es the strategic social con d ition s, giv in g m uch greater em phasis than in th e previous trilogy to political aspects. T hus th e n ew social conditions w h ich are n ecessary for econ om ic d evelop m en t dem and that there sh ould exist a social class or group w h ich has control o f the State, knows h ow to m anage it w ith legitim acy and efficien cy, and is gu id ed by a set o f ideas on d ev elo p m en t— an id e o lo g y — w h ich is clear and p recise. Stress on th e civ il society and its principal econom ic JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE I Adolfo Gurrien e le m e n ts, m anagers and workers, has given w ay to th e p olitical p ow er structure and its p r iv ile g e d cla sses, th e 'political’ class and the ‘ru lin g’ class. H o w ev er, th ese changes do not signify d e fin itiv e th eoretical changes o f direction, but exp ress d ifferin g analytical interests appropri­ 151 ate for d ifferen t objects o f analysis, since at th e sam e tim e as h e looks towards the political p rob lem s o f d evelop m en t, h e insists that his co llea g u es sh ould study industrial managers, urban workers and trade unions. D evelop m en t con tin u es, in hisi view , to b e an overall p h e­ n om en on . iv The challenge of modernization At th e b eg in n in g o f th e 1960s, M edina finally d e c id e s to w rite on Latin America. H e leaves b e h in d th e years w h en w ith m ethodical zeal h e con stru cted his conceptual framework, and d ed ic a tes h im s e lf to ou tlinin g his interpreta­ tion o f social ch an ge in this region. F rom a m eth od ological view p oint, this task brings out h is id ea o f history, since he is aw are that “any sociologist interested in the p h e n o m en a o f ch an ge relies, though h e may n o t say so, on a theory o f historical d ev elo p ­ m en t, a con cep tion o f history in its total pro­ c e s s ” .76 T h e b asic p rinciples o f his conception o f history are very clear: the history o f Latin Am erica is a fragment of W estern history, since th e g igan tic ‘p rocess o f transculturation’ w hich b egan w ith th e C onquista w as so profound that it co n v erted th e former into an often active and creative part o f th e latter, and the essential feature w h ich g iv es m eaning to W estern h is­ tory is th e p rocess o f rationalization, o f w hich ec o n o m ic d ev elo p m en t and social and political m od ernization form part, w ith sp ecific mani­ festation s. T his p rocess o f rationalization em ­ b o d ie s th e e s se n c e o f a ten d en cy w h ich d is­ loca tes ‘traditional so ciety ’ and tends to form th e ‘n e w so c ie ty ’, m o d em and industrial. H o w ev e r, M edina n ever b e lie v e d that the p ro cess o f rationalization w as an unstoppable forward thrust in th e history o f Latin America, s in c e h e n ev er shared in th e naive evolu tion ­ ism o f m any o f th ose w h o, like him , con ceive socia l ch an ge as a transition from the traditional to th e m o d em . T h e history o f a p eo p le may sh ow evolutionary trends w h ich appear to ch an n el it gradually towards an objective, but th e reason for this h ap p en in g lies in the deter­ m ination o f the p eo p le , in th e m otivated efforts o f its m em bers, and not in th e su pp osed autono­ m ous vigour o f m etahum an forces. T h is im portant aspect o f his conception is clarified in th e ligh t o f w hat h e called “the fundam ental structure o f th e historical pro­ c e s s ” .77 H e h old s that this process can be co n c e iv e d sim ilarly to individual action; like th e latter, it is a com plex com bination o f n ece s­ sity and freedom , o f con d itionin g and sponta­ n eity. Any p e o p le p o ssesses material, tech n i­ cal, social and cultural conditions w hich, at the sam e tim e as th ey contain a range o f p ossib le alternative actions, fiy the lim its o f what is o b jectiv ely ach ievab le. T h e alternative finally ch o sen from am ong th ose objectively p ossib le w ill d ep en d on the ‘a ssessm en t’ m ade o f them by that p e o p le and on the d ecision s w h ich are taken on th e basis o f th e assessm ent. For that reason h e asserts that “nothing inevitably d eterm in es the progress o f m ankind”, w hich w ill alw ays b e th e result “o f a spontaneous and free act w ith in the framework o f the inevita­ b le ” .78 T h e fundam ental structure o f the h is­ torical process teach es us that it is not p ossib le to reso lv e th e ‘en igm a o f the future', d esp ite th e efforts m ade in that direction by predictive sociology, am ong other scien ces (w hich he r e v ie w e d in 1971),79 77Ib id ., p. 191 et seq. 78Ib id ., p. 193. 76Lecciones de sociología, op. cit., p. 195. 79In one of the chapters of his article “Desengaños del 152 T h e past o f a p eo p le and its present cir­ cu m stan ces m ay indicate w h ich are the basic te n d e n c ie s in its orientation and w hich are the p o ssib le , and perhaps m ost probable, paths for its future. B ut th ey cannot make this prediction w ith certainty, sin ce am ong the basic circum ­ stan ces and ten d en cies o f a society and its future is hum an m ediation; the interpretation and evalu ation o f them by the m em bers of that so ciety and th e resultin g d ecision s provide history w ith its connotation o f freedom and ind eterm in ation . Man has often felt sure he co u ld so lv e th e enigm a o f th e future —religious p rop h ecy and scien tific forecasting provide e v id e n c e o f th ese h opes— but M edina prefers th e m ore m od est recourse o f the ‘diagnosis’, w h ich through k n ow led ge o f the structure and trends o f a situation facilitates the choice of so m e action alternative. B earing in m ind this “fundam ental struc­ ture o f the historical process”, there is no doubt that w h ile for M edina the process o f rational­ ization in Latin Am erica is a real historical ten d en cy , ob servable in many different sp heres o f hum an activity, it is in no way an en d w h ich w ill inevitab ly b e fulfilled. Rather, it is an ob jectively p ossib le alternative w h ose p resen t d egree o f realization and future proba­ b ility w ill vary substantially from on e society to another. I f th e future alw ays inclu d es a consider­ a b le m argin o f uncertainty, w h y should history b e c o n ce iv e d as a d efin ite transition from tra­ d itional to m o d em society? T he reason for this p rocedu re is in p rinciple m ethodological, sin c e, follo w in g W eber, M edina b eliev es that th e variety o f historical phenom ena can only b e organized, d escrib ed and explained using id ea l, pure types. As is w e ll know n, th ese pure ty p es are pure in that their elem en ts, because o f their extrem e character, m anifest com plete co n sisten cy , an ‘id ea l’ alignm ent o f m eaning. T h e y are constructed on the basis o f historical p h en o m en a but are not a description o f them; nor are th ey a theoretical m od el on the basis o f w h ich reality can b e inferred, or a set o f prin­ c ip le s b ased on values w h ich serve to guide action in that reality. T hey m erely constitute a desarrollo” , in D iscurso sobre políticas y plane ación, op. cit., which is entitled precisely “El enigma del futuro". CEPAL REVIEW N.° 9 i December 1979 tool for k now led ge, a heuristic instrum ent w h ich en ab les us to com e to know reality by contrasting it w ith the ideal type.80 M. W eber constructed many ideal types o f social action and relation on the basis o f the p rinciple o f rationality and b e lie v e d that he had d iscovered the esse n c e o f real social p h en om en a by contrasting them w ith th ese types; h e asserted that reality w as not n ece s­ sarily rational, but that he su pp osed it to b e so for heuristic purposes. T he distance b etw een the pure type and the real phenom en a enabled him both to h igh ligh t the sp ecific features o f the latter and, on the basis o f them , to “put it in its p la c e” in the alm ost infinite set of historical ev en ts, and, in addition, to su ggest hypotheses con cern in g th e role w h ich som e irrational elem en ts m ight play in it. M edina m ight have m ade sim ilar assertions concerning the m e­ th od ological significance o f his con cep t o f “m o d em industrial so ciety ”, but neither o f th ese thinkers was able to avoid am biguities and m isunderstanding; the pure type tend ed — in th e m inds o f others, and som etim es in their ow n— to cease to b e a conceptual instru­ m en t and b eco m e a social objective. Increasing rationality, econ om ic d evelop m en t and social and political m odernization, w h ich are re­ garded as ten d en cies in the historical process and, at th e sam e tim e, from a m ethodical v iew ­ p oint, as ideal types, can only w ith difficulty avoid b ein g transformed sim ilarly into the ‘future im ages’ w h ich m ust gu id e the social process. At all even ts, it is worth repeating that n eith er o f them con sidered that th ese pro­ c e s se s had a path traced in advance or that they w ere directed towards an inevitab le aim. If it proves p o ssib le to construct the m od em indus­ trial society, it w ill b e by dint o f a h old and con sciou s hum an effort. 80“In default of an outline interpretation, whether entirely valid or not, no light at all can be shed on the situation under consideration, and any attempt to influence it becomes meaningless. Again, the dimensions of the situation in question —and therefore of its interpretation— necessitate the simplifying devices for which the theo­ retical term is ‘types’ or ‘models’, and which in any case, far from portraying reality as a whole, merely trace the prevailing patterns that are indispensable for an under­ standing of those aspects of the existing state of affairs w hich deviate or diverge from them.” “Social development o f Latin America in the post war period” (CEPAL docu­ m ent E/CN.12/660, mimeo, p. 2). JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri 153 and p olitical nature. T he traditional structure of in d ep en d en t Latin Am erica —the ‘com plex from w h ich it springs’— had its own: the h a­ 1. T h e so ciological considerations w h ich M e­ c ie n d a , liberalism and the traditional political d ina form ulates con cern in g the econom ic d e­ system . v e lo p m e n t o f Latin Am erica are exp licitly and A m ong th ese h e highlights the h acienda in ev ita b ly historical, sin ce the analysis o f the as th e fundam ental support. Any social struc­ p rese n t situations and its predom inant trends ture has an institution w h ich is its prototype, has its root in th e past: “ it cannot b e m aintained and that w h ich corresponds to the traditional w ith regard to Latin Am erica that what carries structure is the h acien da, a ‘p riv ileg ed ’ institu­ it on tow ards its future has no continuity with tion w h ich articulates “from w ithin the im ­ w h at has m ade it historically what it is” .8^ m e n se geographical body o f Latin Am erica” . S ch em a tizin g his thinking, it may b e affirmed T h e h acien da form ed Latin America material­ that h e constructs this historical interpretation ly, econ om ically and socially. T he h acien da is on th e b asis o f a characterization o f the funda­ esse n tia lly a unit o f econom ic production and a m ental features o f the traditional structure form o f property. But it is also a centre o f p oliti­ w h ich has b e e n form ing since In d ep en d en ce, cal and m ilitary pow er, w h ich stands out even in order su b seq u en tly to d elin eate the nature m ore clearly w h en th e State apparatus o f the o f and etio lo g y o f its crisis and the em ergence colon ial p eriod disintegrates; the support o f a o f th e m o d em forms o f social organization. In fam ily structure and th e sym bol o f a family ad d ition to th e gu id e w h ich this general outline nam e; th e basis for a ‘social group’ w ith its p ro v id es for him , M edina's historical analysis com p lex system o f duties and functions organ­ ized by the authority o f the seigneur; and has a p rec ise d elim itation w h ich is given it by th e social requirem ents o f develop m en t. In fin ally th e foundation o f a seigneurial human c o n c ise terms: if th e d evelop m en t of Latin ty p e and w ay o f life. H ow ever, it is not the only A m erica m u st b e gu id ed by a p erfectly rational sign ifican t econom ico-social unit in the tradi­ program m e o f action and m ust b e based on a tional structure, sin ce together w ith it there socia l class or group w h ich , through control o f exist th e m in ing centres, and above all the th e State, is cap ab le o f directing it, the princi­ c itie s, w h ich are th e seat o f com m erce and o f pal q u estio n w h ich m ust b e asked o f the th e State and spiritual authorities. B esid e the p resen t situation therefore refers to its ability to land ow n ers stand the urban b ourgeoisie, and m e e t th e se requirem ents. In analysis, attention th e clash b e tw e en them constitutes the' m ost sh o u ld b e fo cu ssed on unravelling the present im portant p olitical and ideological conflict up reality in order to learn its poten tialities and to th e early d ecad es o f th e p resent century. errors in term s o f th ese requirem ents and If th e m aterial foundation for the tradi­ stu d y in g th e past in order to find the origins o f tional structure is th e hacien da and th e spiri­ b oth, M ed in a’s central q uestion is: what is tual foundation appears and d evelop s in the L atin A m erica’s p resen t situation vis-à-vis the citie s, th e focus o f the latter is liberalism , that n e e d im p o sed b y th ese requirem ents? And his “form o f liv in g and thinking” . E ncouraged by reply tea ch es us that th e com plex com binations th e op position to absolutism , the m etropolis o f traditional and m o d em elem en ts w h ich are forms th e basis o f th e id eology o f the in d ep en ­ characteristic o f our reality represent — even d en c e m ovem en t and, accordingly, on e o f the for th e h op efu l w h o su cceed in overcom ing “esse n tia l elem en ts o f the com plex from w hich p essim ism — a form idable obstacle to d ev el­ Latin Am erica sprang” . T his com plex takes op m en t. shape “under th e sign o f freedom ” . It is true that in th ose years there w ere “military revolts, 2. A ny con solid ated social structure relies on certain ‘supports’ or ‘foundations’ o f a material c o u p s d ’é ta t and num bers o f constitutional or eco n om ico-social, spiritual or ideological ch an ges; but it is also true that there was never op en d en ial o f th e ideals o f the In d ep en d en ce m ov em en t and that, ev en under the m ost n otab le ‘strong m en ’ the letter o f the constitu81CEPAL document E/CN. 12/646, mimeo, p. 16. T h e tr a d itio n a l stru c tu re an d its declin e 154 CEPAL REVIEW N.u 9 / December 1979 tion still p aid respectful tribute to the princi­ p le s o f lib eralism ” ,82 H o w ev er, th e m aterial and spiritual foun­ dations o f the original in d ep en d en ce-gestatin g co m p lex are initially contradictory, and in this in c o n siste n c y — “th e first, and perhaps m ost striking paradox” o f Latin American history— lie s not on ly the cau se o f many political con­ flicts but also on e o f the reasons for the frailty of lib eralism in this part of the world. E ven so, lib era lism penetrates and takes root in som e of its doctrinaire m anifestations — M anchester eco n o m ic liberalism , constitutionalism , p os­ itivism and so on— to a sufficient extent to co n stitu te th e on ly id eology w h ich has exerted a d e e p and p rolonged influence. From th ese material and spiritual founda­ tion s arises a p olitical system w hich is con soli­ dated w h en , in th e secon d h alf o f the last century, m ost of the countries o f Latin America found som e com prom ise formula to resolve th e co n flict b e tw e e n the countryside and the c itie s, b e tw e e n the agrarian oligarchy and the urban in telligen tsia. T h e organization o f the p o litica l institutions — electoral system s, State p o w ers, p u b lic adm inistration and so on— and th e relations b e tw e en them are d esig n ed on the basis of th e E uropean and North American liberal d em ocratic m od els, the political parties organize as parties o f th e ‘caucus* type83 and th e b a sic p olitical m echanism involves a con­ trast and com prom ise b etw e en two parties — lib era ls and con servatives— w h o se relations are en cou raged by areas o f com m on interests and orientations and by the sym biosis w hich p erson al and fam ily support permits. E ach o f th e foundations on w hich the traditional structure rests —material, spiritual and p olitical— has its own dom inant class w h ich controls and gu id es human activity in th o se areas. In his analysis M edina gives sp ecia l attention to two o f th ese classes: the 82I b i d p. 39. ^ “Traditional local leaders, maintaining close ties w ith one another, supported each other on such occasions as election, through temporary organizations of party men who set in motion the well-known machinery of political gatherings, with oral or written statements of proposals and promises, but the members of these parties did no more than cast their vote or provide temporary support, with varying degrees of enthusiasm, for the actions of their leaders.” Ib id ., p. 92. ‘p o litic a l’ and th e ‘ru ling’ classes. T he political class, w h ich em erges from the com prom ise b e tw e e n liberals and conservatives, assum es resp on sib ility for “putting the State together” and constructing th e econom ic infrastructure, tw o essen tia l pre-requisites for d evelop m en t in that period. T h e ruling class, the bearer o f spiritual pow er, gives the traditional structure th e solid ity stem m in g from its continued ad­ h eren ce, d esp ite its changes, to the nucleus o f th e liberal id eology. T h e tw o classes are clo se ly link ed to each other and to the m ate­ rially dom inant class — in fact, their m em bers ‘circulate’ easily in the different areas and are clearly aware o f b elon gin g to the nucleus of p ow er— and this link constitutes a framework w h ich con n ects the various foundations and g iv es con sisten cy to the traditional structure as a w h ole. 3. W hen its supports w eaken, how ever, the traditional structure b egin s to d eclin e. T he h a cien d a b egin s to change into a m ere profitm aking concern, b ecom es ‘com m ercialized’ und er th e in flu en ce o f the d om estic and sp e­ cia lly external econom ic dynam ism , and the co n seq u en ces o f its transformation are as ex­ te n siv e and profound as the functions it for­ m erly p layed in its role as a fundamental support o f the traditional structure. M edina su ggests in p assing som e o f th ese con se­ q u en ces, such as the psycho-social problem s — an om ie, uprooting— caused by the d isin te­ gration o f seignuerial paternalism and the ex­ p u lsion o f the labour force from the countryside to th e cities. L iberalism alw ays suffered from an inher­ en t fragility b ecau se it was in contradiction w ith th e b eliefs and w ays o f life o f the majority, th e rural population, and becau se o f its utopian nature. T h e liberal utopia has tw o d ecisiv e ingred ien ts: b e lie f in the rationality o f man and th e con cep tion o f p olitics as dialogu e and p eacefu l coexisten ce, and th ese began to suffer from th e irrationalist attack w h ich started in th e seco n d d ecad e o f this century and have lasted up to the p resen t not only in Latin A m erica, but throughout W estern culture. Ra­ tion alist optim ism has b een su cceed ed by a profound m istrust in the pow er o f reason, and th e p olitical standards of coexisten ce, dialogue and com prom ise are w avered dow n in favour JOSE MEDINA ECHAVARRIA; AN INTELLECTUAL PROFILE I Adolfo Gurrieri o f “ th e urge o f rash m inorities shaping the d e stin ie s o f their p eo p les to take b lin d d ec i­ s io n s ” . T h e crisis o f liberalism brings w ith it a profound “id eological disintegration” and great “ spiritual con fu sion ”, from w hich w e h ave still not b e e n ab le to em erge. But M edina w arns that th ese should not “con vey the im­ p ressio n o f chaos and upheavals” nor encour­ a g e im p o ssib le restorations, but should only p rom ote th e som etim es profoundly heterodox effort o f “re-elaboration and reconstruction n ece ssita ted by liberalism , in both the political and ec o n o m ic sp h eres” .84 T h e d eclin e o f the h acien da and the crisis o f liberalism d ep rive the traditional political sy stem o f its basis o f support sin ce, just as the n e w id e o lo g ie s do not su cceed in occupying th e p la ce left by liberalism , the n ew political ele m e n ts do not su cce ed in forming a legiti­ m ate and efficien t system . On the surface o f th e p olitical process one may note that there is no p o litical formula w h ich replaces the old two-party system o f liberals and conservatives and g iv es it stability; in the background one m ay p er c e iv e the cau se o f this shortcoming; there are no n e w political and ruling classes to take th e p lace o f th ose w h ich guid ed the tradi­ tional society and, as a result, there are no strong p olitical parties w ith clear courses of action w h ich are capable o f taking charge of th e transformation. In this point, perhaps, lies M edina's greatest preoccupation vis-à-vis the transition, sin c e h e p o ses tim e and again the sam e q u es­ tion as that p osed by M. W eber w ith regard to G erm any at the en d o f the Bismarck régim e: w h ich are th e social classes and groups that are cap ab le o f lead in g and gu id in g the new society ? As already noted, his response could hard­ ly b e ca lled optim istic. “T h e old oligarchy u n d o u b ted ly retains som e o f its capacity to com m and and its notion o f national unity, but in d iv id u al interests may w eig h too h eavily to allo w it to act e ffe c tiv e ly . T he n ew leftists, not on ly b ecau se o f th e urgency o f their relentless d aily p rob lem s, but b ecau se o f their training and th eir id ea listic dreams, usually have a Mlbid.> p. 65. 155 rather lim ited con cep t o f w hat national leg iti­ m a c y really m eans, and scant instinct for pow er and com m and.”85 T h e m ilitary also usually seek to recover lost legitim acy and efficien cy but fail “b ecause m o d em tech n ology has b ecom e enorm ously com plicated and requires com prom ise, plan­ n in g and concerted action w hich, even w ith the b est intention, cannot b e called into b ein g overn igh t” .86 Nor do the n ew m asses, w h ich originate first and forem ost from rural-urban migration, rep resen t a solution to the problem o f the p olitical vacuum. On the contrary, the fact that th ey have b een uprooted and the ‘mass situa­ tion' in w h ich th ey liv e — characterized by con gestion , insecurity, frustration and resent­ m en t— togeth er w ith nostalgia for th e lost traditional paternalism , may b e the ideal b reed in g ground for dem agogy, extrem ism and th e thriving o f p op u list parties. T he latter, erratic, d ep en d e n t upon im provisation and in efficien t, “sp ell grave danger” for Latin Am erica. T hus, th ese n ew m asses not only can n ot provide the basis for a solution to the p olitical p roblem s, but in their present state rep resen t a source o f instability; in fact, they p o se th e enorm ous problem o f their responsi­ b le integration into national political life. But m ight not th e solution lie in the hands o f th e m id d le classes? M edina d oes not answer this q u estion lightly, but m editates upon it at len gth , both b ecau se o f th e influence w hich th e b ou rgeoisie had in the d evelop m en t o f th e central countries and becau se o f the impor­ tance attached to th e q uestion in the early 1960s in Latin America. In fact, he poses the problem o f th e m id d le classes as early as 1955 and, w h en analysing social stratification, high­ lights as a central q uestion the small size o f th ese strata in m ost Latin American countries — a w eakness w h ich is accentuated w h en one con siders agriculture and the urban goodsp rod ucin g sectors.87 But in the sam e report he warns that th e solution does not m erely involve increasing the num ber o f m em bers o f the m lb id „ pp. 98-99. m Ibid„ p. 99. 