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Documents Week 7. - Week 7. 7-1. Critique of existing...

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Week 7. 7-1. Critique of existing economic relations in the Americas: Raúl Prebisch. 1950 . The U.N. Economic Commission on Latin America was created in 1948 and constituted an important organization for the collection of data on Latin America. ECLA’s critique of existing economic imbalances, which privileged existing developed countries’ economic dominance. Prebisch was the director of Argentina’s Central Bank prior to his heading ECLA. In Latin America, reality is undermining the out-dated schema of the international division of labor, which achieved great importance in the nineteenth century and, as a theoretical concept, continued to exert considerable influence until very recently. Under that schema, the specific task that fell to Latin America, as part of the periphery of the world economic system, was that of producing food and raw materials for the great industrial centers. There was no place within it for the industrialization of new countries. It is nevertheless being forced upon them by events. Two world wars in a single generation and a great economic crisis between them have shown the Latin American countries their opportunities, clearly pointing the way to industrial activity. The academic discussion, however, is far from ended. In economics, ideologies usually tend either to lag behind events or to outlive them. It is true that the reasoning on the economic advantages of the international division of labor is theoretically sound, but is usually forgotten that it is based upon an assumption which has been conclusively proved false by the facts. According to this assumption, the benefits of technical progress tend to be distributed alike over the whole community, either by the lowering of prices or the corresponding raising of incomes. The countries producing raw materials obtain their share of these benefits through international exchange, and therefore have no need to industrialize. If they were to do so, their lesser efficiency would result in their losing the conventional advances of such an exchange. The flaw in this assumption is that of generalizing from the particular. If by “the community” only the great industrial countries are meant, it is indeed true that the benefits of technical progress are gradually distributed among all social groups and classes. If, however, the concept of the community is extended to include the periphery of the world economy, a serious error is implicit in the generalization. The enormous benefits that derive from increased productivity have not reached the periphery in a measure comparable to that obtained by the peoples of the great industrial countries. Hence, the outstanding difference between the standards of living of the masses of the former and the latter and the manifest discrepancies between their respective abilities to accumulate capital, since the margin of savings depends primarily on increased productivity. Thus there exists an obvious disequilibrium, a fact, which whatever its
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Documents Week 7. - Week 7. 7-1. Critique of existing...

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