Lecture 10: the impact of colonialism



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LECTURE 10: THE IMPACT OF COLONIALISM

This time I aim to look at Latin American perspectives on development theory. Latin Americans have had an important impact on the analysis of patterns of development, but often from a political, sociological or historical perspective. The most internationally celebrated economist from this school was Raul Prebisch, an Argentine who moved between academic and political-administrative roles throughout his career. His major contribution was in the formulation of the Singer-Prebisch hypothesis on the movement of the terms of trade for primary producing countries. Prebisch’s own work and that which he supported as leading light in the United Nations Economic Commission for Latin America helped to create a ‘structuralist school’. It believed that the patterns of South American socio-economic development before 1850 placed limits on the real growth potential of the continent in the 20th century. The third, and most influential, Latin American approach is termed dependency analysis, and its key exponent is Andre Gunder Frank. Dependency analysis was at the same time taken up by development specialists working on other continents but was also the most heavily criticised analysis to have come from the continent.


Common Elements in Latin American Perspectives


These various analytical approaches have a significant number of common elements, which it might be better to present at the start. They are all in some way concerned with examining the development process in the widest perspective. Social, economic and political elements in the argument are given equal weight. The economic is certainly not given analytical pre-eminence. This is absolutely common to radical theories deriving in some way from Marxist approaches, and many of the South American analyses are influenced to greater or lesser extent by Marxist economics. Finally, they all focus on an integrated world political economic system. They trend to divide the world up between metropolitan centre (basically Western Europe and North America) and the periphery, which broadly comprises the rest of the world. The centre might also be viewed as the imperial or colonial powers and the periphery the colonised world. In this sense, the centre comprises the pre-modern imperial powers, Spain and Portugal, as well as the more usual suspects, Britain, France and Germany. The essential notion of the world system approach is that the colonial powers were interested in the colonies only for the raw materials or agricultural produce that they could extract for the centre. Even early, pre-modern penetration of South and Central America by the Spanish and the Portuguese created structures that shaped subsequent development patterns. The centre is on a trajectory of development, but the periphery is not. Trade and the exchange of goods is the key to the economic success of the centre and the apparent difficulties of the periphery. Put very bluntly, there is a long-standing pattern of unequal exchange between the colonial powers and the colonies, which has continued to shape modern development patterns.

But there is another aspect to the economic development of South America that deserves preliminary attention. In many ways, Latin America is one of the greatest disappointments of development economists. The continent clearly contains some very poor countries with few natural resources, but it also holds others, which have manifestly failed to achieve their development potential. Of this latter group, Argentina and Chile are the most obvious examples. In 1870, Argentina, Chile, New Zealand, Australia and Canada formed a single group of relatively newly-settled, temperate-zone countries, richly endowed with natural resources, which were attracting major waves of inward investment and the movement of population from the rich countries of Western Europe. In return, they exported vast quantities of raw and processed agricultural products back to the developed markets. Argentina did particularly well from this system and in 1870 had a per capita income higher than Germany, Italy, Japan, Austria, Finland, Norway and Sweden. It retained this lead over all those countries except Germany to 1913. Argentina is, in fact, one of the very real problems for economic growth theory; how can such a favoured nation have had such a disappointing ride through the twentieth century? In fact, the decline from around 1929 has been quite spectacular and accelerating as Table 1 indicates.



Table 10.1: GDP per head, 1870-1989, selected countries (UK = 100 in each year)




1870

1913

1929

1951

1973

1989

Argentina


40

75

83

72

66

36



UK

100

100

100

100

100

100

Both these countries, of which so much was expected in the early twentieth century have suffered fairly spectacular relative decline in the second half of the century. Argentina and Chile exhibited the problems of the region in most pronounced form, but all faced a similar pattern, and we can identify four stylised facts of development as seen from South American countries. The first was what seemed to be a growing gap between the living standards of the centre and those of the periphery. This was, however, true only for Chile and Argentina, but for much of the twentieth century Brazil and Mexico (and indeed the whole continent of Central and South America) were growing more rapidly than the developed world (though not as fast as Japan). The second fact was the persistence of unemployment in the periphery. Thirdly, the periphery seemed to suffer a persistent balance of payments problem, which seemed to act as a brake on economic growth. Every time that the governments of countries in the periphery attempted to expand their economies, they ran into balance of payments difficulties and had to cut short the expansion. Finally, there was a tendency for the terms of trade of the countries in the periphery to deteriorate over time. At the moment, we have neither to accept nor deny this perspective, but only recognise that this was how things looked from the periphery, and especially from Argentina and Chile, the countries finding it most difficult to sustain their relative position.


The Marxist influence on Latin American Perspectives


One of the foundations stones for the interpretation of these stylised facts was the Marxist economist, Paul Baran, one of the most influential of all radical economists. Baran was one of those rare birds with one degree from a very prestigious Soviet Institute of Economics and another from Harvard. He was quite definitely from the left, though the extent to which he pursued doctrinally pure Marxism was a question of extreme controversy to other radicals. It need not delay us, however, because Baran was a genuine eclectic, mixing diverse influences to create a distinctive set of ideas with considerable international impact in the study of the constraints to growth in the poorest countries. It is easiest to follow Baran if we work from the general picture down to specific mechanisms. In the poor countries, growth is constrained both by the low savings and by the lack of the inducement to invest. The latter stems from low domestic demand and the relative absence of the physical infrastructure that helps to lower production costs in the developed world. The poor are poor, not only because they can find employment only in very low productivity agriculture and services, but also because the landed and urban elites engaged in such massive conspicuous consumption, much of which implied purchasing luxury goods from the already rich countries. This was a self-reinforcing circle, from which escape was difficult, and Baran saw salvation only in a heavy programme of state intervention based upon heavy, progressive taxation to relieve the wealthy of their wealth in order to put the resources to more socially and nationally productive uses.