87“Tres aspectos sociológicos del desarrollo económi­ co” (1955), in A spectos sociales..,, op. cit., p. 92 et seq. 156 CEPAL REVIEW N.° 9 / December 1979 m id d le classes; it is necessary to consider in a d d ition other aspects “o f a qualitative nature, m ore d ifficu lt to analyse, but w hich are re­ flec ted in the d ifficulties involved in their rapid adaptation to the n ew econom ic con­ ditions".88 W h en h e takes up the subject again in 1963, th e years appear to have proved him right as regards th e im portance o f the qualitative aspects; th e paradox im p lied in the “H oselitz h y p o th esis" — that th e countries w ith larger m id d le classes, such as Argentina, C h ile and U ruguay, are th ose w h ich m anifest th e worst sym p tom s o f stagnation in those years— h e ex p la in s in term s o f ill-directed ‘d isp osition s’ and ‘attitu d es’ o f those classes. In order to a n alyse th e m ost important features o f th ese cla sses h e constructs the ideal type o f the ‘original b ourgeois attitude’ and contrasts it w ith th e real attitudes o f th e present m iddle cla sses in Latin America. T he distance he m easures b e tw e e n them is enorm ous. T he b o u rgeois culture w h ich stim ulated capitalist d e v e lo p m e n t in the centres w as a com plex com bin ation o f a “w ill for econom ic transfor­ m ation ’’, in w h ich predom inated the tend en cy to accum ulation and investm ent, the spirit of in n ovation , risk and com petition, the moral exaltation o f labour, asceticism , and so on; a “w ill for in d ep en d en ce vis-à-vis the State’’, w h ich d em an d ed that the State should fulfil its role in guaran teein g th e rules, but rejected its ec o n o m ic interven tion b eyond the strict lim its w h ich w ere laid dow n for it; and a “w ill for so cia l reform ” , w h ich w as expressed in the suprem e values o f freedom and equality. If the p resen t b o u rg eo isie in the centres has already m o v ed a con sid erab le distance away from this id ea l ty p e, our m id d le classes have never ev en co m e c lo se to it. On the contrary, although there h ave b e e n slight indications o f th ese attitudes in this part o f the world, m ost o f the m em b ers o f th e m id dle classes have endeav­ oured to adapt to the predom inant econom ic and p olitical patterns rather than trying to transform them radically. T h ey are ‘faceless’ m id d le classes, w h ich do not respond to M e­ d in a ’s appeal: “w here do w e find the selfcontrol and d iscip lin e o f the true creators o f 88Ibid., p. 95. m odern capitalism the energy and austerity of th e you ng sam urai w ho b uilt up m odem Ja­ pan?” .89 In any case, even if it proved possible to create m id dle classes w hich w ere aggres­ sive, am bitious and accum ulation-m inded —an ‘acq u isitive b ou rgeoisie’— there w ou ld not be en ou gh o f them to guarantee developm ent, sin ce w hat they can do d epends in the final analysis on the “calibre and resolve of the ‘p olitical class’ and on the guidance that can b e p rovided by the ‘p o u vo ir sp iritu e l’ o f the ‘ruling class’ 4. W hen evalu atin g the results o f econom ic and social d ev elo p m en t in Latin America, a feelin g o f am b ivalen ce is inevitable: th ese results are sim u ltan eou sly p ositive and unsatisfactory, som e progress has b een m ade but not enough, and accordingly ach ievem en ts are interm in­ g le d w ith shortcom ings and frustrations. M ed in a’s sociological explanation is clear: this is so b eca u se it has not b een p ossib le to affirm reso lu tely th e econom ico-social, ideological and p olitical supports o f the n ew society. Since th e traditional supports are incom patible w ith th e requ irem en ts o f m odernity, m odernity can on ly b e a ch iev ed if th e foundations w h ich are co n sisten t w ith it predom inate. But w h y has it not b e e n p o ssib le to consolidate the founda­ tions o f modernity? Because, in fact, they coexist and com b in e w ith th e traditional foundations, g iv in g rise to a structurally heterogen eou s so ciety w h o se d evelop m en t is thereby h in d ered . As is ob viou s, this com bination o f tradi­ tional and m odern features can b e explained both by th e lack o f vigour o f the m od em elem en ts and by the survival capacity o f the traditional elem en ts. Is the absorption o f the m id d le classes b y the traditional structure a co n se q u e n c e o f the w eakness o f the m iddle cla sses or o f the strength o f the traditional structure? In so far as this is a question o f relative w eak n ess or strength, it is not easy to reso lv e, and accordingly M edina does not fin ally opt for either. In “E conom ic d ev elo p ­ m en t in Latin America — sociological consider­ ation s” h e gives greater em phasis, to the w eak n ess o f th e m od em elem en ts, w h ile in 89CEPAL document E/CN. 12/646, mimeo, p. 84. v ° lb id .t pp. 85-86. JOSE MEDINA ECHAVARRIA; AN INTELLECTUAL PROFILE / Adolfo Gurrieri th e introduction to “ Social d evelop m en t of L atin Am erica in the post-war period” he p resen ts h is w e ll know n h ypothesis on the ‘flex ib ility' o f the traditional structure w hich absorbs or assim ilates m od em elem en ts w ith o u t m od ifyin g its basic foundations. “T he ‘traditional' structure has b een relatively per­ m e a b le, and ... this perm eability has enabled it to absorb such elem en ts o f ‘m odernity’ as it has n e e d e d w ith ou t dam age to the structure itse lf.”91 T his h eterogen eity has taken a w id e vari­ ety o f forms. S om etim es it involves the m ere p ersiste n c e o f traditional forms, as in the case o f so m e agrarian social relationships; in others, th e traditional structure assim ilates m odern ele m e n ts w ith ou t b ein g radically m odified, as in th e exam p le already giv en o f the m iddle cla sses; in m any others hybrid forms em erge and p redom inate w h ich are neither traditional or m o d em , sin ce th ey correspond to the transi­ tion , as occurs in the clien tage system and in p o p u list m ovem en ts and régim es; and, finally, th e d e c lin e o f the traditional forms may lead to ‘gaps' w h ich are partially and inadequately fille d by d iverse elem en ts, as in the ideological co n fu sio n cau sed by the d eclin e o f the liberal id eo lo g y . 157 erroneous im pression that M edina does not attach d ue im portance to external influences in th e d ev elo p m en t o f Latin America. In fact, h ow ever, he em phasizes the “trem endous im pact on the history o f Latin Am erica (and in d ee d , on the H ispanic world in general) o f e v e n ts taking p lace outside it, more than once w ith adverse effects” and it is not a question o f th e in flu en ce o f isolated facts, sin ce b ecause this region is part o f the W estern world, the stages in its p olitico-social history “coin cid e w ith sp ecific m om ents in European history (the on ly universal history at that tim e) until w e reach th e p eriod of the world wars” .93 T h ese gen eral referen ces are u sefu l in order not to rep eat som e already cited exam ples o f external in flu en ces, such as those w h ich w ere m ani­ fe sted in the ‘com ercialization' o f the tradi­ tion al h a cien d a and in the break-up of liber­ alism . 5. T h e ou tlin e o f M edina's sociological v iew in th e p reced in g pages is very schem atic, sin ce th e concentration by the author into ideal typ es is com p ou n d ed by th e brevity o f this survey. M any theoretical su ggestion s and erud ite d igressions w h ich enrich the original texts have had to b e exclu d ed in order to h igh ­ ligh t th e m ost important propositions, both m eth od ological and theoretical. At all even ts, M edina b e lie v e s that the At all ev en ts, it is obvious that at the co e x iste n c e o f traditional and m od em e le ­ b eg in n in g h e is som ew hat d isappointed w h en m en ts is th e feature w h ich d efin es the situa­ his analysis lead s him to con clu de that social tion in Latin Am erica at the b egin n in g o f the cla sses or groups w h ich could stim ulate the 1960s and that, in addition, the agreem ents d ev elo p m en t o f Latin Am erica do not appear are m ore im portant than the conflicts in this to exist. But instead o f d ep ressin g him , the co e x isten ce, “W hat is important is not so m uch certainty o f the existin g d ifficulties finally th e d ifferen ces and tension s b etw e en two stren gthens his faith; he says to him self: “let d ifferen t w ays o f life, as the thread o f their h o p e trium ph over any scep ticism ” and he co n tin u ity — in other words, their interpreta­ asserts that d esp ite everyth ing “Latin America tion , th e reactions o f th e backward sectors f a r á d a s é ” . From that m om ent, the m iddle and th e efforts towards expansion o f the m ost o f th e 60s — both his and those o f the century— a d v a n ced .”92 T h e latter is the reason for w h ich M edin a looks forward, towards the n ew soci­ h e also rejects the so-called “ structural dual­ ety, and from th en on all his w ritings w ill be ism ” w h ich was so fashionable in those days. attracted by th e “en igm a o f the future” . T h e society o f the future w ill inevitably F in a lly , m en tion should b e m ade o f the p rob lem o f external influences. T he short b e th e product o f hum an d ecision s, ch oices o u tlin e in th e p reced in g pages m ight give the b e tw e e n alternatives, and M edina b egin s by clarifying w h ich are the m ost important, both 91CEPAL docum ent E/CN .12/660, mimeo, pp. 5-6. 92CEPAL docum ent E/CN. 12/646, mimeo, p. 19. d3lbid„ pp. 16-17. 158 in th e tech n ico-econ om ic and the political and so ciological field s. L eaving the first o f th e s e a sid e, as th ey are very w e ll known in the relevant literature, M edina sets out four politi­ cal ch o ices relating to econom ic developm ent: la isse r fa ir e or State intervention; open or c lo se d growth; the claim s o f pow er or those o f th e general w eal; and, m ost serious o f all, w h eth er th e in evitab le sacrifice is to fall on so m e or on all. From the sociological view p oin t th ere are three ch oices: w hether econom ic d e v e lo p m e n t w ill b e accom panied by reforms in th e social structure and to what extent; w h eth er a general spirit o f d iscip lin e is to prevail; and w h eth er the support and participa­ tion o f th e p e o p le w ill be encouraged. As is ob v io u s, th e se do not represent “irreducible o p p o sitio n s’' but alternatives b etw een w hich d ifferen t p o ssib ilitie s exist. M edina —in his role as a tech n ician — em phasizes that what is im portant is to ch oose, to d ecid e, and to do so in such a w ay that the final result o f the ch oice m o u ld s a coh eren t picture w hich w ill serve to g u id e action. In order to make th ese ch oices clearer, M ed in a ou tlin es the tw o m odels o f society w h ich , in his v iew , represent the m ost signifi­ cant historical ‘op tions’ for the d evelop in g world: th e “S oviet m o d el” and the “W estern form ula” .94 And if he already gives indications o f h is p referen ces w h en h e sets out the political and sociological options in the abstract, w hen d ea lin g w ith those ‘historical typ es’ o f society h e sh ed s h is tech nical neutrality and declares h im s e lf o p en ly for the W estern formula. For that reason h is reflections on the n ew society — w h ich encom pass the last fifteen years of h is life— do not constitute an abstract, neutral sh ufflin g am ong p ossib le actions, but the de­ fe n c e o f his ch oice o f democratic society — a d e fe n c e w h ich was as passionate as his charac­ ter, very little giv en to stridency, w ould permit. In d efen d in g his utopia o f democratic so ciety h e warns from the outset that the greatest danger lies in the tendency, which ^ H e deals with the two models in “Economic devel­ opm ent in Latin America —sociological considerations” (CEPAL document E/CN. 12/646, mimeo, p. 107 et seq ); and in “El desarrollo y su filosofía”, in Filosofía, educación y desarrollo, op. cit., p. 17 et seq. CEPAL REVIEW N.° 9 / December 1979 reappears tim e and again over the centuries, to sacrifice dem ocracy on the altar o f econom ic efficien cy. And this is certainly the reason for w h ich h e rejects the Soviet m odel. “T he totalrtarian form ulae, S oviet and other, may be more efficaciou s in many eventualities, but a man w h o is h eir to the b est European tradition w ill alw ays prefer the p ossib ility o f dialogue or, to put it another w ay, he w ill prefer the perhaps intangible value o f leg itim a cy to the pragma­ tism o f e fficien cy.’’^ But the idea has also 5 p en etrated d eep ly into many of those w ho in clid e towards the W estern formula, who assu m e that an authoritarian régim e is the purgatory through w h ich the countries w hich em bark on econom ic d evelop m en t w ithout an appropriate political framework m ust pass. M edina rejects this idea; for him it is essential to find a path to d evelop m en t w hich maintains faith in the p ossib ility o f democratic coexis­ ten ce. “T here is always a hope that, even at the e le v e n th hour, m en may arise w ho are able to turn ineptitud e into efficien cy, w ho are able, if n eed b e, to perform a final, saving operation. On the other hand, the com plete evaporation o f b eliefs, the moral collapse that may result from the dissolution o f faith —the psychologi­ cal disintegration o f a w h ole society— can only lead to h o p elessn ess and ‘extrem ism ’ ... Psy­ ch ological disintegration im plies, at the most, m ere selfish resignation, content to gratify its m ost ‘hum an’ and im m ediate interests, and, at th e least, escape to an ‘ivory tow er’, repre­ sen ted , perhaps, by on e o f the world religions. L et us, then, face this possibility —as is fitting for adult, mature b eings— and at the same tim e le t us h ope, and still more firmly determ ine, that it b e not translated into fact.”96 D e m o c ra c y a n d plan n in g 1. T h e d efen ce o f the utopia o f dem ocratic so ciety is the le itm o tiv o f what w as later to be th e final stage o f his intellectual task. Indica­ tions o f it certainly exist throughout his work, b ut from th e b eg in n in g o f the 1960s it b egins to stand out as his principal concern, w h ich he 95CEPAL document E/CN .12/646, mimeo, p. 127. m lb id ., pp. 164-165. JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri w ill n ev er abandon. T h e justification for his d e fe n c e is sim ple: if on e is going to fight for a n e w so ciety , it m ust b e worth livin g in. For w o u ld it b e worth w h ile fighting for base or ig n o b le values? W ithin his sociology o f d evelop m en t the su bject o f dem ocracy appears for the first tim e in I9 6 0 ,97 in relation to the institutional con d i­ tions w h ich m ake p o ssib le and lay the founda­ tion s o f th e b asic social assum ptions — m otiva­ tional and behavioural— underlying any p rocess o f econ om ic growth. T h ese econom ic and p o litical institutional conditions may b e very d ifferen t in nature, ranging b etw een the ex trem e typ es o f capitalism and socialism , but it is esse n tia l that they sh ould have a m odicum o f co n tin u ity and mutual consistency. T h e rationalities w h ich structure and g u id e th e econ om ic and political institutions m u st b e com patib le — this is the functional p rin cip le w h ich orients his initial political an alysis. B ut sin ce in th ose years he accepted th e p red om in an ce o f econ om ic values in d ev el­ o p m en t, h e assu m ed that the technico-econ o m ic requ irem en ts o f d evelop m en t had pri­ ority and asserted that the problem con sisted in d eterm in in g th e typ es o f political organization co m p atib le w ith it. U n d oub ted ly there are ty p es o f p olitical organizations w h ich are not co m p a tib le w ith econ om ic d evelop m en t, such as, for exam p le, traditional authoritarianism and p o p u lism . N o matter h ow m uch they m ight w ish to do so, th ese do not constitute suitable p o litica l instrum ents b ecau se often th ey cannot ov erco m e the in com p eten ce, corruption, id e­ olo g ica l con fu sion and other difficulties w hich w ea k en their rationality at both the ideological le v e l and at that o f th e State institutions. In g en eral term s, th e history o f the past few c en tu ries ind icates that tw o gen eric types o f p o litica l organization have existed w h ich are com patib le w ith econom ic developm ent: liber­ al dem ocracy, w ith its ‘originar and ‘pluralist’ variants, and th e forms o f m odernizing autho­ ritarianism w h ich range from the charismatic rég im es o f m any u n d erd evelop ed countries to th e rég im es o f th e S oviet type. 97 In “ Relationship between social and economic insti­ tutions...” , op. cit., especially p. 35 e t seq. See also the final pages of chapter III of the present study. 159 B ut b efore con tin uin g w ith the presenta­ tion o f th ese tw o typ es o f political organization com patib le with econom ic d evelop m en t — w h ich rapidly leads to the very heart o f M ed in a’s thought— it is necessary to em pha­ size that w ith the years h e m odifies his initial accep tan ce of the priority o f econom ic values. U p to 19T0 h e holds that the relationship b e tw e en econom ic developm ent and dem oc­ racy should properly be view ed from the an­ g le o f both econom ic and political values. In oth er w ords, if it is fair to ask w h ich types of p olitical organization are com patible w ith par­ ticular eco n o m ic d evelop m en t objectives —as h e d o es in 1960— it is also reasonable to ask w h ich typ es o f econ om ic organization are co n sisten t w ith a dem ocratic political order. T hu s, h e says, this relationship “can equally w e ll b e p ostu lated as an analysis o f the political con d ition s of d ev elo p m en t and as the reverse: 1.e., an analysis o f the econom ic conditions o f a giv en political order, dem ocratic in this case...” .98 In addition, he warns that it is u nd e­ sirable to linger too long on an abstract proposi­ tion w h ich p erceives this relationship as one b e tw e en econ om ic and political rationalities, b eca u se, in the final analysis, only a few con­ crete q uestions are o f interest: given the pre­ sen t econ om ic situation and the intention to d ev elo p , what are the m ost appropriate p oliti­ cal instrum ents for that purpose? or — given certain political conditions w hich it is sought to im prove in a certain direction— what are the m ost appropriate econ om ic m eans to do so? 2. D em ocracy is one o f the two types of polit­ ical organization com patible with econom ic d evelop m en t, but what should be understood by dem ocracy? Just as there is no single mod­ e l of econom ic develop m en t, there is no sin ­ g le m od el o f democracy; but, equally, just as all typ es o f econ om ic d evelop m en t have an esse n tia l m echanism w h ich they share, d e ­ m ocracy has its fundam ental principles w ith ­ out w h ich it ceases to b e what it is. T hese p rin cip les relate to the existen ce o f a m inim un o f political representation and respect for the sanctions o f p u b lic opinion, effective social participation, and the existence and mainte- 98In “Discursos sobre política y planeación”, in the book already cited of the same name, especially, p. 7. 160 CEPAL REVIEW N.° 9 / December 1979 nance o f individual rights. T h e political partici­ pation referred to in th e first p rinciple may vary and has varied in its forms over tim e, since in d iv id u a list dem ocracy has given w ay to ‘p lu ra list1 dem ocracy. T h e latter, the only pos­ sib le form at present, “consists essen tially in th e p o litical accep tan ce o f the social reality as a co m p lex o f h igh ly diverse groups, each w ith its in d iv id u a l interests and therefore prone to con flicts and d isp u tes w ith the other groups, b u t all com p ly in g w ith a com m on standard so as to s e e k th e m ost fitting agreem ent and com ­ p rom ise in each case w h ich arises — in con­ sideration , o f course, o f its temporary charac­ ter” .99 B ut pluralist political participation, with its varied forms o f formal and informal repre­ sen tation , d oes not exhaust the participation w h ich dem ocracy requires. T his participation m u st also b e social in nature, as is indicated by th e sec o n d p rin cip le, and through interm ediate groups su ch as the com m unity, the trade unions and th e en terp rise, should stim ulate the broad­ e n in g o f th e horizons o f the citizen s to encom ­ p ass th e State and its international connexions. T h is social participation prompts M edina to su g g e st that ‘econom ic democracy' is an im­ p lic it ele m e n t in the very definition of dem oc­ racy, but he never d evelop ed this knotty subject.100 F in a lly , th e third p rinciple em phasizes the ‘lib eral content' o f dem ocracy, its ‘assum ptions b a sed on ju s n a tu ra le’- in other words, the , d octrin e “that all individuals as persons have sp e c ific and in alien ab le rights apart from and in d e p e n d e n tly o f any form o f participation; natural, civil, p olitical and social rights...” .101 T h is d efin ition is therefore democraticolib eral, sin c e h e links the sp ecifically dem o­ cratic com p on en t o f political and social partic­ ipation w ith the liberal com ponent o f natural rights and th e ‘state o f law ’, w h ich is the in d isp en sa b le guarantor o f those rights. T he tw o com p on en ts very briefly sum up the fun­ d am en tal valu es w h ich m ake it p ossib le for e x iste n c e in so ciety to b e worth living. 3. It is not difficult to accept that political d e­ m ocracy and econom ic d evelop m en t are com"C E P A L docum ent E/CN. 12/646, mimeo, pp. 151- 152 p atible system s, since many historical ex­ am ples exist w h ich show that they are. H ow ­ ever, it is not valid to infer, in M edina’s v ie w , that this ob servable em pirical relation­ sh ip b e tw e en w ealth and dem ocracy m eans that w ealth produces dem ocracy or, to put it in a m ore com plex w ay, that the ach ievem en t o f a h igh le v e l o f econ om ic d evelop m en t makes it p o ssib le to distribute incom e, access to educa­ tion and other econ om ic and social opportuni­ ties m ore fairly and to reduce internal tension^, thus d e c isiv e ly contributing to the establish­ m e n t o f th e necessary and sufficient conditions for th e ex isten ce o f dem ocracy. M edina does not d en y that th ese econom ic and social con d itions can have favourable p olitical effects for dem ocracy, but h e b eliev es that dem ocracy is founded on its ow n values, its ‘im p on d erab les’, w h ich are in no case a m ere by-product or con seq u en ce o f econom ic con­ ditions or values. What he suggests tentatively at the b egin n in g he affirms vigorously in his last writings; liberal and democratic ideas stem from con cep tion s o f ju s n atu rale, and ac­ cordin gly have an origin w h ich preced es and is in d ep en d en t o f those relating to capitalist or socialist econ om ic d evelopm ent; they w ere n eith er form ulated nor d efin ed on the basis o f eco n o m ic d evelop m en t, nor did they propose to en courage it directly. T hose ideas constitute b eliefs con cern in g political legitim acy; they are, if you w ill, an illu sion, but they have con sid erab le autonom y vis-à-vis econom ic cir­ cu m stan ces. For that reason, h e op poses to the ‘m aterialistic’ relationship b etw e en w ealth and d em ocracy th e ‘id ealistic’ relationship w hich stresses first and forem ost the value o f b eliefs, “th e im portance o f long-accepted im ponder­ a b le s” .102 M any factors h elp to w eaken or strengthen dem ocratic values and behaviour — as com parative historical analysis show s— b u t n o n e o f them can b e raised up to the status o f their so le cause. B etw een the structural con d itions and the historical results — let us o n ce again rem em ber this central proposition o f M ed in a’s— stands hum an m ediation w ith its valu e-b ased d ecision s. T his d efen ce o f dem ocracy for what it is in itself, as a socio-political value, prompts him ' ioo//)id.,p. 163. 