Conociendo el Capital - Cap 10 y 12 - Latinoamérica, Globalización

Understanding Economic Development in Latin America

The Struggles of Local Producers

• Luis Estero, a small-scale dairy farmer, struggles to compete with larger producers like Pedro, who has formal education and advanced machinery.

• Despite his dedication to his cows, Luis is advised by Pedro to focus on milking rather than diversifying into cheese production due to the complexities involved.

• This reflects a broader economic issue where local producers are often discouraged from expanding their operations or improving product quality.

Historical Context of Economic Dependency

• Latin American countries historically specialized in exporting raw materials instead of developing manufacturing capabilities, unlike North American colonies.

• The agro-export model prevalent in Argentina from 1880 to 1930 exemplifies this dependency on external markets for growth.

• The Great Depression led to a collapse of international trade, forcing these nations to seek self-sufficiency as they could no longer rely on exports.

Shift Towards Import Substitution

• As European nations developed their own industries post-Great Depression, Latin America was compelled to produce goods that were previously imported.

• This shift resulted in the emergence of local industries and job creation but also highlighted the lack of capital goods necessary for further industrialization.

• Governments implemented protective tariffs and provided credits to foster local businesses and technological development during this period.

Challenges Faced by Emerging Industries

• Despite initial successes in import substitution, Latin American countries struggled with producing capital goods essential for manufacturing other products.

• A bottleneck emerged as these nations lacked the foreign currency needed for importing complex machinery and technology required for advanced production processes.

Emergence of Structuralism as an Economic Theory

• Post World War II, structuralist thought arose as economists recognized the limitations imposed by reliance on external markets and raw material exports.

• In 1948, the UN established ECLAC (Economic Commission for Latin America), which aimed at addressing regional economic issues through new theoretical frameworks led by economist Raúl Prebisch.

Structuralism and Economic Disparities in Latin America

Dominant Economic Thought

• The prevailing thought in central countries suggests that each nation should specialize in what it does best, treating this as a natural outcome rather than a historical construct.

• Latin American countries, rich in natural resources, are relegated to producing primary goods while industrialized nations focus on manufacturing advanced products.

Center vs. Periphery

• Structuralists identify two distinct poles: the center (industrialized nations) with low unemployment and high living standards, and the periphery (Latin America) characterized by underdeveloped productive structures and high poverty levels.

• The gap between the center and periphery is not narrowing over time; instead, it is widening, necessitating specific public policies to address subdevelopment issues.

Structural Differences

• Central economies exhibit diverse production capabilities across various goods and services using modern production techniques efficiently. In contrast, peripheral economies lack diversification, focusing mainly on agricultural and mineral products.

• Peripheral regions often rely on imports from central countries for consumer goods due to their limited production capacity, leading to a dual economy where advanced sectors coexist with backward ones.

Labor Market Challenges

• The modernization of agriculture leads to job losses as machinery replaces laborers, pushing many workers into urban areas seeking better opportunities; however, local industries cannot absorb these displaced workers adequately.

• A significant portion of the population ends up living in poor conditions around cities due to insufficient employment opportunities created by lagging industries.

External Constraints on Development

• Latin America possesses abundant human resources and natural wealth but lacks essential foreign currency needed for importing machinery necessary for growth; this dependency creates an external constraint termed "restricción externa."

• This structural imbalance results in cyclical economic crises that deter investment due to uncertainty about future profitability amidst fluctuating export prices of primary goods versus imported industrial products.

Proposals for Change

• To overcome external constraints hindering development, structuralists advocate for radical changes aimed at deepening industrialization within Latin America which began post-crisis of the 1930s. This would reduce reliance on imported manufactured goods and alleviate foreign currency shortages necessary for capital investments.

Economic Development in Latin America

The Role of the State in Economic Growth

• The structuralists argue that a strong and active state is essential for generating jobs, improving wages, and achieving greater social integration, particularly for populations displaced from rural areas.

Luis's Journey in Dairy Production

• Luis has pursued a technical education in dairy processing through a government training program aimed at supporting local producers. This initiative included financial assistance for those who completed the course.

• After initial acceptance from his family and neighbors, Luis aims to expand his artisanal cheese production beyond local markets to compete with larger industrial producers like Pedro.

Challenges Facing Local Industries

• To develop his business further, Luis needs access to advanced machinery such as centrifuges and pasteurizers, which are crucial for scaling up production.

• Structuralists emphasize that many Latin American industries must target broader markets beyond their own countries to enhance competitiveness and efficiency. They advocate for regional integration to foster controlled competition among nations.

Benefits of Regional Integration

• A common market in Latin America would enable companies needing higher demand to operate efficiently while providing a learning platform for future exports to central countries. This could lead to job creation and reduced poverty across the region due to improved industrial performance.

Economic Shifts and Neoliberal Policies

• Despite initial successes under import substitution strategies creating jobs and raising wages, external restrictions hindered new industries reliant on foreign inputs, leading many national firms to struggle without protective policies.

• Dependency theorists propose more radical solutions than structuralists by advocating socialism as an alternative path following economic crises like the oil shock of 1973–74 that undermined import substitution efforts. This crisis paved the way for neoliberal policies dominating late 20th-century Latin America.

Return of Neoliberalism

• In Chile and Argentina, military regimes reinstated liberalism by arguing against state intervention in favor of specialization in primary goods aligned with international labor division—this led to diminished support for domestic industries capable of competing globally.