101D iscurso sobre p olítica y planeación, op. cit., p. 43. 102CEPAL document E/CN.12/646, mimeo, p. 144. JOSE MEDINA ECHAV ARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri to reject any con cep tion w h ich attempts to b a se its legitim acy on other foundations. In this regard h e exp resses his disagreem ent w ith M. W eb er and J. Schum peter, w ho, con­ v in c e d o f th e w eak n ess o f the foundation b a sed on ju s n a tu ra le, en d eavoured to justify dem ocracy b y its instrum ental value, its ca­ pacity, as an institutional procedure, to find resp o n sib le leaders or renew ruling teams sm ooth ly. In th e sam e w ay, h e agrees w ith the radical criticism o f the p resent dem ocracies in th e cen tres, in th e sen se that the nub o f the crisis lie s in th e fact that th e ruling groups h ave not b e e n capable o f m aintaining the original p rin cip les o f legitim acy — b uilt on the v a lu es o f freedom and equality— and as a resu lt h ave ju stified their rule in terms o f their ec o n o m ic a ch ievem en ts, th e constant expan­ sio n o f w ealth. M edina agrees that democracy is su bstantially w eak en ed , as a principle o f p o litica l organization, w h en it is deprived o f its foundations in ju s n a tu ra le, th e sp ecific v a lu es w h ich gave it origin and m eaning, and w h e n it is ju stified on ly in terms o f its u sefu l­ n ess as a m eans for ach ievin g given political or ec o n o m ic ends. 4. It has already b een noted that the proposi­ tions set out by M edina concerning the rela­ tion sh ip b etw e en econom ic d evelop m en t and dem ocracy change, b etw e en the 1960s and the 1970s, in the direction o f increasingly vigorous d efe n c e o f the relative autonomy o f dem o­ cratic values vis-à -vis econom ic circumstances and valu es. But in addition a very important ch a n g e in the intellectual clim ate o f political sc ie n c e s occurs b etw e en those years. At the b e­ g in n in g o f the 1960s there was great confidence in th e p o ssib ility o f expanding and consolidat­ ing dem ocracy in the countries of Latin Ameri­ ca, and in d oin g so in a way largely consistent and parallel w ith econom ic growth. M edina w as not so optim istic in those years; rather, the d isa p p o in ted undertone in h is “E conom ic d ev elo p m en t in Latin America — sociological co n sid eration s” — d u e to the incom p eten ce or w e a k n ess o f th e m id d le classes, the insuffi­ c ie n t transform ation o f th e agrarian structure, th e distortions o f p op u lism , and so on— also in flu e n c e s his assessm en t o f th e p ossib ilities o f dem ocracy in Latin America. At all events, th e th eoretician s o f m odernization — those 161 w ith w h om M edina en gages m ost frequently in a d ialogu e in h is w ritings on th ese subjects— w ere con fid en t then o f the future o f democracy; M edin a only rem inds them o f the intrinsic va lu e o f dem ocratic values and, in th e face o f th e optim ism generated in them by the equat­ in g o f w ealth and democracy, underlines his con viction that dem ocratic values w ill not b e a ch iev ed as a bonus to econ om ic growth, but m u st b e sou ght for th em selves. From the en d o f th e 1960s the difficulties faced by th e reform ist régim es and the reality o f authoritarian governm ents w eak en ed the m ost solid h o p es, and those theoreticians o f m odernization w h o b e lie v e d that the relatively parallel a ch ievem en t o f econ om ic growth and d em ocracy was p o ssib le began to question w h eth er dem ocratic institutions w h ich are regarded as em bryonic, unstable and immature cou ld support rapid econom ic growth and bear th e transformations inherent in it. In the face o f th ese prospects, and con vin ced that a m in i­ m um le v e l o f econ om ic d evelop m en t was a n ecessary condition for ach ievin g a stable dem ocracy, they b e lie v e d that it w ou ld be b est to organize th e political system s on the basis o f ‘m ob ilization', in other words, the organiza­ tion and application o f all available human resources in a m anner w h ich did not exclu d e p olitical com pu lsion , if that was considered n ecessary to ach ieve the econom ic objectives. In fact, th ey proposed to sacrifice dem ocratic p olitical institutions to econom ic efficien cy, co n v in ced that th e authoritarian régim e w ould b e a transitory ep iso d e since the historical p rocess — in the customary terms o f the ev o lu ­ tion ism o f th e theory o f m odernization— w ou ld lead to th e in evitab le ach ievem en t o f w ealth and dem ocracy. T hus, still according to this v ie w , “the econom ically backward countries can n ot follow the traditional paths o f the dem ocratic countries in order to overcom e their backw ardness, a n d ... for that reason they w ill n ot esca p e an authoritarian period, either as a result o f a process o f m obilization initiated by a doctrinal group or a charismatic figure, or as th e result o f an increase in the decision ­ m aking capacity o f th e execu tive sector o f the in h erited State” ,103 10!iDiscurso sobre política y planeación, op. cit., p. 116. 162 CEPAL REVIEW N.° 9 1December 1979 tion sh ip b e tw e e n dem ocracy and planning; in fact, p lan n in g is a sp ecial form o f lookin g at eco n o m ic d ev elo p m en t, w h ich accentuates its p olitical com pon en ts by con siderin g it as a p rocess o f d ecision -m ak ing and im plem enta­ tion. But th e greatest attraction that the subject o f p lan n in g has for M edina is that through it h e o n ce again en gages in d ialogu e w ith som e o f his favourite interlocutors; w ith C om te and his h o p e o f ach ievin g a rational ordering o f society; w ith W eber and his prophetic vision o f a d isillu sio n ed w orld, w h ere th e ex cesses o f instrum ental reason threaten the freedom o f man; w ith M annheim and his con ception o f p lan n in g as th e instrum ent o f a total transfor­ m ation o f society to ach ieve the broadening and d e fe n c e o f freedom . D em ocracy, as has already b een poin ted out, is worth w h ile for its ow n sake, b eca u se o f th e values w h ich it em b od ies, w h ich are found­ e d in th e p rin cip les o f/u s n atu rale. T his is the final bastion o f the position w h ich M edina d efen d s; b u t there are other, earlier bastions w h ich also h elp to sustain dem ocratic ideals b y p o in tin g to their instrum ental value for ec o n o m ic d e v e lo p m e n t T his is so, in princi­ p le , in th e case o f M edin a’s reflections seekin g to dem onstrate that dem ocratic planning is p o ssib le b eca u se there is no fundam ental in ­ com p atib ility w h ich prevents the planning o f ec o n o m ic d ev elo p m en t from b ein g carried out w ith in a dem ocratic political system . H o w ev er, th e d efen ce o f dem ocratic plan­ n in g en cou n ters difficu lties link ed w ith the fact that there exist other com ponents o f plan­ n in g, th e tech n ical and adm inistrative com po­ n en ts, w h ich have also attem pted to shape it in their im age and likeness, giving rise to what M ed in a calls ‘bureaucratic’ and ‘technocratic’ u top ias o f p lan n in g.104 T h e utopian com ponent o f both con sists p recisely in th e fact that they 5. E co n o m ic d ev elo p m en t, as a process rela­ claim to concentrate th e p ow er in volved in the tiv e ly o p en to hum an d ecision s, m eans choos­ d ecision -m ak in g process o f planning in the in g b e tw e e n tech n ico-econ om ic, political and h ands o f their resp ective social supports: bu­ socia l alternatives, and M edina em phasizes reaucrats and tech nician s. T h e bureaucratic tim e and again, from the b egin n in g o f his u top ia h old s that the bureacracy m ust have the so cio lo g y o f d ev elo p m en t, that planning m ust d e c is iv e role in p lanning, sin ce planning can­ p lay a fundam ental role in preparing for, not function efficien tly w ith ou t th e rational m ak ing and im p lem en tin g th ese ch oices. For that reason there sh ould b e no surprise at the p referen ce h e gave to this subject in his last 104See “La planeación en las formas de la racionali­ years and h is len gth y explorations o f th e rela­ dad” , in D iscurso sobre política y planeación , op. cit. M ed in a also vigorously rejects this point of v iew . Firstly, and in accordance with what w as said ab ove, h e d isagrees w ith th e econom ism o f this v ie w w h ich subordinates the' a c h ie v e m e n t o f dem ocratic values to econom ic grow th; seco n d ly , h e em p h asizes th e W eberian v ie w that a stable p olitical order cannot b e sup­ p orted m erely by coercion, but also requires th e sp on tan eou s co n sen t o f th e governed, their se lf-d isc ip lin e . T h e latter is ev id en t from an an alysis o f th e historical exp erien ce o f the authoritarian régim es orien ted towards eco­ n o m ic d ev elo p m en t, w h ich show s that the very efforts o f th e se régim es to ensure eco­ n o m ic and ed u cation al transformations diver­ sify th e so ciety and thus facilitate the em er­ g e n c e o f forms o f con flict and aspirations for d em ocratization sim ilar to those it w as as­ su m ed th ey w o u ld elim in ate. So w hy should th is e x p er ie n c e not b e taken into account b efo re throw in g dem ocratic institutions over­ board? F in ally, this v iew appears to vary in its a p p lica b ility d ep en d in g on the le v e l o f d ev el­ o p m en t o f th e dem ocratic values and institu­ tion s a c h ie v e d b y each country at a given m om en t; in fact, it seem s e v e n more regret­ tab le and inappropriate to disrupt dem ocratic in stitu tion s and b eliefs w h en — as in many co u n tries o f Latin Am erica— they have already b e e n m aturing for m any years. But M edina is c o n siste n t to th e end: ev en in cases o f little or no d em ocratic tradition it w ou ld b e advisable to start along th e path o f d ev elo p m en t hand in hand w ith dem ocracy, sin ce as m any historical ca ses sh ow , w h e n dem ocratic ideals are strong th ey can h elp to m ake bearable th e social and p o litica l disruption and m aladjustm ent pro­ d u c e d b y ec o n o m ic grow th b ecau se o f its ups and d o w n s and th e structural transformations it b rings w ith it. JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri apparatus p rovided by th e bureaucracy; the ex p a n sion and con solidation o f rational ad­ m inistration do in d eed accompany and under­ p in th e form ation o f th e m od em State and the d e v e lo p m e n t o f th e econom y. But technicians and scien tists m aintain that they, or scien ce and te ch n o lo g y alon e, have at least as good a record as bureaucracy to justify their directing p la n n in g; in order to prove this assertion, they say, it su ffices to glan ce at the role they have p la y e d in th e econ om ic and political process in recen t years. T h e realization o f on e or other o f the utop ias is n ot a sim p le matter, since it requires th e satisfaction o f som e socio-political and c o g n itiv e con d ition s w h ich are difficult to rea lize in p resen t circum stances. Firstly, it ca lls for th e accep tan ce or im position o f the in tellectu a l suprem acy o f eith er the bureau­ cracy or th e technocracy, for w h ich purpose th e y m u st b e cap ab le o f sh ow ing irrefutably that th e k n o w le d g e th ey can attain is absolute and su fficien t; secon d ly, it is necessary for this in tellectu a l suprem acy to b e converted into p o litica l suprem acy, defeatin g the other groups w h ic h are also figh ting for pow er, and, finally, th e bureaucrats or technocrats m ust su cceed in leg itim a tin g th e resultin g socio-political order m ade up o f an en ligh ten ed — bureaucratic or technocratic— élite and the subject masses. At all ev en ts, M edina deals w ith both utop ias in d etail, sin ce they are p resent in m any o f th e p rosp ective analyses w hich are b e in g carried out in the d ev elo p ed countries, and stand at th e centre o f many sociological an d p h ilo so p h ica l p olem ics. Furthermore, h e w is h e s to contrast them w ith the dem ocratic u top ia and, in p assin g, to launch a few darts at th o se in Latin Am erica —and there are not a fe w o f th em — w h o have technocratic or bu­ reaucratic illu sio n s. S cien ce, technology and adm inistration, in M edin a’s opinion, play a fu ndam ental role in planning, but, at least for th e m om en t, th ey cannot dream o f ach ievin g a m o n o p o ly o f p ow er in th e short term, still less b e lie v e that through them it w ill b e p ossib le to a ch iev e th e h o p e o f shifting from com plex p o w er relations am ong m en to the straight­ forward adm inistration o f things. T h e dem ocratic utopia o f planning reaf­ firm s th e p olitical com pon en t w h ich the other 163 utopias b e lie v e th ey can overcom e, and m ain­ tains that the d ecision-m aking pow er in plan­ n in g sh ould in th e final analysis rest w ith the p e o p le and its political representatives. In an extrem e version, w hich rejects the role of the scien tists, tech nologists and bureaucrats, it is o b v io u sly unattainable. But as regards its v iew o f th e final dep ositaries o f political pow er, it has m uch better argum ents and background than th e other utopias to legitim ate itself. T h e sp ecific q uestion w h ich is o f interest w h en con sid erin g th e possib ility o f dem ocratic p lan n in g is: can planning, w ith its character­ istic institutional tech n iq u es and m echanism s, fit w ith in th e dem ocratic system ? M edina rep lies in th e affirmative, sin ce he b eliev es there is no incom patibility b etw een their p o­ litical structures or functions. Rather, h e asserts that th ey share som e very sim ilar political fu n ction s, such as th ose o f articulating values and lin k in g them w ith the objectives aim ed at and th e m eans o f ach ievin g them; m aintaining and m aking p o ssib le socio-political com m uni­ cation through participation; discovering gaps and in ad eq u acies in resources, and h en ce prom oting their creation and rational alloca­ tion; and constituting sym bols o f legitim acy to gu id e th e attitudes o f the population. B ut, in particular, dem ocracy is a system o f ch o ices w h ich articulates the alternatives that arise in all th e important spheres o f the life o f a society and su pp lies channels for participation in the d ecision s referring to them , and there is no structural obstacle to its also in c lu d in g the econ om ic ch oices sp ecific to p lan n in g in its institutional m achinery. Clear­ ly, M edin a d oes not d en y that there are con ­ crete d ifficu lties in this process, but h e em ­ p h a sizes that they do not derive from any as­ su m ed in con sisten cy b etw e en the basic prin­ c ip les w h ich orient both dem ocracy and plan­ n in g. H ow ever, con sisten cy b etw een the in ­ stitutions and m achinery o f either — their ‘structural relationsh ip ’— should not b e sought o n ly at th e le v e l o f th e Parliam ent and the central State apparatus, for the relationship o f p lan n in g to the econom ic, social, regional and com m unity interest groups at all the stages o f plan form ulation and im plem entation is also o f im portance. At all even ts, M edina b eliev es that as lo n g as th e party system functions 164 a ccep tab ly it sh ould constitute the principal area w h ere th e fundam ental econom ic choices are com pared. 6. T h e set o f activities w h ich go to make up e c o n o m ic p lan n in g in clu d e, to a greater or le sse r d eg ree, th e m ost important types o f rationality w h o se social bearers are the pro­ tagon ists o f th e utopias ou tlined. O f course, ea ch o f them — scien tists, technologists, bu­ reaucrats and p olitician s— participate to som e exten t, during th e exercise o f their activities, in all th e typ es o f rationality, but on e is sp ecific to th em and d efin es w hat is typical in their role in p lan n ing. T h e tech n ologist is gu id ed in particular by th e instrum ental or tech nical rationality, w h ich is, essen tially, that w h ich endeavours to su p p ly th e m ost appropriate m eans to a c h ie v e an en d , or, giv en certain m eans, tries to m axim ize th e results, or attem pts to predict th e c o n se q u e n c e s o f an action. In his activities h e pays sp ecia l attention to the m eans or instru m en ts to b e u sed for the ach ievem en t o f o b jectiv es w h ich h e has not selec ted him ­ self. T h e aim s and ob jectives, the future im age o f th e so ciety w h ich it is w ish ed to create, the criteria w h ich gu id e th e diagnosis, have not b e e n e sta b lish e d by him , and h e restricts him ­ s e lf to preparing m od els or strategies for action in accordance w ith g u id elin es given to him beforeh and . T h e bureaucrat is gu id ed in his rational a ctiv ities by sp ecific ‘procedures’ laid dow n b y norms and regulations; h e also o f course k now s som eth in g o f th e reality o f the things in v o lv e d in h is activities, but his typical ra­ tion ality is th e ‘functional’ rationality, w hich organizes the im plem entation o f an activity in accordance w ith certain adm inistrative pro­ ced u res w h o se establishm en t and m odifica­ tion in th e final analysis fall outside his strict co m p eten ce. T h e politician d evelop s in his a ctiv ities a ‘p olitical’ rationality w h ich is d i­ v id e d into tw o forms: firstly, it has the princi­ pal task o f taking d ecision s concerning the en d s w h ich gu id e planning as a w h ole, and seco n d ly , it m ust rationally organize the func­ tio n in g o f th e en tire process o f negotiation lin k ed w ith th e taking o f d ecision s. N o w , if on e m ay b e perm itted a perhaps e x c e s s iv e sim plification o f M edina’s thinking CEPAL REVIEW N.° 9 / December 1979 on this com plex subject, on e may affirm that in reflectin g on th ese different rationalities he returns to his profoundest existential problem s. In th e first p lace, h e exp resses his fears that su ch grow th m ay take place in the technical and functional rationalities that it w ill finally im p ose their criteria — o f bureaucratic and instrum ental ‘efficien cy ’— in spheres o f life w h ich sh ould b e governed by their ow n au­ tonom ous values. In that regard, h e repeatedly u n d erlin es th e in d isp en sab le role o f p olitics in plan n ing, as a d ecisiv e affirmation o f a value co n ten t and a h op e for material rationality; n oth in g is more foreign to his b eliefs than the a lle g e d ‘futility o f p olitics’. S econdly, h e ex­ p resses his d efe n c e o f dem ocratic p rinciples as b asic criteria w h ich should structure and gu id e this n ecessary political rationality. T h e u n d en iab le ch allen ges raised by the d ev elo p m en t o f reason have led many p h iloso­ phers and sociologists — and also many youth protest m ovem en ts— to m aintain that indus­ trial society is m ovin g towards an im passe as a resu lt o f th e unrestricted predom inance o f tech n ological reason, w h ich has gon e b eyond th e sp here o f tech nology and econom ics and n ow seek s to dom inate all human activities to th e d etrim ent “o f other forms o f reason, not o n ly historical and vital reason, but that sole original and all-em bracing reason w h ich pro­ v id es a basis for man’s perm anent critical reflection on h im se lf and his ow n creations: th e R eason w h ich gave birth to the en ligh ten ed thinking o f ancients and m od em s’’.105 In th e face o f this ‘on e-d im en sional’ social organization, w h ich threatens to destroy all hum an freedom , all that seem s p ossib le is “radical resignation” or “a desperate attitude d eterm in ed to resolve the problem funda­ m entally on ce and for all” . M edina is not in agreem en t w ith th ese attitudes: he accepts that th e process o f rationalization has undesir­ a b le socio-p olitical effects, but the reaction to th em should not b e resignation or apocalyptic destruction. Rather, the task involves “firmly b ringin g into play a pow erful creative im agina­ tion cap ab le o f d ev isin g at the appropriate tim e th e various political and econom ic in ­ 105Díscum) sobre política y planeación, op. cit., p. 87. JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri 165 m istakenly defer them to an uncertain future w h en propitious econom ic and social condi­ tions exist for their establishm ent. T o b e a dem ocrat m eans to uphold their intrinsic prin­ c ip les now , fighting to recover them effec­ tively. I f institutional m aladjustments exist b eca u se parliam ent, the parties, the electoral system or any other o f the institutions do not fu n ction properly, the required reforms or ch an ges m ust b e m ade in them , w ithout re­ je ctin g th e principles on w hich they are based. I f an ‘overload’ o f dem ands occurs as a result o f th e grow ing political participation encour­ aged b y th e econ om ic and social changes, the solution is not to elim in ate som e o f them in a rep ressive m anner, but to educate the citizenry w ith a v ie w to “bringing about a change in the currently im paired or downright perverted attitudes o f individuals and other social units w ith resp ect to the State” .108 Finally, if d em o­ cratic pluralism produces conflicts, it should b e rem em bered that “every liberal-dem ocratic con cep tion o f the political system tends to accep t as its point o f departure the existence o f op p osin g interests and ideological positions w h ich cannot b e finally recon ciled at the dictates o f an absolute truth p ossessed as such, b u t can only com e to temporary arrangements, su cce ssiv e ly am plified to m eet the n eed s o f the m om ent, and w orked out through agreem ent, com prom ise and mutual moderation o f incom ­ p atib le extrem es” .109 strum ents for n egotiation and com m itm ent w h ich are capable o f overcom ing it effec­ tiv e ly ” ,106 T h e process o f rationalization is a univer­ sal trend in our tim e w h ich has m ade it p ossib le to p alliate th e scourges o f poverty and prem a­ ture death. W e cannot go backwards, rejecting progress. But n eith er is prosperity sufficient in itself, and for that reason it is necessary to ch eck th e ex cesses o f th ese m anifestations o f reason and fight against the am bitions o f technocratism , econ om ism and bureaucratization. In this fight it is necessary to avoid despera­ tion; fortunately, th e scientist, the technologist and th e p olitician can b e w e ll prepared if they h ave learn ed to respect the dictates o f their o w n rationalities, w h ich teach them the d is­ tance w h ich stands b etw e en the desirable and th e im p ossib le. If th ey are mature they w ill k now that the h op e for a better society lies in “th e rigorous analysis o f scien tific in telligen ce, th e critical consideration o f en ligh ten ed d is­ cou rse and th e pragmatic orientation o f pru­ d e n c e as p olitical reason” .107 In short, if M edina had perm itted h im self to g iv e a p ie c e o f advice, h e w ould have said that in th e p resent circum stances o f W estern culture — o f w h ich Latin America is a full m em b er— th e m ost important objective is to d efe n d dem ocratic values and institutions both from their traditional en em ies and from those w h o , in th e b e lie f that they are d efend ing them , V Conclusion: Taking stock and looking forward 1. In 1974, w h en h e was already over 70, M ed in a left his p ost in the U nited Nations and m o v ed to Spain. H e p lanned the trip as a final return after sp en d in g h a lf h is life in Spanish A m erica, but for reasons w h ich it is not appro­ priate to d iscu ss here, h e rem ained in his country on ly a cou p le o f years, after w hich he 106Ibid., p. 92. m Ibid., p. 92. resettled in Santiago, C h ile, and wrote his last essays for CEPAL. D uring this European interlude, because o f h is ren ew ed clo se contact w ith European realities after so m uch tim e, he readjusted his in tellectu al p ersp ective and organized his p rob lem s, approaches and theoretical sugges108“Notes on the future of the Western democracies”, C EP A L R eview ., N.° 4, op. cit., p. 133. m Ib id ., p. 127. 166 tions in a w ay w h ich w as to b ecom e definitive. In p rinciple, he on ce again found h im self face to face w ith crisis, w ith the w idespread fe e lin g in in tellectu al circles o f livin g through a critical tim e. H e felt the presence o f a “n eg a tiv e ton e o f fe elin g ” b ecau se o f the lost illu sio n s o f the post-war period and, though h e m igh t d isagree on the causes o f the crisis, h e agreed that th e en d o f an era had arrived. T his aw areness o f crisis encom passes very d iv erse areas, but there are two w h ich M edina u n d erlin es w ith special em phasis: the crises in traditional con ception s o f d evelop m en t and of th e international order. T h e crisis in the idea o f develop m en t b eg a n to germ inate som e tim e ago; it began w ith criticism o f the conception of d evelop ­ m en t as pure econom ic growth and a call for its scop e to be broadened by adding to it the ideals o f hum an w elfare proposing greater fairness in distribution — “narrowing the g ap ”— both b etw e en countries and b etw een region s and social strata w ithin countries. This initial criticism and com bination are later jo in ed by a concern at w aste, w ith its salient features o f superfluous consum ption, squan­ d erin g on arms and the exhaustion o f non­ ren ew a b le resources, and denunciation o f the d estructive action w h ich d evelop m en t has brought w ith it, w ith con seq u en t ecological deterioration and d eclin e in the quality o f life. In their extrem e version, th ese criticisms p rop ose ‘other' types o f developm ent, w hich totally reject the traditional conception and see k th e creation o f a society w hich is thrify, fair and capable o f m eetin g the basic n eed s of all. T h e traditional conception o f the interna­ tional order, w h ich originated in the seven ­ te en th century in E urope, is based on the ex iste n c e o f territorially sovereing States w h o se principal criterion for action is their ow n ra ison d ’E ta t and w hich maintain b e­ tw e e n each other relations based on various forms o f distribution and exercise o f political and eco n o m ic pow er — dom inance o f the strongest, balance o f pow er, and so on— regu­ lated precariously by international law, w hich has n ev er b e e n able to ach ieve full com pul­ sion. T his type o f international order is enter­ in g a crisis b ecau se problem s are arising w h ose CEPAL REVIEW N.° 9 / December 1979 solution cannot b e ach ieved by a sin gle State or a few States, and becau se forms o f interna­ tional relations are em erging w hich spread b ey o n d th e borders o f the States, such as intergovernm ental bureaucracies, regional associations and com m unities, and transna­ tional enterprises. But b eh in d th ese important m anifestations o f th e critical con sciou sn ess, M edina discovers th e old subjects — ‘h is’ old subjects— w hich on ce again lead to the discovery o f “the drama o f W estern culture” . T h e thread w h ich links all o f them , old and n ew , is the perennial struggle for freedom , the “repeated fight to avoid or lim it the various forms o f coercion to w h ich th e individual is subjected ... it is a criticism o f authority, in its different m anifesta­ tions in our reality ... in the conditions o f national or international life ” .110 In this way th ere reappear both the hope that the d ev elo p ­ m en t o f reason w ill'b rin g w ith it the conquest o f poverty, d isea se and premature death and m ake it p o ssib le to ach ieve full hum an ad­ van cem en t, and the threat that the unilateral p red om in ance o f on e o f the forms o f reason w ill culm inate in the coercions o f technocratism , bureaucratism , political absolutism and econ om ism . In short, there reappears his p ersisten t concern to ensure that the essential p rocess o f rationalization does not subordinate or p reven t th e m eetin g o f the “moral and a esth etic n eed s o f the individual, his effective d esires, th e quality and dignity proper to hum an life and th e perm anent yearning for com m u nication ” .111 In th e face o f th ese problem s, old and new , salien t and profound, M edina sp ecifies the b asic elem en ts o f the appropriate approach to tackle them , for the purposes o f both in ves­ tigation and action. Firstly, h e em ph asizes the n e e d to adopt a universalist attitude w hich m akes it p o ssib le to ach ieve a global v iew ­ point; this attitude is founded on the fact that all th e parts into w h ich the present-day world can b e d iv id ed are interdependent, that their crucial problem s are universal, so that efforts 110“Las propuestas de un nuevo orden internacional en perspectiva”, E l T rim estre Económ ico (Mexico), Vol. XLV, N.° 179 (July-September 1978), p, 534. ^l í Ibid ., p. 540. JOSE MEDINA ECHAVARRIA: AN INTELLECTUAL PROFILE / Adolfo Gurrieri to so lv e them should also b e universal, and that th e ‘com pact w hole' o f the social circum­ stance of man is not a national society or a region but the w orld as a w hole. Secondly, he em p h a sizes the n eed for a prospective orienta­ tion w h ich endeavours as far as p ossib le to less­ en the indeterm ination and uncertainty always in v o lv e d in th e “en igm a t f the future” ; this p ersp ec tiv e orientation should avoid the extrem es o f “im patient pragmatism” and the con struction o f irrelevant utopias. Utopias are n ecessary and the lack o f them “may perhaps b e in d icative o f a serious inadequacy in the interpretation o f th e p resen t”,112 but, in so far as o n e is a m ere w itn ess or minor protagonist, o n e m ust not undervalue the realistic analysis o f w h at ‘ca n ’ b e d on e in given objective condi­ tions. T hirdly, h e points to the importance o f p o w er relationsh ips at the international lev el, sin ce th ey have a substantial influence on the nature o f th e major universal problem s and th e solu tion s w h ich cou ld b e found to them , and co n stitu te the ind isp en sab le framework w h ich lim its any concrete national or interna­ tion al analysis or action. T h e se b asic com ponents — the universalist attitude, the prosp ective orientation and the dom inan t in flu en ce o f international pow er relation sh ip s— are p resent in m uch o f modern acad em ic and political thinking, but they are not original. M edina suggests that b eh in d them stands the old con cep tion o f sociology as the reflection o f an era critical o f itself, as the “selfaw aren ess o f a historic m om ent” ; a conception w h ich attracted him so m uch at the b eginning o f th e 1940s under th e in flu en ce o f H. Freyer. 2. T h e im p licit balance sh eet drawn up by M edina, stim u lated by his stay in Europe, co n v in c ed him that w h ile there exist at the p resen t tim e problem s and approaches w hich respon d to th e sp ecific ch allen ges of the m o­ m ent, th ey are also clo sely related —as could hardly b e oth erw ise— to the intellectual and p o litica l concerns and efforts w hich have b een taking root for a lon g tim e in the heart o f W estern culture. 112“ Latin America in the possible scenarios o í d éten­ te ” C E P A L R eview , N.° 2 (second half of 1976), p. 19 , (United Nations publication, Sales N.°: E.77.II.G.2). 167 H ow ever, in his final years, he is con ­ v in c ed that the problem o f p eace stands out ab ove th e rem aining problem s and has d e c i­ siv e in flu en ce on them; his thesis is that all th e important issu es o f the present era d ep en d on h ow w orld p eace is ach ieved and con soli­ dated. T h e problem is obviously not n ew , and M edina h im se lf had already tackled it towards th e en d o f the S econd World War,113 but he n ow returns to face it w ith renew ed vigour, aware o f the dangers w hich total war w ould in volve. T hus, he d ed icates a good part o f his last efforts to an analysis of the changes w hich have occurred in international relations in recen t d ecad es, and h e does so in a way w hich has certain formal sim ilarities w ith that w hich h e sk etched in relation to develop m en t in Latin Am erica. In fact, th ese changes are con ceived as if th ey had a lead in g tendency: the transi­ tion from the structure o f relations o f the cold war to that sp écifie to d e t e n t e , and the latter, like d evelop m en t, is both a historical tendency, a con tin u in g process, and an ideal for w hich it is worth fighting and w hich w ill only be attained by m eans o f human effort. T h e structure o f relations specific to the cold war is based on the confrontation b etw een the tw o principal contenders, w hich assum es the nature o f total antagonism . D iscourage­ m en t o f op en confrontation b etw een them lies in their m ilitary ‘parity’ and in their shared fear at what w ou ld b e its inevitable result: the ‘h olocau st’ o f hum anity. Both contenders represent and propound socioeconom ic sys­ tem s that they p erceive as absolutely antag­ on istic, w h ich gives dogmatic rigidity to the ideas and institutions guiding any internal and external p olicy, so that they b ecom e ‘pillarized ’. T his inflexibility, w hich affects not on ly the principal contenders but also the many w h o cannot avoid their influence, together w ith the nuclear threat, do not, how ever, preven t both from obtaining distinct su ccesses in their econ om ic growth; perhaps as result of their “op en em ulation” . D é te n te m eans a general relaxation o f ten sio n at th e international le v e l and th e firm li:iC onsideraciones sobre el tem a de la p a z (Mexico City, Banco de México, 1945). 168 esta b lish m en t o f the foundations o f durable p ea ce . In M edina's v iew , tension has lessen ed a little in recen t years and positive steps have b e e n taken towards d é te n te , but there is still an o b jective p ossib ility o f a freezing o f the p resen t situation (com p etitive d éten te) y a b a ck slid in g towards previous stages typical o f th e co ld war (conflictive d éten te), or a m ove forward to durable and harmonious p eace (co­ op erative d éten te). M edina places all his hopes in the latter. H o w ev er, h e d oes not co n ceiv e it as a perma­ n en t and absolute final stage but as a target w h o s e a ch iev em en t w ou ld not only b e valu­ a b le in itself, but w ou ld open up n ew eco­ n o m ic, p olitical and cultural prospects at the international and national lev el. From the view p oin t o f international p oli­ tical relations this w ou ld make it p ossib le to le a v e b e h in d th e old system o f security p olicies b a sed on th e d efe n c e o f national sovereignty, in favour o f a glob alist or universalist approach a im in g at g e n u in e w orld interdependence: the co n so lid a tio n o f this ten d en cy w ou ld perm it both grow in g flexib ility in international actions — ‘d esa te lliza tio n ’— and th e establishm ent and stren g th en in g o f w orld authorities to deal with p rob lem atical issu e s, as w e ll as the reduction o f lo ca lized wars. As for international econom ic relation s, th e m ost important con seq u en ces w o u ld take th e form o f a general attitude o f co-operation, th e expansion o f the international market and th e predom inance o f multilateral over b ilateral relations. At the national lev el •it w o u ld produce two effects of the greatest im portance: firstly, international concord w o u ld prom ote th e formation and strengthen­ in g o f dem ocratico-liberal régim es; and sec­ o n d ly , it w o u ld contribute to “ideological d ecen tralization ” . T his process, by destroying th e p reviou s rigidity, w ou ld stim ulate the search for n e w ideas and p o licies and their ap plication in d ev elo p m en t strategies and p erm it th e application o f m easures w h ich are m ore flex ib le, pragmatic and adaptable to sp ecific circum stances. In short, dem ocracy at the national lev el and co-operative d é te n te at th e international le v e l are th e tw o banners w h ich constitute th e e s s e n c e o f M edin a’s axiological legacy. D o th ey m erely represen t th e optim istic and CEPAL REVIEW N.w9 I December 1979 utopian enthusiasm o f a man o f good w ill? Perhaps, b ut such m en “like those w ho b e lie v e in R eason ... con tin ue to b e the salt o f the earth” .114 N o te on José M edin a s a cadem ic backgrou n d M edin a w as b om in C astellón de la Plana (Spain) on 25 D ecem b er 1903. H e studied in th e N ational Institutes o f V alencia and Barce­ lona (1914-1920), and in the U niversities o f V alen cia and Madrid (1920-1926), obtaining th e title o f D octor o f Jurisprudence. Later he w as a F ello w in the U niversity o f Paris (1926) and R eader in the U niversity o f Marburg, G erm any (1931-1932). On his return to Spain h e w as L egal O fficer to the Cortes (19321936) and Professor o f the Philosophy o f Law in th e U niversity o f Murcia (1934). D uring a large part o f the civil war h e was Secretary and later Chargé d’Affaires in the Spanish L egation in Warsaw, Poland (1937-1939). E x iled in M exico, h e was Editor o f the C olección de S ociología o f the Fondo de C ultura E con óm ica (1939-1944); Professor o f S ociology in the Autonom ous National U niver­ sity o f M exico (1939-1944); and Professor and D irector o f the Centre for Social Studies and D irector o f the publication J o m a d a s in the C o leg io d e M éxico. F ollow in g a short period as v isitin g Professor in the National U niversity o f C olom bia (1945), h e b ecam e Professor o f S ociology at the U niversity o f Puerto Rico (1946-1952). On 1 A ugust 1952 h e began his work in CEPAL; first as an Editor (1952-1955), but later m oving on to duties relating to social d evelop m en t. In 1957-1958 transferred to U N E S C O to b ecom e the first Director o f the Sch ool o f S ociology o f the Latin American F aculty o f Social S cien cies, returning to C E PA L in 1959-1963. On 30 N ovem ber 1963 h e jo in ed the Latin American Institute for E con om ic and Social Planning (ILPES), w here h e was D irector o f the Social D evelop m en t D iv isio n until his retirem ent on 30 June 1974. After sp en d in g som e tim e in Spain he returned to Santiago, C h ile, and co-operated with C E PA L until his death on 13 N ovem ber 1977. 114“Latin America in the possible scenarios of détente, C E P A L R eview , N.° 2, op. cit., p. 19. JOSE, MEDINA ECHAVARRIA; AN INTELLECTUAL PROFILE / Adolfo Gurrieri 169 B ib lio g ra p h y * — L a rep resen ta ció n p rofesional en las asam bleas legisla­ tiva s, Valencia, 1930. — La situ a c ió n p resen te d e la filo so fía ju ríd ic a , Madrid, 1934. — P anoram a de la sociología contem poránea (1936), La Casa de E spaña en México, Mexico City, Fondo de Cultura Económ ica, 1940. — Sociología: Teoría y técnica (1940), Mexico City, Fondo de C ultura Económica, 1941, second edition 1946, — R e sp o n sa b ilid a d de la inteligencia. E stu d io s sobre n u es­ tro tie m p o , Mexico City, Fondo de Cultura Económica, 1943. Includes the following essays; '‘Responsabilidad de la inteligencia” (1941) “E n busca de la ciencia del hombre” (1942) “Reconstrucción de la ciencia social” (1941) “Sentido y función de la sociología” (1939) “Econom ía y sociología” (1941) “Arte y sociedad” (1942) “ Las ciencias sociales en la educación” (1941) “Configuración de la crisis” (1939) “ D e tipología bélica” (1941) “ Soberanía y neutralidad” (1942) “ Cuerpo de destino” (n.d.) “John D ew ey y la libertad” (1939) — C onsidera cion es sobre el tem a de la paz, Mexico City, Banco de México, 1945. — L ecciones de sociología (1948?). Typed version of his lectures at the University of Puerto Rico. — P resentaciones y planteos. Papeles de sociología, Insti­ tuto de Investigaciones Sociales, Mexico City, Universidad Nacional, 1953. Includes the following essays: “Vida académica y sociedad” “La ciencia social en la encrucijada” “Acerca de los tipos de inteligencia” “La política y la tierra” “Tránsito de Europa” “ Reeducación alemana” “ ¿Filosofía del derecho?” “E l hábito y el m onje” “ E l sociólogo y el arte” “Max W eber” “Concepto y temas de la sociología” “Proyecto de un curso” — A sp ecto s sociales d el desarrollo económ ico, Santiago (Chile), Editorial Andrés Bello, 1959; republished by CEPAL in 1973 in the Serie C onm em orativa del X X V “Tres aspectos sociológicos del desarrollo económico” (1955). “E l problem a social en el desarrollo económico de Bolivia” (1956). “ El papel del sociólogo en las tareas del desarrollo económico” (1958). —“ Social developm ent of Latin America in the post-war period” (1963) (CEPAL document E/CN. 12/660, mimeo)** —“ Economic developm ent in Latin America: sociological considerations” (1963) (CEPAL document, E/CN.12/646, mimeo) —Introduction to the collective essay, Las élites urbanas en A m érica L atina, ILPES, mimeo, 1966. —F ilosofía, educación y desarrollo, Mexico, Textos del ILPES, Ed. Siglo XXI, 1967; later editions also exist. Includes the following essays: “ El desarrollo y su filosofía” (1965). “Glosas a ‘Nacionalismo y desarrollo’ ” (1963) “ Desarrollo económico y educación” (1963) “ Factores sociales de la educación” (1963) “La reforma de la Universidad Latinoamericana” (1964), “La Universidad ante el desarrollo económico” (1966) “La juventud latinoamericana como campo de inves­ tigación” (1965), “Las relaciones entre las instituciones sociales y económicas” (I960)*** “ Planteam iento de una investigación” (1963) —Discurso sobre política y planeación, Mexico City, Textos del ILPES, Ed. Siglo XXI, 1972. Includes the following essays: “Discurso sobre política y planeación” (1970) “La planeación en las formas de la racionalidad” (1969). “Desengaños del desarrollo’*(1971) —“Latin America in the possible scenarios of d étente ” (1976), in C EP A L R eview , N.° 2, second half of 1976, pp. 9-92 (United Nations publication, Sales N.°: E.77.II, G.2) —“Las propuestas de un nuevo orden internacional en perspectiva” (1976), in E l Trim estre E conóm ico, Vol. XLV (3), N.° 179, July-September 1978, pp. 517-556. —“Notes on the future of the W estern democracies” (1977), in C EP A L R eview , N.° 4, second half of 1977, pp. 113-137 (United Nations publication, Sales N.°: E.77.II.G.5). Includes the following essays: “ Las condiciones sociales del desarrollo económico” (1955) **This study was prepared by Medina in co-operation w ith L. Ratinoff and E. Faletto and submitted as a CEPAL secretariat document to the tenth session of CEPAL, held in Mar del Plata, Argentina, in 1963. The parts of the docum ent used in the text are some of those written by M edina, such as the Introduction and the first three sections of Chapter IV on the middle classes. *This bibliography is not exhaustive. The dates in brackets show the year in which the article or book was com pleted, which is not necessarily the same as the year of publication. The incomplete references are to books which it was not possible to obtain when writing this essay. ***Published in English as “ Relationship between social and economic institutions: a theoretical model applicable to Latin America” , CEPAL, E conom ic B ulletin f o r L a tin A m erica, Vol. VI, N.