New Directions in Economic Thought

• Recently, there has been a resurgence of structuralist thought advocating state support for local producers adding value through cooperatives; this approach aims at revitalizing local economies while enhancing global competitiveness through shared resources among producers like Luis's cooperative venture.

Marcelo's Experience with State Enterprises

Economic Development in Latin America: A Historical Overview

The Impact of Import Substitution Industrialization (ISI)

• Between the 1930s and 1970s, Latin America developed its productive capacity, improving living conditions and creating hundreds of thousands of jobs in industry.

• The ISI model, partly inspired by the U.S. New Deal, focused on making simple products accessible to popular sectors rather than selling expensive goods.

• Henry Ford's production model emphasized that paying workers good wages would enable them to buy cars; this principle was applied broadly within the ISI framework.

• Governments invested in health, public education, and social protection to ensure people had money to spend in the market, benefiting both capitalists and workers.

Economic Crises and External Dependencies

• Recurrent crises arose from a lack of foreign currency needed for imports; local production relied heavily on imported machinery and supplies.

• By the late 1960s, industrialized countries saw declining profit rates leading companies to relocate production to low-wage Asian countries.

• The 1973 oil crisis caused a sharp increase in costs for businesses globally; Arab oil producers gained extraordinary revenues known as petrodollars.

Debt Spiral and Neoliberalism

• With banks flush with petrodollars but unwilling to lend to stagnant U.S. and European industries, Third World countries became targets for loans at low interest rates.

• This initiated a cycle of external debt where new loans were taken out to pay off previous debts, leading to financial instability due to lack of regulations on capital flows.

• By the 1980s, rising interest rates made debt repayment unmanageable; this exacerbated economic issues across Latin America as governments cut public spending.

Consequences of External Debt

• Public debt became a significant barrier to development; increased interest payments forced cuts in essential services like healthcare and education.

• International credit organizations leveraged external debt limitations to impose economic policies on Southern nations in exchange for new loans.

Rise of Neoliberal Policies

• The early 1980s saw neoliberalism take hold under leaders like Ronald Reagan in the U.S. and Margaret Thatcher in England following the fall of the Soviet bloc.

• In Latin America, military regimes promoted liberalism aggressively while blaming state intervention for economic stagnation; they pushed for specialization in primary goods over industrial protection.

Monetarist School Influence

The Influence of Chicago School Economics on Latin America

The Rise of the Chicago Boys

• The Chicago School represents the dominant economic thought, influencing many Latin American economists who adapt its ideas to their nations.

• Economists trained abroad, known as "Chicago Boys," often disguise their ideological influence as technical specialization.

• In 1989, a meeting in Washington led by the IMF and World Bank established a consensus on economic policies for Latin America aimed at achieving growth without inflation.

Neoliberalism and Its Global Impact

• The global establishment aims to guide the economic management of indebted countries with universal solutions from experts visiting the region.

• The Washington Consensus has significantly influenced policies in peripheral countries, applying a universal standard for evaluating governance based on policy implementation.

Economic Liberalism's Assumptions

• Economic liberalism posits that the state is inherently inefficient compared to private sectors; thus, it should minimize intervention in markets.

• Liberals argue that free markets naturally find equilibrium without state or union interference, emphasizing reliance on market signals like prices.

Labor Market Flexibility and Inequality

• Neoliberals attribute unemployment to high wages and advocate for labor market flexibility through reduced severance pay and less regulation.

• The Washington Consensus overlooks income distribution issues, promoting the "trickle-down" theory where initial benefits of growth will eventually reach lower-income groups.

Privatization and Its Consequences

• State-owned enterprises are deemed inefficient; thus, privatization is encouraged even for essential services like water and electricity.

• Privatizing public companies generates revenue but often leads to foreign ownership that repatriates profits rather than reinvesting locally.

Case Study: Marcelo's Experience

• During privatization in the 1990s, Marcelo’s workplace was sold off; this shift resulted in job losses and reduced operational capacity due to lack of investment.

Globalization and Economic Policies

The Role of Globalization in Economic Growth

• Globalization necessitates opening borders to industrial imports, attracting foreign companies, and placing national primary production in international markets as a growth engine.

• Business leaders do not view population income as a demand generator for their products; instead, they see wages merely as costs rather than potential purchasing power.

• Emphasis on external growth requires building trust to attract investments, which involves implementing policies that prioritize business interests, such as minimizing public regulations and allowing unrestricted profit repatriation by foreign firms.

Consequences of Neoliberal Policies

• The Washington Consensus advocates for the abrupt dismantling of protections for national industries and significant tariff reductions, leading to equal competition between local businesses and large multinational corporations.

• As a result of these policies during the 1980s and 1990s in Latin America, many companies established under import substitution models closed down, resulting in massive job losses.

Case Study: Argentina's Economic Reforms

• Argentina exemplifies extreme implementation of neoliberal reforms starting from the late 1980s with deregulation and financial system liberalization, including privatizing most public enterprises.

• By the end of the decade, economic outcomes were disappointing; poverty levels soared while economic growth stagnated, exacerbating inequality with vast segments of the population living in marginality.

Shifts in Economic Thought

• The major beneficiaries of these neoliberal policies were transnational corporations; however, even former proponents began advocating for a reevaluation towards more redistributive economic policies following severe crises.

• A shift back towards state involvement occurred post-crisis with strategic enterprises being re-nationalized or supported through investment plans aimed at revitalizing old industries like shipbuilding.

Revitalization Efforts