° 1 (March 1961), pp. 27-39. A n iversa rio de la CEPAL. NOTES AND COMMENTS 171 N o te s an d C o m m en ts Two statements from La Paz: Raúl Prebisch and Gabriel Valdés* A d d r e s s b y R a ú l P rebisch Decidedly, I cannot escape from the infectious enthusiasm of E nrique Iglesias. H e put me in charge of his Review, he invites me to seminars, and now he has brought me to this meeting, w here I have the honour to be addressing you. Seriously, however, I find this all very gratifying, and I give thanks to E nrique Iglesias for it, since I could not have resigned myself to withdrawing to some twilight comer, there to be covered by the dust of ages, or at any rate not yet, for changes of great significance are taking place which I am striving to interpret, and from which I am seeking to draw lessons and guidance. I w onder w hether we are not approaching the end of an era, in w hich we cherished illusions which are now vanishing. I should like to comment here on three of these: — The illusion that here in the peripheral countries we could develop in the image and likeness of the major industrial centres; — T he illusion of the monetary arrangements of Bretton Woods; and — T he illusion of the supreme regulatory role of the m arket forces. It was the impressive technical progress of the centres w hich fostered the first of these illusions. However, technology possesses certain inescapable demands. It rapidly brings ever higher productivity. But for technology to be able to penetrate deeply into the social structure it is essential that a considerable part of the fruits of this rising productivity should be devoted to boosting the accumula­ tion of reproductive capital, both in the training of people and in physical assets. This is the first requirement, which we are certainly not satisfying properly in Latin America. The second is that this productivity must be genuine, and not obtained at the expense of the environm ent and the irrational exploitation of non-renewable natural resources. Obviously, here again w e are not fulfilling this requirem ent to the extent that would be desirable. I should like to pause briefly on this question of the accumulation of capital. Our countries have already shown an outstanding capacity to adopt new technology, without w hich it would have been impossible to attain our unusual­ ly high rates of development, but we have been squander­ ing m uch of the potential for capital accumulation which accompanies this rising productivity. *Addresses delivered at the eighteenth session of CEPAL in La Paz, April 1979. Dr. Prebisch is Director of C EP A L R eview , and Gabriel Valdés is Regional Director of UNDP. This potential is being squandered through the pri­ vileged consumer society and through certain forms of siphoning off income from the periphery which reflect the hegemony of the industrial centres and their technical and economic superiority. The consumer society is based on the great social inequalities of development. The fruits of technical prog­ ress are concentrated above all in the upper strata of the social structure, where the life-styles of the centres are increasingly —in some cases one might even say frenziedly— imitated. These excesses of privileged consumption make it impossible to accumulate capital to the degree which would be possible and indeed essential in order to absorb at increasingly high levels of productivity and income the broad masses of the population still relegated to the bottom of the social structure. This is a stubborn feature of developm ent of which the Executive Secretary has spoken with moving eloquence. Let us not deceive ourselves. However much we are now told from the Northern hemisphere, sometimes in surprisingly simplistic terms, that poverty must be elim­ inated, we will not be able to get to the roots of this problem without a frontal attack on the privileged con­ sumer society, whose continued evolution is incompatible, absolutely irreconcilable, with the social integration of the lower strata of society. The privileged consumer society is the clear result of the desire to develop in the image and likeness of the centres. Yes, I know we have indeed succeeded in doing so, sometimes very vigorously, but the development has been lim ited to a restricted social circle. It is a socially exclusive form of development. Furthermore, with the passage of time conflictive elements arise which fuel the inflationary spiral when the process of democratization progresses in a relatively unrestricted manner, and this kind of inflation cannot be treated by the traditional monetary remedies. Such is the outcome of this capitalism which, in its thirst to imitate, is far from austere. Neither austere, nor authentic —nor autonomous! The fact is that the centres are intimately linked with the privileged consumer society, above all through their transnational corporations, and they play their cards in such a way as to favour this kind of development. They exalt the consumer society, w hile at the same time shedding croco­ dile tears over the social injustice of this system. The centres show a really incongruous attitude, since they stubbornly resist trade and financial co-operation measures which would favour development and alleviate external vulnerability and which, with some adjustments, could also be very effective in transforming the system. I can understand that in their present critical cir- 172 cu ms ta nee s the centres choose to ignore the periphery, but neither did they show any great interest in its problems during the long years of prosperity prior to 1973. In the periphery we are drifting in the wake of events and cannot seem to make up our minds to launch a resolute assault on the major problems of development. I do not believe that the centres will basically change their attitude until they get over their present major upheavals. What can we do, then? The answer is that there is a great deal we can do, and it includes actions of great importance. The periphery must wake up to its great possibilities for action. It must wake up to the vast potential for capital formation which it has w ithin itself if only it would clamp down on the privileged consum er society. It must wake up to the fact that it has immense possibilities for reciprocal trade to halt the ingrained tendencies towards external imbalance now reem erging owing to the recession in the centres and the increase in oil prices. T hese are possibilities which must be seized in a determ ined manner, because however much the growth capability of the centres is restored we could not think of unloading on them all the industrial exports which our developm ent inevitably requires. I am not, of course, one of those who favour delinking from the centres. Quite the contrary. I am only laying heavy stress on our countries’ own responsibilities. Far from evading them , I consider that despite the urgent problems w hich occupy the attention of both North and South, we could be building up a common strategy to solve the great common problem of development. Perhaps the most positive result of three decades of international discussion has been the recognition that developm ent is a common problem. We have not, however, been able to reach agreement on this common strategy, which would be one of converging measures by developing countries and capitalist and socialist developed countries: a eommon strategy in which the centres would progres­ sively liberalize their imports from the peripheral coun­ tries, in conjunction with measures to liberalize reciprocal trade betw een the latter countries; a common strategy in which large-scale financial co-operation commitments by the centres should be combined with commitments to m obilize the domestic resources of our countries, all of w hich would transform —perhaps beyond all recognition— the present type of development in the image and likeness of the centres. N either in this nor in other regards am I departing from the idea of the New International Economic Order. I am the very last person who would do sot I am only recom m ending a joint set of efforts which would be carried out gradually, but whose objectives would be agreed upon as of now —efforts requiring the union of the political will of the centres and the political will of the periphery. I do not believe that the present monetary upheavals should delay us from concerting this overall strategy. Let us not forget that in the very midst of the Second World War, major measures were conceived for reordering the w orld’s economy. Among those measures were the Bretton Woods agreements, which played an important role in a now fading era. This brings us to our second disappointment. CEPAL REVIEW N.° 9 / December 1979 L et us not be prejudiced against those who planned the new system. It is really very difficult to conceive of any international monetary system if one of the member countries has the possibility of fostering international inflation. We are witnessing with mingled anxiety and hope President Carter’s tenacious effort to correct the fiscal deficit', which together with the rise in the price of oil is the most important factor in this process. He is striving to close the gap through which an extraordinary amount of interna­ tional liquidity has flowed; a process witnessed at first with satisfaction by the whole world but subsequently with increasing concern because of the serious disruptions accompanying it. Until the origin of such disruptions is elim inated, the reluctance of countries with large external surpluses to expand their economies is understandable; it would be like watering the garden in a rainstorm! The situation is clearly understood, I would say, but unfortunately when attempts are made to use a restrictive monetary policy to correct the domestic consequences of inflation of fiscal origin, or its impact on other countries, economic recession with huge loss of income becomes inevitable. To attack the fiscal origin of world inflation is therefore essential, although this aione is not sufficient to develop a clearly defined expansive policy for the benefit of both the centres and the periphery. All this will also clear the way for a new international monetary régime which can no longer be based on the currency of a single country, particularly if it is of great international importance. T he periphery’s interest in solving this problem is very clear. Its interest is in a healthy monetary system in which the cautious creation of international money, strictly in relation to exchange requirements, can be linked with developm ent financing. This link was rejected by the centres —with some exceptions— because they said it would prove inflationary! What tragic irony of events: there has b een no link, but there has been inflation! Finally, I would like to refer to that other illusion which is evaporating: the regulatory role of market forces. No one believes any longer in the spontaneous effec­ tiveness of these forces for correcting the adverse effects of am bivalent techniques, although some governments still believe in their effectiveness in domestic development. I hasten to state right away that the market forces have great economic and also political importance. If they are to operate efficiently, however, it is necessary to correct the adverse consequences of the penetration of the technology and other propagating phenomena of the centres into a peripheral social structure fundamentally different from their own. A big differentiation must be drawn betw een the market with its underlying structure and the pow er relations which derive from it and which influence so strongly the unequal distribution of income and insufficient capital formation. I would not hesitate to say that with suitable discipline over accumulation and distribution the market could become a most efficient technical instrument. Similar observations may be made regarding the great structural differences between the centres and the periph­ ery which likewise distort the play of the market forces at NOTES AND COMMENTS the international level. In this connexion, I should simply like to m ention one important example, that of basic commodities. While the stabilization plans were being discussed in the UNCTAD meeting in Nairobi, Dr. Kissin­ ger unexpectedly floated his proposal for a natural re­ sources bank. I was inclined to see in his attitude a sign of a change of policy or perhaps of recognition of the need for convergent measures: to stimulate production and ensure regular supplies to the centres, on the one hand, and on the other to offer the periphery a stable and advanta­ geous basis for developing their activities. In other words, to provide a long-term framework in which the forces of the market would operate. A short time after, however, —now away from the State Department— the same Dr. Kissinger declared to United States businessmen that the aim was to obtain basic commodities from the periphery at low prices for the centres. And to think that there are still people who deny that under the laws of the market the benefits of technical progress in the periphery tend to be transferred to the centres! All this should be part of the world strategy, the strate­ gy of common responsibilities and mutual commitments, to w hich I have already referred. This does not involve m erely a new formula, but calls for a fundamental change in attitudes in the centres and the peripheral countries. Both are failing to take advantage of the imponderable promise of technology. We have become bogged down in detail. We must raise our sights boldly so as to embrace in w ider-ranging perspective the great promise of technology —the possibility of extending human well-being to the great masses who are still at the bottom of the social structure. A prospect which has never before presented itself in the developm ent of mankind has become attainable. It is w ithin our reach if we succeed in linking arms in a common venture: an immense venture in human welfare and —let it not be forgotten in these times— a venture in human dignity. Statement by Gabriel Vaidés I have great pleasure in conveying to the Economic Commission for Latin America at its eighteenth session the most cordial greetings of the Administrator of the United Nations Developm ent Programme and his best wishes for the success of its deliberations. I wish, first and foremost, to state with great satisfac­ tion that our co-operation with CEPAL has continued to improve and expand during the past two years, reaching w hat I consider to be an exemplary level of relations betw een two institutions of the United Nations system. Thus, it has been possible, on the one hand, to meet the requirem ents specified by the countries themselves at the CEPAL session in Guatemala City and, on the other, to benefit from that co-operation through a continuing exchange of knowledge and expedience. Since the Commission’s last session, and in accordance w ith its recommendations, full agreement has been reached concerning UNDP’s participation in the financing of the new structure of the Latin American Institute for 173 Economic and Social Planning (ILPES), which is thus initiating a new and promising phase of activities under the direction of the distinguished economist, Mr. Jorge Méndez. Our co-operation with CEPAL has grown. In 1979, UNDP will contribute over US$ 2,500,000 for re­ gional projects requested by member countries and exe­ cuted by the Commission. These activities are being carried out in various fields, apart from those covered by ILPES itself, as, for example, those related with the impli­ cations for Latin America of the situation of the interna­ tional monetary and financial system, critical poverty in Latin America, trade with socialist countries, the situation and prospects as regard the production of and require­ ments for capital goods, education and development in the region, and the creation of technology in the manufac­ turing sector. Several of these activities are also carried on in close co-operation with other agencies of the United Nations system. I might also mention that we shall soon be initiating activities relating to the rural sector, which will m erit special attention. In the process of the restructuring of the United Nations system, the General Assembly decided that the regional commissions should participate actively in establishing priorities for the assignment of UNDP’s regional resources. I may say with some satisfaction that both the first cycle 1971-1976 and the second cycle 19771981 were programmed with particular attention to the criteria expressed at the successive sessions of the regional Commission and other intergovernmental organs, and in co-ordination with the specialized agencies as regards the definition of specific fields. We are now preparing to im plem ent this General Assembly decision as efficiently as possible for the next cycle. We await with keen interest the resolutions that will be adopted here, so that we may know the governments’ priority criteria in the field of international co-operation. The report submitted at this session and the brilliant and com prehensive statement by the Executive Secretary, Mr. E nrique Iglesias, have given a clear picture of the region’s economic situation, in a manner which will give rise to a rich and wide-ranging discussion. This is an essential function of the regional commissions within the United Nations system. With intellectual independence and a critical and realistic approach, they are called upon to indicate both positive and negative development situa­ tions and to ascertain the fulfilment of the mandates and resolutions emanating from international meetings and conferences, or the gap between them and the specific action and situations actually found in the various coun­ tries, and thus to suggest lines of action for consolidating peace through a new, fairer and more stable international order, solving the general problems affecting the region, and helping to increase intra- and extra-regional co­ operation. From the angle of international co-operation and the broad topics of concern to the United Nations, I feel it is appropriate to set forth some reflections about certain trends observed in the region during the past decade and their projection for the future. Three broad lines may be identified in this projection, no longer as hypothetical scenarios but as imminent realities if voluntary political measures to modify their course are not adopted. First, 174 there are the consequences of the close integration of the region’s economy, technology and cultural forces into the international sphere. Latin America has given an extraor­ dinary leap forward in its non-traditional exports and the opening up of new markets and sources of supply. The benefits, in both qualitative and quantitative terms, are evident. As is only natural in any process of interdepend­ ence betw een unequal parties, however, the region has become more vulnerable and is clearly defenceless in the face of decis ions adopted by the centres. We have not yet achieved the necessary independence to allow of suffi­ cient flexibility betw een internal and external demand, nor the capacity to find an adequate response to the pro­ tectionist or imperialistic policies of the centres, particu­ larly now with the development of a deep-rooted econom­ ic recession, which there is a tendency to try to tackle with­ out seeking in truly global relations and the full incorpora­ tion of developing countries the only stable solution that is likely to be of general benefit. If the economic growth rate declines and protec­ tionism in the centres is accentuated, the rates of indebted­ ness, trade deficits and resulting effects on employment and income distribution will worsen; thus, any possibility of m aintaining the present economic policies in many countries will be difficult, particularly if the aim is sim ultaneously to give those policies a social content, the dramatic need for which is known to all. O f course, any projection should depend on the levels of development of the various countries, but even with that reservation and in line with the situations described in the CEPAL report, if the present type of external relations are main­ tained and the developed countries continue to pursue their present policy, radical changes will have to be introduced in the international system and simultaneously in the attitudes, style and objectives of the countries’ policies to prevent the existing situations from reaching undoubtedly serious limits. The strategies which must now be adopted in the face of sustained recession and inflation should be quite different from those employed w ith a view to integration in an expanding world economy. T he second projection which emerges from observing the trends followed is the relatively widening gap in terms of economic potential between some countries of the region because of their size or their petroleum and other production capacity. Twenty years ago, when LAFTA was established, there were gaps of this type, which were recognized in the Montevideo Treaty, but they did not prevent clear integration in the field of trade and in industrial complementarity at the sectoral level, and they w ere no obstacle to the formal adoption of a decision to form a common market. By the end of the 1960s, however, the Association came to a standstill because of the in­ creasing disproportion among its members and the ter­ mination of national or regional import substitution policies, which gave place to a decided opening-up to the world market. It is interesting to note now that.the gap betw een countries w ith a large population and the rest of the M em ber States in any projection, quite apart from the negative external factors, will tend to increase progres­ sively, with natural advantages for the larger countries. It may be observed, in retrospect, how beneficial it would CEPAL REVIEW N.° 9 / December 1979 have been for all, but particularly for the relatively less developed countries with too small a market, if a common economic space had been created at that time. It is becoming increasingly evident that a bigger population, or the markets of several countries grouped together under the same rules, constitute a determining factor in ensuring sustained growth and taking fuller advantage of external relations, which are them selves—and will continue tobe— a decisive factor. Nor does it seem reasonable to continue to maintain contradictory theories as between integrationbased growth which takes advantage of markets with unused potential, and individual opening-up to external markets. The European Community should be an eloquent example to convince even the most sceptical that a pragmatic policy in both directions might be best. Briefly, the point 1 w ished to make is that countries with more space and population will progressively enjoy greater viability and independence. T he influence of the major countries of the region will be increasingly important and may be extremely beneficial for all kinds of economic and technological reasons if new forms of sectoral integration or co-operation agreements are proposed to replace costly external relations of dependence, and if external policies are more consistently co-ordinated through the flexible instrumentality estab­ lished by the governments in setting up SELA. We should consider it fortunate that there are countries enjoying these conditions in the region, that is to say, countries which have a large population base or possess particularly valuable resources like petroleum, since the whole region benefits or should benefit from these great comparative advantages of some of its members. If we project these situations 15 or 20 years ahead, the economic, scientific and technological map of Latin America will be quite diverse, but geographical necessity, cultural identity and the consolidation of other continental groupings will keep alive the need for economic integration, albeit on new bases beneficial to all. The third projection, which in part derives from the first two, concerns the alarming disequilibrium which has arisen between economic growth and social develop­ m ent in many countries of the region. The increased levels of critical poverty in broad sectors of the population are a source of deep concern which undoubtedly lays open to question the style of development pursued, the social structures created and the mode of international integra­ tion adopted. It is only right that CEPAL’s report should place the accent on this open wound. It constitutes a severe judgem ent of certain economic concepts in vogue and reflects a negative conception of the essential meaning of development, while it further constitutes an obstacle to the social consensus and has called forth such explicit statements as that made by the Episcopal Conference at Puebla, which represents the greatest moral force of the region. The time has come to acknowledge frankly that the violated dignity of life of so many inhabitants of Latin America is not changing one iota because certain indexes of growth are achieved for the product. This is not a problem which can solve itself by oblig­ ing the many who ask to participate to wait. Projections indicate that the gaps are widening. This unfortunate NOTES AND COMMENTS situation —which should never have occurred in so rich and sparsely populated a region where social justice, freedom and respect for human rights are values in­ corporated in the basic culture of all our societies— cannot be rem edied by means of the market, the hand of which is com pletely invisible as far as the poverty-stricken masses are concerned. Nor can it be solved by the spillover theory w hich has been so insistently upheld in spite of its failure in both theory and practice. In addition to this, greatest of all problems from the ethical, social and economic point of view, others are becoming characteristic of the region too, such as uncontrolled urban concentration, with its accumulation of population and social ills which are reaching lamentable records at the international level; the need to create productive employment for 200 million inhabitants already bom; the ecological deterioration of the region; the increasingly arid land, and the poor utilization of water resources. T hese problems, with their respective levels of priori­ ties, indicate a partial or complete lack of integrated developm ent planning. The situations involved, which still appear bearable to those enjoying the material benefits of a consum er society, will constitute factors of irreme­ diable deterioration w hen projected over the next 10 or 20 years. Without ignoring the progress made in so many fields, the persistence of the aforementioned problems, unless of course they are remedied at their roots, will make it impossible to build a humari civilization in accordance with the criteria and objetives proclaimed by the countries themselves at international forums. All this can be explained by the failure to achieve a proper balance betw een the indispensable economic growth and social development. In many respects there is increasing conflict between the two, accompanied by growing insecurity and instability, If this course were to be continued —as a United States economist pointed out— Latin America would be pursuing a type of civilization which, by the time it had been hypothetically reached would already have been abandoned by the centres that advocated it, experienced it and suffered its consequences, but w hich by then would be pursuing other social paths. The civilization proposed in all world contexts is one which places the economy at the service of mankind, of men and women everywhere, and devotes it to the protection of the environm ent in order to maintain for future generations the possibility of a full human life. Latin America has been considered the continent of the future. In many respects, however, it could rapidly become a continent that is old in terms not only of its ideas but also of its economic, social and cultural structures and its ecology, and this would be due to the temptation of immediatism in the consumption of goods out of the reach of the broad masses, to a lack of independence, and to the absence of adequate human resource programming. Obviously, this cannot and should not happen, since the region possesses creative capacity, space and more than enough human and material resources. To prevent this reaction from becoming more and more costly as the delay drags on, however, reflection and research are required in order to define the kind of change of course which would obtain the necessary national consensus and external support. In the final analysis, this would involve more 175 original policy decisions with less imitation, and the economic measures should be subordinated to these. Latin America played a decisive role in the struggle for the international community's acceptance of the establishm ent of a new international economic order. If the process is viewed as a whole and in a world context, it becomes clear that radical changes are called for in the financial, trade, technological transfer, and other systems, if the countries of the region are to achieve stable development. At the same time, however, the new in­ ternational order will have no meaning and will be impossible to achieve in practice unless the serious disequilibria occurring within the developing countries are simultaneously corrected. The moral validity of the demand for a new structure of North-South relations will be at its height —or perhaps I should say will have attained its fullest justification— w hen the developing countries resolutely face the problem of the acute disparities between their own inhabitants, critical poverty is eliminated, and societies are organized by the free consensus of their inhabitants. Within this frame of reference I wish to make three comments on external co-operation. The first refers to the mandate extended by the governments to the United Nations system in repeated resolutions to pursue the objective of strengthening the developing nation's self-reliance. Self-confidence, pro­ gressively increasing independence, the capacity to choose on the basis of the fullest possible knowledge the best options for enhancing the quality of life of all the inhabitants and to receive and transmit information and technology consistent with their own interests; all these make up developm ent as the expression of every society most in keeping with the cultural roots of its people and, therefore, the proper motive and object of external co­ operation. This is a complex task because of the growing interdependence found at all levels, but it is precisely this interdependence which creates the need to strengthen the region’s autonomy in order to break the dependency relationship and ensure that, on the basis of a new distribution of power, it will receive what it wants, not w hat others decide, and will be able to contribute what others require. Self-reliance means having goals and objectives, choosing options and upholding policies governing long-term investment in human and financial resources. This does not mean to isolate itself, but rather to participate selectively, and decisively strengthen the internal effort for which there is no substitute. That is why medium- and long-term planning is indispensable, not only for the public sector but for the whole national effort; not only for physical investment but also for technological development and human resources. In the present-day world, power stems not only from the economic sphere but also from other factors such as the quantity and quality of research and training, and in some cases —even where per capita income is very low— from the great mass of the population, permitting the mastery advanced techniques, including nuclear technology, and making a country’s rights and force recognized at the world level. Latin America as a whole and many of the countries which make it up are among those with the greatest 176 capacity to act with confidence in their own efforts and thus achieve more benefits from international interde­ pendence. This situation does not seem to be in keeping w ith the “trade union” attitude of many developing countries, which traditionally confine themselves follow­ ing as their sole strategy that of demanding from outside the pow er structure higher prices for their raw materials, more satisfactory financing conditions and compensatory funds, like a person who accepts his dependent status, regards him self as being outside the enterprise and its management, and only demands wages and benefits but claims no participation in the decisions or ownership. I know I am touching on a delicate point, but it is sometimes useful —at the risk of expressing somewhat unorthodox criteria— to recognize the real situation with respet to the different stages of development and to take advantage of the relative position of the region in order to negotiate what it needs from the industrialized world in terms of participation from the inside since, in the last analysis, the benefits and damages in international economic relations are distributed not in terms of greater or lesser generosity or greater or lesser need, but in terms of power. It is a new distribution of power which will establish the New In­ ternational Order. Linked with this state of affairs is collective selfreliance. There is every possibility of increasing the individual countries' benefits by taking advantage of the region as whole, whose evident homogeneity —in spite of its already wide disparities— provides the opportunity for a new stage of growth on the basis of proper utilization of the markets and resources of the region itself —an approach which seems inevitable as the centres close in and protect themselves. Thus, new justification is emerg­ ing for joint action, for Latin American multinational enterprises, for joint technological, research and engi­ neering enterprises, which can also participate with greater pow er in the region’s external relations. The determ ining factor in all this is the political will which, in the case of Europe, was the first to be manifested but w hich in Latin America has been the most reluctant to express itself. Self-reliance is determined, however, by a country’s scientific and technological progress. Well-known studies show that in the development of the United States the contribution of material factors, i.e., capital and labour, has played less of a part than the contribution of immaterial factors such as the application of science and technological innovations. W ithout basic science there is no possibility ofcreating or adapting technology or of defining fundamental options in the establishm ent of objectives for a community. With some notable exceptions, science has been considered too expensive a luxury in the region, which has therefore preferred to purchase its results, i.e., technology, as though countries could live with no head, but only a stomack and money. Science is the revolution of our time: its possession and utilization constitute the source of power of a community and provide it with the highest intellectual, cultural and economic returns. Support for science and technology and their linkage with developm ent are the topics of a forthcoming World CEPAL REVIEW N.° 9 / December 1979 Conference, one of the most important yet organized in the field of international co-operation. As some countries of the region are already doing, Latin America should make a special effort to consider science and technology as objectives of basic national policy, linked on the one hand with human resources programming and on the other with productive demand. The reduction of unnecessary dependence, progress towards higher states of independence and the real way to create co-operative advantages through human resources training and a correct set of priorities in the cultural field are determ ined by the scientific and technological effort which a country can make. Generally speaking, this effort must be made at the costof sacrificing immediate consump­ tion, but it is the only way to achieve lasting self-reliance. T here are, of course, limitations in terms of resources and space in sustaining major efforts in this field. Therefore, horizontal co-operation among countries of the region or among developing regions offers still unexplored possibili­ ties of fairly rapidly opening up a path which has not yet been travelled. T he level attained by the region, its widely varying resources, and each country’s specific characteristics make it possible to increase toü considerable extent the activities and benefits of regional co-operation. It is no coincidence that the United Nations Conference on Technical Co­ operation among Developing Countries was held in Buenos Aires, for the Latin American countries, in parti­ cular Argentina, were the great promoters of that Confer­ ence because their own experience and rich capacity show the advantages of co-operation among equals. UNDP is endeavouring to advance along that road, but in order to do so the governments of the region must adopt a resolute attitude. I cannot but stress the great urgency of this question. Although the resources contributed by the countries to UNDP increased by more than 60% over the last four years, those assigned to the region have not increased and even seem to be diminishing in real terms. Compared with the other developing regions, Latin America’s share in UNDP’s resources has dwindled and new cuts are planned. This is due on the one hand to the contributing countries’policy of granting more resources to the more densely populated countries with lower incomes, and on the other to the relatively greater economic and technological capacity of the Latin American countries. I cannot b ut express my deepest concern about this situation, which is serious since it tends to reduce the region’s benefits as regards access to technology through a neutral channel, according to the governments’ will and practically from all fields of development or research, particularly through the specialized agencies. I do not think it would seem out of place in these circumstances if I appeal to the countries of the region to increase their contributions to the programme, not only to help the less developed countries b ut also to present in the next discussions on the allocation o f resources a position more compatible with the region’s importance. Dark shadows loom over the present state of the Latin American societies. Some are due to the international system which is in process of reconstruction; others are NOTES AND COMMENTS due to internal policies. Over and above everything else, however, there are great unused capacities, as yet un­ exploited resources, an identity which is making its appear­ ance side by side with the growing regionalism of Africa, the Arab countries and Asia, and the emergence of active transnational forms ofculture. In spite of the wide diversity of régim es and levels, there are in the region sufficient factors of similarity to programme a higher level of co­ operation, particularly in the scientific, technological, 177 trade, cultural and financial fields, together with more closely co-ordinated, more specific and more active external action. The instruments are at the governments’ disposal. CEPAL knows it can count on UNDP to pro­ gramme its resources adequately, and on the other United Nations agencies which, at their specialized conferences, also formulate their priorities, while the countries for their part, can rely on the loyalty and devotion of all those serving the ideal of international co-operation. Statem ents by Jorge M éndez* and Carlos M artinez Sotomayor** at the op en in g o f the course in social p lanning organized by C EPA L, ILPES and U N IC E F Statement by Jorge Méndez T here are a number of important reasons for a course such as the one which is starting today. The first is that Latin America’s social problems remain dramatic. The second, that the solution of these problems cannot be entrusted to the mere passing of time: a patient wait for the benefits of economic growth to reach all members of society, little by little. H uman distress does not permit such a wait, nor is it mitigated by the hope that other generations will not experience it. Accordingly, society must decide to alleviate these problem s, and m ust organize itself for that purpose. T he third reason is that, while social problems give no respire, since the people require succour here and now, this urgency does not justify inefficiency in spending resources. Social projects must be efficient. In some ways it is more serious to waste some of the resources available tor solving social problems than to make ill-judged invest­ m ent in industry or agriculture. Such an investment represents a loss for groups which can afford it. In contrast, inefficiency in a social project means direct and profound frustration for large masses of people. This is why it is so im portant that social programmes should be ‘operational’ in a planned and efficient way. A fourth reason for this course is that the allocation of resources to solving social problems, and in general legal, financial, institutional and other political decisions designed to deal with or solve social problems, are closely related to the nature —and direction of, and amount involved in, decisions concerning investment in the goodsproducing sector— in other words the general state of the economy. Social planning is part of overall planning, and must be carefully and systematically integrated in it. Because it draws inspiration from such motives as those I have just outlined, so closely linked to the idea of planning —in other words, organizing national efforts, laying down criteria for the use of resources, selecting * D irector of ILPES. ** U N IC EF Regional Director for the Americas. mutually consistent targets for society— the present course is of special importance within the programmes of ILPES. On the world scene, it Is increasingly clear that growth rates are insufficient as a sole criterion for measuring developm ent. The First United Nations Development Decade was principally based on the idea that mere growth in the product was an unsatisfactory measure of development, and that it was necessary to add other elements, notably social ones. This was the major symbol of the 1970s: the effort to redistribute the benefits of growth, specifically tackling the major symptoms of poverty, unemployment and social injustice. As a result a series of international programmes aimed at this objective arose in the 1970s: the World Employment Programme, the major projects on demographic policy, the intensification of the efforts on UNICEF, the introduction of objectives of income redis­ tribution in development plans, efforts to satisfy basic needs, and so on. The 1970s should be regarded as the decade of social, humanist, egalitarian reflection. Nevertheless, we may ask how much progress was made in illuminating the intersectoral relationships which this new social emphasis implied for the theory of develop­ m ent and, specifically, for economic planning. What success was achieved by the efforts to implement major programmes of social change and the comprehensive solution of social problems without impairing the growth potential of the economy as a whole? I would say that progress was certainly made, but that it was not sufficient. It is surprising, for example, that the employment pro­ grammes were not converted into all-round, continuing efforts w ithin the development plans. The same applies to ideas on the meeting of basic needs, and to efforts to improve income distribution. The ideal of social change, so proper and so inevitable, has been relegated to second place in most of the countries. What is perhaps even more serious, however, is that the feasibility of reconciling social objectives with a given degree of prosperity in the most dynamic sectors was thrown into doubt when, in many cases, the countries which had ventured, within mixed 178 economy sy tems, to introduce genuinely daring plans lor social change, laced serious deterioration in the machinery for economic production, and a resulting series of prob­ lems, shortages and short-term imbalances which jeop­ ardized the very continuity and validity of the social programmes. T hese difficulties arise, first and foremost, because of the difficulty of achieving genuine success in the technical task of planning social progress. This lack of success is a very serious matter for those of us who have embraced the ideal of social change. in some circles this had led to a renewed tendency to claim that there is a contradiction between social and economic objectives. Some have concluded that the developing countries cannot aim at major social reforms if they do not wish to destroy the delicate structure of their modern system of production —in other words, that the underdeveloped society needs to impose upon itself some system for repressing popular aspirations, so as to permit the rapid growth of a ‘sophisticated’ dynamic, modern and efficient sector, which, though small compared with the whole of the economy and society, is taken as a symbol of the success of developmentalism. T he alleged impossibility of deliberately spreading the benefits of developm ent to the popular masses is, for such circles, a justification for the idea that social progress in merely the gradual, slow and suffocating integration of the poor sectors in this modem dynamic sector; this represents a return to the era when purely economic growth was the sole measure. Questions such as these are once again facing econ­ omists, and remain on the agenda for theoretical and political discussions, even though throughout the decade now ending the International Development Strategy ap­ peared to have settled the dispute once and for all. In addition, the renewed force of developmentalism has profound practical implications. The fact is that, although the objectives of social change, employment, the meeting of basic needs, continue to be proclaimed by the major forums of the United Nations and the majority of academic institutions as priority objectives and essential elements in national and international development policies, in prac­ tice the policies of most developing countries have focused exclusively on solving short-term problems, in the confi­ dent belief that prosperity in some sectors will be sufficient to guarantee, in the long run, the meeting of all the aspiration of the whole society. There is a dramatic contrast betw een the unanimity with which the countries in the major international forums endorse the validity and urgen­ cy of the objectives of social change, thereby recognizing that tlie present situation of millions of the world’s inhabitants is deplorable, and the low degree of effec­ tiveness of concrete social programmes and preference for short-term economic success. In most of the countries, although social programmes are carried out to some extent and are an object of sincere concern and effort for specific ministers or officials, they do not succeed in becoming a genuine national objective. The focus of attention tends to remain on purely economic matters, the balance of pay­ ments, the condition of the national treasury, monetary policy. This usually happens even in countries where CEPAL REVIEW N,° 9 / December 1979 concern for social problems is genuine, and where the desire to overcome them is real. The fear of taking major decisions is once again spreading. In the few cases where an attem pt has been made to reduce the dominance of short-term economic problems, giving priority to solving social problems, the emergence of imbalances in the external sector, the worsening of inflation or the decline in the growth rate have become such serious problems that on occasions they have threatened the living standards of those same large majorities who were to be helped and rescued through the programmes of change. In some circles, I repeat, there appear to be grounds for considering social matters as potentially separate from, and even antagonistic to, purely economic matters. To clear up this possible confusion, to seek and identify the genuine types of relationship which exist between social and economic objectives is, accordingly, one of the major tasks of economists. More specifically, it is one of the major tasks of ILPES. It is for that reason that we attach importance to this Seminar-Course. Within the general framework of the theory and practice of overall planning, the course can contribute to reaffirming the value of social policies, their practicability, but also their requirements. Consequently, the course offers an opportunity for a systematic examina­ tion of the above-mentioned mutual relationships between social and economic matters. In the face of the confusion which is beginning to prevail once again, and the consequent need to clarify the relationships between social and economic matters, it is worth starting from some general considerations, which correspond to the orientation of this course and the programmes of the Institute: (a) Social problems in Latin America are not being solved at the rate required by social justice and the expectations of the great masses of the population. Rather, there are many indications that the extent to which basic needs have not been m et has been increasing. Accordingly, action is required which is specifically aimed at correcting present trends. (b) The improvement of the living conditions of the majority of the population, in terms of employment, education, health, housing, culture, food, recreation and so on, is in itself a clearly positive factor in speeding up economic growth. This social improvement can largely be achieved by mobilizing human, administrative, technical and political resources which were formerly unused. At the same time, the improvement must also be financed by means of transfers of resources from the richest and most dynamic sectors; this may mean, and in general does mean, alternative applications of resources, a change in the rate of investment, and so on. In other words, it means a relative reduction in the resources available to the sectors regarded as most dynamic, A central task of planners should be to ensure that, at the same time as the programmes for social improvement are introduced, the overall dynamism of the economy and the soundness of the monetary, financial and exchange machinery are maintained. Success in the simul­ taneous achievement of social and economic objectives is something which calls for organization of the economy, in other words planning. (c) Social projects designed to produce given concrete NOTES AND COMMENTS results in terms of social change must be efficient projects, in other words they must be brought into line with criteria of organization, administrative control and economy in the use of resources allocated, so as to ensure the best possible results. It is obvious that social projects cannot, in most cases, seek monetary return in the same sense as is required of industrial, agricultural or commercial projects; however, social projects call for even more careful control than any industrial project to ensure the proper use of resources. The organization and objectives of the Course are, I repeat, founded on principles like those which I have just outlined. For that reason the course falls primarily within the framework of the theory and methodology of general planning. It proceeds from the view that social planning is one aspect, though a highly important one, of the overall planning of the economy. It therefore emphasizes the relationships which exist between the improvement of social welfare and the major variables of investment, consum ption and the availability of physical and financial resources, and between the modern dynamic sectors and the traditional sectors. The fact that what is involved is specialization in the social aspects of planning means that these aspects are extraordinarily important for the SeminarCourse, and for ILPES in general. In fact I believe that it it w ere not necessary to effect major social changes, achieve major social objectives, as an aim which calls for mobiliza­ tion of the central efforts of the government and those of the inhabitants of the country in general, the urgent need for planning in a given country would not be so great. The adoption of social objectives, and the initiation of social programmes, calls for careful reflection on the sources oí the funds required, the effect that the expenditure involved w ill have on the economy as a whole, and, as we have al­ ready m entioned, the best form of ensuring that social pro­ jects are efficient. ILPES has been placing increasing em­ phasis on the social aspects of development and planning, and on examining how social objectives should be inte­ grated in developm ent plans. This is a formidable intellec­ tual exercise of great complexity, but one which provides such abundant benefits that it is well worth all the efforts we wish to devote to it. This Course, carried out jointly with UNICEF, there­ fore corresponds to the major task which ILPES has set itself—to attach primordial importance to the social aspects of developm ent. But it also corresponds to the spirit of ILPES in that the inclusion of social objectives is under­ stood as an aspiration which is not only political and human but also technical : a genuine part of the theory and practice of planning. The determination of ILPES that social matters should not be forgotten, that special emphasis should be maintained on social aspects, seems more urgent than ever in the light of the apparent predominance in some circles in the region of the view that there should be almost exclusive concentration on conjunctural problems and effects; or, in the special cases of the countries which have reached a particularly comfortable balance-of-payments position, the maturing of a degree of excessive complacen­ cy, a degree of confidence that, as the limitations on developm ent arising from the scarcity of foreign exchange have been overcome, all the structural problems have been solved. 179 ILPES, of course, is very interested in the success achieved by some countries in opening up their economies much more to the outside, seeking to make their invest­ m ent more efficient, benefiting from the availability of international capital, increasing new exports and thereby creating a much more flexible, stable and prosperous situation in the foreign exchange market, and a general climate of greater efficiency in the economy. For example, in the last ten years, a growing number of Latin American currencies have become relatively strong, at least in the short run. The lesson of these successes is important; they show the capacity of our economies to react favourably and dynamically to a series of stimuli and favourable market situations. They also prove that the region is rich in resources, and that it possesses an excellent capacity to participate in world trade, which might be expanded still further if the conditions in which world trade is carried out could be reorganized and stabilized. However, these successes cannot constitute a pretext for forgetting, even for a while, that the major social problems have not been solved, that it is not always certain that the prosperity of the exporting sectors brings with it a similar improvement in the remaining sectors of the economy, and that in some cases the concentration of income is becoming intensified in certain groups, especial­ ly those in the financial sector. New phenom ena at the national or international level, which are profoundly different from those which predom­ inated during the 1960s are appearing with increasing force in the region, and this means that the scope and nature of economic and social planning must also change pro­ foundly. Thinking within CEPAL, of which ILPES is a part, has been following these new realities, and is studying them thoroughly. Various countries in the region have become ‘new industrialized countries’, almost by ac­ cident, largely as a result of their success as exporters of manufactures. This status, supposedly an honourable one, appears to have changed the role of Latin America in the major international negotiations, and has placed it in a curious ambivalent situation. For example, financial re­ sources from the major industrialized countries on nonconventional interest rates or terms have practically disap­ peared. The international community must have begun to assume that Latin America s own capacity to solve the major social problems is adequate. However, in all fairness this capacity should be viewed in the light of the enormous differences in degrees of prosperity, balance of payments and industrialization processes among the countries of the region, and also bearing in mind the fact that even in the most prosperous Latin American countries it is still not certain that, without substantial assistance from the gen­ uinely industrialized countries, resources to permit a com prehensive and relatively rapid solution of social problems will continue to be available on a reliable basis. Consequently, Latin America has before it the great task of reexamining its international position, its future as a region, the types of effort required, and the concrete forms of regional solidarity and mutual help which are becoming urgently necessary, in the light of the great changes being caused by regional and international circumstances and the recent trends in the development of the industrialized 180 centres and of the region itself This reexamination, this incorporation of new realities and concepts, is being carried out by CEPAL and also by an increasingly substan­ tial group —of various ideological tendencies and different theoretical positions— of excellent Latin American econ­ omists in universities, research centres and governments. Never, perhaps, has the region been so fertile in producing essays, articles or collective research work. However, in the m idst of the euphoria and the new confidence in Latin America’s capacity to achieve substan­ tial progress in the economic and technocratic field, social problem s cannotbe forgotten. More than ever an analysis of the structural problems and their possible solutions is necessary. The very medium-term and long-term continui­ ty of the prosperity which some countries of the region have achieved demands fundamental solutions in the social field. ILPES must gather together this great stock of ideas and proposals, conduct research on the major topics of developm ent planning, and pass this on through its train­ ing courses, advisory services, the seminars and round tables it organizes, and also through its function as Secre­ tariat of the System of Co-operation and Co-ordination am ong Planning Ministers. This Seminar-Course on Social Planning, a joint initiative of the Latin American Institute for Economic and Social Planning and the UNICEF Regional Office for the Americas, is a very important example of this function of the Institute in transmitting knowledge. Furthermore, it allows the two institutions to co-operate in a field which basically involves the search for appropriate machinery and policies to improve the distribution of social benefits. It is open to a group of participants from some Latin American countries, and aims to discuss problems within the most homogeneous framework possible in the light of the diversity of circumstances in Latin America. It is a Course in that it aims to systematize studies and experience regarding the analysis of the social realities of the continent and possible policies, while it is a seminar in that it provides for discussion of ways of approaching these realities and solutions. The Course is in itself an experiment, and we are hoping to draw from it conclusions which will enable us to organize more systematic and formalized training activities in this field. U N IC EF and ILPES have spared no effort to gather together some of the most outstanding specialists from the academic world and from among those responsible for formulating social policies, with the aim of encompassing a broad range of subjects. T he Course emphasizes the idea that “the very concept of developm ent must be improved and the frag­ m entary approach to economic growth and human devel­ opm ent discarded. ...Moreover, human development is not just a question of expanding sectoral action in education, health, etc., but must include a social system that gives priority to the equality and dignity of man and respects and fosters the cultural expression of the population” . This declaration by the governments of Latin America during the fifteenth session of CEPAL (Quito, 1973) is a good definition of the aims of social planning, and is the concept w hich w ill be used in the Seminar-Course. CEPAL REVIEW N.° 9 / D ecem ber 1979 To this may be added the declaration ofthe countries at the seventeenth session (Guatemala City, 1977), that “ various public sector social programmes, particularly in education, health, housing and social security, have as­ sem bled considerable public resources, acquired complex administrative structures, and exerted a major influence on the levels of living and expectations of broad sectors ofthe population. These programmes, basically as a consequence of crises of financing, now face the need for major reforms, especially of an administrative nature, which each country will carry out in different ways and with different priori­ ties” . I have already mentioned the review of concepts w hich is being promoted in the region as a result. Furtherm ore, it is not sufficient to propose compre­ hensive social policies to reach the needy groups effective­ ly. Since such groups are not evenly distributed throughout th e country, it is increasingly obvious that a geographical dim ension must be introduced into social policies; this will make them more complex, but potentially more efficient. This is precisely one o flL P E S ’s areas of work. ILPE S’s experience indicates, moreover, that it is not possible to hand out a kind of ‘prescription’ for social policy. We said above that Latin America encompasses very different situations which can only be merged in a single concept at a very high level of abstraction; in addition, different styles of development exist in the region, so that the solutions are not easily transferable from one case to another, and moreover the characteristics of the diagnosis of the social situation in Latin American coun­ tries rapidly change. The doubts, uncertainties and diversity which are already so obvious in the field of growth and planning only em phasize the difficulties facing social planning and policies, analysis of which has always suffered from a relative lag. T hese reflections show that the participants in the Seminar-Course on Social Planning should see ILPES as a U nited Nations institution which creates conditions to enable them to hold a fruitful dialogue, exchanging experience which has arisen in a wide variety of contexts both among themselves and with those within CEPAL who devote themselves to the subject and have much to learn from the concrete, everyday experience of those working in this field in the countries of the region. Thus, with the Seminar-Course on Social Planning opening under such favourable auspices, and within such an interesting framework, 1 should like to wish the participants success in their work and express my thanks to the lecturers and the authors of the papers which will serve as a basis for discussion of the various subjects for their valuable contributions. Address by Carlos Martinez Sotomayor T he U nited Nations Children’s Fund (UNICEF) takes pleasure in welcoming this distinguished group of spe­ cialists who have come here to participate in the SeminarCourse on Social Planning jointly organized by ILPES, CEPAL and UNICEF, through its Office for Latin America and the Caribbean. This represents yet another stage in the important programme of collaboration which the UNICEF Regional NOTES AND COMMENTS Office has set itself with the other bodies of the United Nations family, and particularly with CEPAL and ILPES. It is thus also heeding the recommendation made by the governments of the countries of the region requesting our institutions to undertake joint action more in keeping with the concept of integrated development. I should like on this occasion to comment on a number of points concerning social planning, meeting the needs of children, the nature of this Seminar-Course, and the expectations it has aroused among the governments of the region and international co-operation agencies. D uring the three decades of joint work by the govern­ ments of the Latin American countries, UNICEF and other U nited Nations bodies, in activities and programmes in the sphere of social development, there has been increasing recognition of the need to tackle the problems which limit and underm ine the welfare of the population within a framework of global action and policies deriving from planned developm ent processes. It is quite clear, as has been repeated in many studies and reports on the situation and developm ent of the countries of Latin America and the Caribbean, that the positive results stemming from the growth of production capacity in those countries have not been distributed equitably among their different social sectors or areas or regions. On the contrary, the benefits have brought no visible improvement to large groups of the rural and peripheral urban population, whose needs have certainly increased quantitatively, if not qualitatively. Social services in the spheres of health, education, food and nutrition, the maintenance of a helthy habitat and social security have generally been organized and admin­ istered independently both of one another and also of economic policies and projects. While the coverage of these services may have increased, they have been limited in various important ways, the consequences of which are felt by the population groups which do not have access to them for social and geographical reasons, and are also visible in the rising costs which appear to fuel inflationary processes, the lack of complementarity among them, and their failure effectively to benefit the sectors of the population whose needs are most pressing. T hese shortcomings have been particularly evident in the case of the problems affecting children. Economic growth has not spontaneously satisfied the needs of the new generations, and particularly those of the children of poor families. In addition, the services and programmes organized on their behalf have taken a very narrow view of the need for complementarity among them and of formu­ lating them in conjunction with programmes and projects to strengthen the economic position of families. However, mention must be made of some positive factors w hich indicate that social problems are being tackled more effectively. In the first place, it is now widely agreed that the social sphere calls for analysis, the formula­ tion of policies and joint, co-ordinated action by public and private bodies, communities and families themselves. Naturally, disagreem ent arises when defining just what kind of role each of these should play, or how important it should be. It is also widely accepted that the improvement of the situation of large sectors of the population is the responsibility of society as a whole, since the disadvan­ tages of those groups are the results of the shortcomings of 181 the styles of development prevailing in the region. Again, the need to allocate more public resources for the provision of social service has been recognized and faced up to by the governments of the region. These views have been repeated in the International Developm ent Strategy for the 1970s and at international conferences and meetings. In addition, the idea of inte­ grated development, in which economic, social, political and spatial dimensions all weigh equally and reinforce one another, has figured in the public discussion about policy making and resource allocation. It has also been considered in the course of the technical arguments which have taken place in relation to the development of the countries. Some public agencies in the social sphere have experim ented with special joint programmes in those regions and areas of the countries with relatively the worst indicators of social welfare. An attempt has been made to concentrate resources and services in a co-ordinated manner in support of productive projects designed to provide employment and income for families. Although the importance and effective impact on national policy of planning, as a system built into policy formulation and resource allocation, has varied, in foe end its necessity, usefulness and presence has been accepted. These positive aspects, which do not, of course, offset the negative elements described earlier, form the back­ ground for support for the development of social planning in the countries of Latin America and foe Caribbean. A summary' review ol the features of planning systems and their praxis in the countries of the region reveals the imbalance resulting from the greater attention paid to the economic side of development in comparison with foe social side. The theoretical framework, the development of methodology and the executing and monitoring procedures in economic planning reveal a far greater wealth of instruments and scientific creativity than is the case in social planning. Equally, from the standpoint of institu­ tions and public responsibilities, foe economic planning departm ents or offices are comparatively more important and have better-defined machinery for influencing deci­ sion-making than do the departments or offices of social planning. It is therefore important to strive to reduce this imbalance in the interests of favouring integrated devel­ opment. In the training of human resources there has also been a clear preference for foe economic and regional sphere of planning. There is a better-defined relationship between academic and research centres and executing bodies and machinery in the economic sphere of planning. In the social sphere, in contrast, it is rather unusual to encounter this necessary relationship. The centres of higher educa­ tion in subjects linked with social development do not receive the support essential for them to carry out their responsibilities properly, and are not consulted in their spheres of competence to decide important questions of overall policy. In turn, such centres have tended to concentrate on the critical analysis of the social process of the countries, which may be useful but should also be com plem ented by alternative proposals which could be selected as workable formulas by politicians and govern­ m ent experts. From another standpoint, it is worth stressing the 182 necessity and importance of developing social planning, bearing in mind the magnitude of the resources absorbed in providing services which contribute to the social progress of the countries. The education, health, sanitation and housing sectors spend and invest every year large percent­ ages of government budgets. This investment and expen­ diture must be planned, programmed, monitored and evaluated by those sectors; but in addition there is a need for a multisectoral approach which ensures their comple­ m entarity and co-ordination, and links them with national and regional projects. T here are problems and shortcomings which more especially and intensely affect particular groups of the population. For example, extreme poverty appears to be a problem which can be accurately pinpointed grographically and socially; and one which calls for special treat­ ment. This is also the case of deprived or marginal groups, such as indigenous communities and the inhabitants of peripheral shanty towns, whose handicaps need particular solutions. These situations require specific analysis which social planning is in a position to undertake. The treatm ent of the problems affecting children will clearly benefit from the development of social planning. In principle it would be much more feasible to plead for more resources to satisfy their basic needs, bearing in mind that expenditure on children represents social investment in the training of the generations which will later play a leading role in the planned development process in the m edium and long tenn. It would be possible to identify more clearly the complementary services needed to tackle their problems in an integrated manner, and identify the family groups which deserve special support because of their deprivation. A ttending to the needs and training of future generations can be done more thoroughly in a context of balanced social developm ent. Better results can be achieved if activities in favour of children fonn part of the development policy and plans of the countries; but for this to be effective, the instrum ents prepared and used in planning must take into account the social variables which affect the development process as a whole, and the plans and programmes must be sufficiently specific in their treatment of the sectors best suited for programmes and activities of a social nature. The importance of paying special attention to the needs of children is fully borne out by the statistics. Recent studies by CELADE show that in 1980, 41% of the 358 million inhabitants of Latin America will be aged between 0 and 14 years, and in the year 2000 this group will represent 37% of 594 million persons. The consideration of children’s problems may also contribute to developing the methodology and program­ ming of social planning, by being specifically included among its objectives. The co-ordination of public services, the distribution of income on behalf of deprived groups, and support for poor families may be achieved while taking into account the needs of children. U N IC EF considers that social planning and policy fall w ithin its sphere of activity, since they are the instrument and framework which enable it to programme and orient its activities on behalf of children and young people, within an integrated view of the social reality of the countries. These CEPAL REVIEW N.° 9 I December 1979 activities also have profound ethical significance, as the problems affecting society are the very problems UNICEF should tackle. These, then, are the reasons justifying and explaining U N IC EF’s special interest in the development of social planning. It has co-operated in this field by supporting the creation of social planning units, furnishing technical assistance to countries, encouraging the exchange of experience among planning bodies and by providing training at the country level. It has carried out these co­ operation activities in co-ordination with other inter­ national agencies and occasionally with CEPAL and ILPES. This Seminar-Course has some features which I should like to highlight. The participants are specialists from several Latin American countries, some of which have considerable experience in the promotion of social devel­ opm ent and planning. In addition, it is a course which provides an opportunity for the participants to contribute the experience acquired in their countries in the field of social planning, or in other words, as its title suggests, it is a Seminar-Course in which the participation of all will help to enhance a field of knowledge and of policy which has hitherto been somewhat neglected. As lecturers, it has a number of distinguished experts who are well known in international circles and have a great deal of experience in this field; and thus it will also have valuable contributions of the highest intellectual level. This will also help to establish the necessary relations with academic centres which supply theoretical and methodological knowledge to the practical sphere of policy decision-making. In addition, Latin American specialists engaged in research and teaching work in the institutions sponsoring this Seminar-Course will share their experience and the results of their work. This form of co-operation in training human resources is particularly important in the case of Latin America and the Caribbean. On various occasions mention has been made of the intermediate level of development achieved by the countries of the region in comparison with the industrialized and the less developed regions. This view, which does not, of course, indicate the differences among the countries and the inequalities within them, is in fact tending to limit the resources stemming from multilateral co-operation, thus forcing the countries to seek forms of horizontal co-operation to maximize the use of resources. Among such forms of co-operation, the training of experts is the most promising because of the capacity generated in the use of national resources. In conclusion, I should like to refer to the.co-operation betw een UNICEF, CEPAL and ILPES. In this latest stage of the evolution of different kinds of international co­ operation by UNICEF in the Americas, the characteristics of joint efforts and activities of UNICEF, CEPAL and ILPES can be seen very clearly. This is a positive example of interagency co-operation and of a better use of resources, both human and financial, to achieve the common objec­ tives established by the general mandates of the United Nations for the Fund, the Commission and the Institute. Thus, joint activities have been undertaken in im­ portant spheres to support the development of the coun­ NOTES AND COMMENTS tries. We have combined efforts and resources in inter­ agency projects with regional coverage aimed at providing governments with policy alternatives to guide their activi­ ties in certain social development spheres. Good examples of this are the interagency project for the promotion of national food and nutrition policies and the interagency project on critical poverty, which are both actively under­ way. U N ICEF also contributed to the preparation and initiation of activities of the project on development and education in Latin America and the Caribbean, Furtherm ore, joint complementary studies and re­ search have been undertaken in major socio-economic developm ent fields, on the occasion of international con­ ferences and at the recommendation ofthe governments of the region. This is the case o fth e studies connected with the participation of women, technical co-operation among developing countries or horizontal co-operation, water and the habitat. While on the topic of studies and research, mention should be made o fth e first attempt to provide a com plete up-to-date view of the situation of children in Latin America and the Caribbean as a contribution to the International Year of the Child and a basis for the discussions at the special session ofthe governments ofthe American region and ofthe Executive Board of UNICEF in Mexico in the latter half of next May. This study has been undertaken jointly by various United Nations agencies and consultants of the highest academic levels, including intellectual and technical inputs by CEPAL, ILPES and CELADE. Special studies have also been undertaken in the preparation of statistics and indicators relating to the social developm ent ofth e countries. Using population censuses and official publications, indicators have been drawn up w hich reflect the characteristics of social development. It has also been possible to analyse social stratification in the 183 countries. This dissemination and better use of household surveys makes for better monitoring of the effects of national policy and provides a solid data base for studies and research. In particular, a volume of statistics and indicators relating to the situation of children and young people has been completed. This represents a significant advance on earlier work undertaken jointly by UNICEF and CEPAL, and in this connexion we should like to express our gratitude to the statistical division of the Commission. There has also been increasing activity in the publica­ tion of books and material for dissemination relating to social developm ent issues, and this represents an impor­ tant contribution to the work of the government agencies, specialists and academic centres of the region. UNICEF has collaborated with CEPAL and ILPES for several years in the training of local experts, providing student fellowships and financing teachers and researchers on the staff of both bodies. Finally, this Seminar-Course on social planning and our intention of making it an annual event provides the clearest confirmation of this aspect of our policy of interagency co-operation on behalf of the countries ofthe region. I should like to thank ILPES and CEPAL for the interest and dedication they have shown in organizing these courses in collaboration with UNICEF. I should also like to express my appreciation to the authorities and persons who have supported us in this activity which will, I think, have a valuable impact. They may rest assured that inasmuch as this course responds to the aims we have all set ourselves, UNICEF will continue and increase its support for the training of specialists in social planning and the improvement of social planning methods. Som e C E PA L publications Las transformaciones rurales en America Latina; ¿Desa­ rrollo social o marginación? ‘'Cuadernos de la CEPA L” series, N.° 26, Santiago, Chile, 1979, 160 pages. At the CEPAL session in Guatemala in 1977, a number of countries laid particular emphasis on the social problems of the agricultural sector, modernization and the influence of forms of land tenure on agricultural productivity and on other social and economic aspects. In keeping with that concern, this study deals primarily with the problems arising from the modernization of production and the social changes which have accompanied them. T he study is divided into two parts, the first containing an interpretation of rural change in Latin America, and the second an analysis of future scenarios and strategies of rural social development. The interpretative section presents a historico-structural review of rural change, with special attention being paid to the trend towards an increasing concentration of re­ sources, the growing importance of control over resources other than land tenure, the proportional rise in the use of seasonal labour and the correlative decline in permanent em ploym ent, the growing importance of the state support for “m odern” enterprises, and the consequences of these and other trends for rural social development and the marginalization of various groups. The seption begins with a definition of the essential features of the concepts “rural” and “urban” in the Latin American context. This is followed by an analysis of the main differences between the two environm ents, and then of the role of agribusiness in social change, concluding with astudy of social relations, classes and movements. This order stems from the idea that the urban and rural environments can only be understood in th eir historical context, and that it is necessary to show, albeit sketchily, how the present situation has arisen and then consider present differences. Part Two consists largely of a prospective analysis. The trends studied in the first section are projected into the future, providing hypothetical scenarios which, from the standpoint of social development, present challenges and problem s which will have to be tackled by any strategy. Various recently-proposed strategies are considered in this light. In view of their great variety, and of the impossibility of analysing them all, only some of the major strategies are considered, such as that designed to strengthen subsis­ tence agriculture. La dim ensión de la pobreza en América Latina, by Oscar Altimir. “Cuadernos de la CEPAL” series, N.° 27, Santiago, Chile, 1979, 93 pages. This study sets out to make a quantitative estimate of poverty in the countries of Latin America. To this end, poverty lines are established for the main countries of the region, roughly representing purchasing power levels beneath which the basic needs of a household remain unsatisfied, so that the household may therefore be con­ sidered to be in a situation of absolute poverty. These poverty lines are used in conjunction with the information available on income distribution to obtain preliminary estimates of the dimension of poverty in each o f the countries and in the region as a whole. The dim ension of poverty is evaluated both by the number of persons in a situation of poverty and by the size of the income deficit this implies. However, by drawing lines of absolute poverty on the basis of uniform criteria, the aim has also been to provide future studies with a means of identifying poverty situations and thus paving the way for an analysis of their causes, which can be undertaken by various research methods. The conclusions of the study deserve serious consider­ ation. Naturally, there is nothing new about the existence of mass poverty in Latin America; it is a long-standing and widely-recognized fact of fife in the region. What is new, however, is the calculation that the striking economic growth achieved in recent years has not had a similar effect on the incomes of the poor, of whom there are very many. It has instead accentuated existing contrasts in the living conditions of the different population groups and thus made the continued existence of mass poverty both more visible and at the same time therefore more reprehensible. Latin America's experience has led to profound scep­ ticism regarding the traditional belief that economic growth alone would bring a solution to the serious, w idespread problems of poverty, unfair income distribu­ tion, unem ployment and underemployment which have existed and continue to exist in the region. According to the estimates given in the study, roughly 40% of the Latin American population were still living in conditions of poverty in about 1970. In other words, the benefits of economic growth have not reached the different population groups in an equitable fashion. What is more, if present conditions remain un­ changed, it can safely be predicted that the share of the poor groups in the benefits of future growth will remain absolutely inadequate. Organización institucional para el control y manejo de la dem anda externa. El caso chileno, by Rodolfo Hoff­ mann, “Cuadernos de la CEPAL” series, N.° 28, Santiago, Chile, 1979,35 pages. Following a global study of the general situation of foreign borrowing in the region in an earlier study (see C. Massad and R. Zahler, “Dos Estudios sobre Endeudamiento Externo”, Cuadernos de la CEPAL N.° 19, Santiago, 1977) it was considered worthwhile to analyse the case of one country, looking at the methods and instruments used to regulate its process of foreign borrowing. This study describes and examines the main means currently used in Chile to manage the public and private external debt. T he study analyses the external debt situation from 186 various angles, thus providing a well-rounded view of the position in Chile. The first part is devoted to a study of the general state of foreign borrowing, the second to the outlines of foreign debt policy and the third to the instrum ents and means used in the management of public and private external borrowing. It would be most useful to carry out similar studies for other countries of the region, since this would make it possible to compare the methods used by the Latin American countries to regulate their foreign borrowing processes and perhaps take advantage of the experience of the more advanced countries in this respect. This would open up a vast field for collaboration, since the issues to international payments and foreign borrowing are of great importance in almost all the countries of Latin America. La política monetaria y el ajuste de la balanza de pagos: tres estudios. “Cuadernos de la CEPAL” series, N.° 29, Santiago, Chile, 1979, 61 pages. This Cuaderno consists of three short essays. The first, “The dem and for imported goods”, presents a model for the identification of the economic variables with the greatest effect on the level of imports of goods, as well as for the evaluation of their empirical importance. The second study, “Balance-of-payments adjustment, credit policy and external debt management”, is aimed at identifying the lags in the adjustment of the balance of paym ents and its accounts in the face of monetary disequi­ libria. This issue is important from the standpoint of monetary, credit and balance-of-payments policy, since it is closely linked w ith the control ofthe money supply and the future course of foreign borrowing in line with different policy options, as well as the forecasting of changes in inter­ national reserves. The third essay, “The monetary approach to the ex­ change rate”, describes and analyses the main determi­ nants of the exchange rate from a monetary standpoint, in order to highlight the importance of monetary variables in determ ining the rate of exchange. Long-term trends and prospects of the development of Latin America. E/CEPAL/1076, mimeographed text, April 1979. At a tim e w hen U nited Nations activities aimed towards defining the guidelines for a new international develop­ m ent strategy for the forthcoming decade are being stepped up on the technical and political levels, it is timely to com­ plem ent CEPAL’s analysis of the past and present situa­ tion 1 w ith information and projections which will help to underpin the discussions on this subject and ensure that l The econom ic and social developm ent and external econom ic relations o f L a tin Am erica (E/CEPAL/1061), a summary of which appears in CEPAL R eview N.° 8 (August 1979). CEPAL REVIEW N « 9 / December 1979 the new strategy should be an effective programme of inter­ national action to promote the development of the periph­ eral countries, and also include issues and objectives that may be of special interest for Latin America. The research in the economic, demographic and social fields presented in this document was undertaken using a num ber of interrelated models. This first stage was primari­ ly devoted to work on projections —macroeconomic, sec­ toral, agricultural, world trade, demographic, income dis­ tribution and poverty— in order to establish in each case orders of magnitude for certain indicators regarding objec­ tives, resources, problems and factors which affect the developm ent field in question. The preliminary results make it possible to advance in the design of an integrated model to analyse the proposed scenarios at a less disaggre­ gated level; the model will come into use at a later stage in the study. For the time being two scenarios have been defined, and the projections of the different models have been orga­ nized around them: the first roughly corresponds to a prog­ nosis of present trends, and the second to a modification of the external and internal situation which would enable the economies to become more dynamic. The presentation ofthe two scenarios is followed by an individual account of the demographic, macroeconomic and sectoral and foreign trade projections, with a commen­ tary on the results for the two scenarios, except in the case of the demographic projection. Statistical Yearbook for Latin America, 1978, United Na­ tions publication (Sales N.°: S./E.79.II.G.3.), Santiago, Chile, 1979, 471 pages. In 1973 the Sta tistica l B u lletin fo r L atin A m erica, which appeared twice yearly, was replaced by the Statistical Yearbook fo r L a tin A m erica, the purpose of which is to summarize the statistical information most pertinent to the analysis of the economic and social situation and the prog­ ress of the countries ofthe region. To this end, the statistics used are those which are most complete, consistent and comparable from the regional standpoint These statistics are systematized by CEPAL so as to be able to serve as a framework of statistical data for the work of the secretariat and the various analytical activities dealing with the situation of Latin America. With the pas­ sage of time, this work of systematization has produced specific procedures for the preparation and presentation of statistics, which are considered to be particularly suited to the analytical goals pursued. Users wishing to obtain more detailed statistics on specific areas of interest, such as those prepared by the official institutions ofthe countries, should refer to the summaries of current international statistics which form part of the co-ordinated and interrelated set of periodic publications published by the United Nations and its specialized agencies. This edition of the S tatistical Yearbook fo r Latin A m erica differs from previous issues in presentation and content. Part One includes derived indicators such as growth rates, shares and coefficients or proportions, which SOME CEPAL PUBLICATIONS provide a synthetic view of the situation in each area of in­ terest, but whose use is more specific. This set of socio-eco­ nomic indicators includes those used in the periodic re­ gional appraisals of the International Development Strate­ gy. Part Two contains, broadly speaking, the historical series in absolute number, which are therefore useful for a variety of purposes. It also includes new subjects in addition to those which traditionally appear in the Year­ 187 gua. The data were collected in the field thanks to the co­ operation of the maritime, ports and customs authorities in question and by the main shipping companies and agencies in those countries. In a second stage, which it is hoped to complete in the course of 1979, data will be added on the remaining coun­ tries of South America and subsequently those of the Caribbean. book. T he closing date for the inclusion of statistics in this issue of the Yearbook was November 1978. M anual de documentación naviera para los puertos de América Latina, OAS/CEPAL/ALAMAR, E/CEPAL/ 1060, mimeographed text, Santiago, Chile, 1979. T he excessive amount of paperwork involved in maritime transport and the consular formalities involved in shipping docum entation constitute a problem which has for some years preoccupied various international intergovernmental and private organizations as well as some governments, groups of shippers and transport and trade facilitation committees in different regions of the world. This Manual prepared by the OAS/CEPAL/ALAMAR Transport Programme, describes the requirements in terms of docum entation and consular formalities to be satisfied by the ships engaged in international traffic in Latin American ports, in order to facilitate their operations and avoid delays, difficulties and even penalties which have an unfa­ vourable impact on transport costs. It also seeks to foster the simplification and standardization of the basic documenta­ tion for the reception and despatch of ships, as established in the Mar del Plata Convention and Annex and LAFTA resolution 254 (IX). Finally, it is hoped that simply by describing the consular requirements still imposed on shipping by some countries of the region the Manual will encourage them to eliminate these formalities, which have already been removed by all the industrialized nations and do not apply to air traffic in those Latin American states themselves. In the first stage the Manual contains information on the ports of Colombia, Chile, Ecuador, Peru, Venezuela, Costa Rica, El Salvador, Guatemala, Honduras and Nicara­ Planning Bulletin of the Latin American Institute for Economic and Social Planning (ILPES), N.° 4-5 (Sep­ tem ber 1978) and N.° 6 (December 1978). Coinciding with its fifteen years of existence, the govern­ ments gave ILPES the function of supporting the operation o f the System of Co-operation and Co-ordination among Planning Bodies of Latin America set up in 1977, This quarterly B u lletin is the organ of that System and is inténded to serve as the means of communication among all the institutions and persons engaged in planning in Latin America. These two issues of the B u lletin continue with the presentation of a series of studies on the state of planning in Latin American countries, with a view to fostering the ex­ change of experience and making known the studies pro­ duced by planning bodies in the region. It is hoped that this material will be of use to Latin American planners and also to universities and training and research centres connected with planning, since it repre­ sents up-to-date information on the experience of coun­ tries in the use of planning as a tool of government. B u lletin N.°4-5 contains the following articles: “Social developm ent and planning in Peru” ; “Planning in Para­ guay” ; “System, processes and instruments of planning in Uruguay” ; “The planning of economic and social develop­ m ent in Guatemala” ; “Regional planning in Bolivia” ; “ Basic information on the organization and operation of the National Planning System of Peru” ; and “The state of planning in Bolivia” . The contents of B u lletin N.° 6 are: “Regional planning in c h ile ” ; “Ecuador; organization and responsibilities of the Economic Planning and Co-ordination Board” ; and “The planning system in Honduras”. i q ** ,V ^*- w “ 1 **X*'' r .• ,U . 1 ^JliOl -U* I p ., - y ~ .»11 *Jt^ >9 *y .«.UX*.1! 'J* **N i _ 1j y—* y * J 9 .« - y jl Ú jy j - y yjvJl ^ £ — •— » >" i N , ^ \ ' .‘1 *■ —S 1 - 1 R Í W J k th f ttP W A te rjH f tW O B tttíl* * * ,, Wll6|»aiAHA^(XfffinAHr8Jtjr)«UVIUW»m HOW TO OBTAIN UNITED NATIONS PUBLICATIONS U nited N atio n s publications m ay be obtained from bookstores and d istrib u to rs throughout the world. C onsult vour bookstore or w rite to: U nited N ations, Sales Section. New York or Geneva COMMENT SE PROCURER LES PUBLICATIONS DES NATIONS UNIES I.es publications des N atio n s U nies sont en vente d a n s les librairies et les agences dép o sitaires d u m onde entier. Inform ez-vous a u p rès de votre libraire ou adresse/. vous à : N atio n s U nies. 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