Baran saw the origins of the poverty of the poor countries essentially in first phase of Western Imperialism in the seventeenth and eighteenth centuries. During this period, European merchant capitalists looked to increase their wealth by plunder and enforced trade with countries in the periphery. These metropolitan capitalists might have become involved in building up infrastructure in the periphery, but only to service their private interests. Thus, countries in the periphery might have good port facilities, good railway connections from the ports to the seats of business of these metropolitan capitalists, but there would be almost nothing to service the domestic economy in which they operated. European merchant capitalists are above all looking for monopolistic exploitation. They would do nothing to promote the development of the wider economy in the periphery, and that meant repatriating profits to the metropolitan country and failing to invest in the colonial economy. Thus, from the very start, Baran argues that the countries of the periphery are not on the same development trajectory as those of Europe and North America. In these metropolitan colonial powers, the key to development was the increase of investment, which allowed more savings, higher technology, greater efficiency, and in turn new savings. If the profits made from the periphery are channelled out to the metropolitan centre, then the periphery loses much of the impetus towards growth.

The outflow of savings and potential investment occurs not only as a result of the repatriation of capitalists’ profits but also from the monopoly advantages enjoyed by the capitalist in the periphery. There is no pressure to raise wages to attract labour, and as the major user of transport and other infrastructure the monopoly producer can demand very attractive terms for using the network. The metropolitan merchant capitalist will have little interest in sustainable development. If the primary interest of the metropolitan merchant capitalist were in agricultural products from Latin America (such as sugar or coffee), the crop would be produced extremely intensively and the land on which it was grown would be impoverished. If the primary interest were in raw materials (like gold or copper ore), the extractive industries would have little concern for the environment and still less slow depletion over time; easiest resources would be exploited very quickly. Nothing will be allowed to interfere with very short run profit maximisation. Thus, the export commodities will be produced very cheaply. However, these countries would also need to import manufactures, especially luxury manufactures, from the rich countries, and these manufactures would not be produced by exploited labour at cheap cost. In short, trade will be unequal; the colonies are forced to sell cheap and buy dear.

All the radical political economists in this tradition believe that there is a single world system that links the centre and the periphery in different ways. The centre can do without the periphery, but the periphery cannot do without the centre, which provides markets, capital, entrepreneurship, technology and even many manual skills. What was especially distinctive about Baran’s political economy was his attempts to tie these very big international forces into a picture of the social structure of nations on the periphery.

If the main economic force, the merchant capitalists from the colonial powers, would not push these poor countries towards economic development, then what about the potential for growth from domestic political and economic structures? These colonial societies were generally agricultural, and so the dominant social and political force is the land-owning elite. The radical political economists believe that this group has always modelled itself on the bourgeoisie in the metropolitan colonial powers. Thus, the Latin American land-owning elite will try to copy European consumption and cultural patterns and will tend to see peasants in their own country as an exploitable underclass devoid of culture and intelligence. Thus neither the landowners nor the peasantry will be able to launch economic development in the periphery, the former because they are much more interested in trying to become like Europeans and the latter because they were being exploited by the former. This really leaves only the relatively small merchant and commercial class, which had almost certainly had a highly positive role in industrialisation in a number of European countries. However, Baran had low expectations of the merchants in the periphery. He thought that they would be driven to ape the luxury consumption of the land-owning class, because this was the class to which they aspired. Thus Baran expected little push towards development from the class structure of the developing country, and he had an equally pessimistic view of the development potential of the state in the developing world.

Baran was writing during the 1950s as independence movements in the colonial world had either won their freedom from the imperial power or was well on the way towards it. A number of the newly independent states were highly focused on development: India is perhaps the best example. But Baran expected the independence movements to break down into factionalism. In many countries these movements had been rather fragile affairs and were not expected to remain cemented together beyond the immediate goal of independence. The real problem was that there was very little prospect of the emergence of a class of indigenous capitalists from the peripheral country. The whole trajectory of capitalism in the periphery had been geared to prevent such an occurrence.


Latin American Structuralists


If Baran was the first foundation of the South American approach to development economics, the second major influence was less strident and slightly less obviously radical but was nonetheless still grounded in an empirical, historical method of approaching economic development. The main organisation or institution involved here is the United Nations Economic Commission for Latin America, UNECLA. The ECLA was a group of South American economists, radical in outlook, who were increasingly impatient in the 1950s and early 1960s with the way that conventional development economics was heading, and in effect apparently looking away from the problems of poverty in Latin America. The main economic thinker of this group was its executive secretary from 1950, Raul Prebisch, whom we have already met, and the main analytical approach was structuralism. It has many similarities with the Baran approach, but is done more subtly and with a greater degree of flexibility. To introduce you to a wider range of the names of Latin American economists, we can approach structuralism through the work of one of its main architects, Celso Furtado.

According to Furtado, an undeveloped economy is characterised not only by low per capita income but also certain structural features, hence the name of the school. Of these the most important were (i) the juxtaposition of a traditional sector, usually agriculture, using a technology with low levels of productivity, and a modern sector using much more advanced technology. This latter element is compatible with Baran if the modern sector takes the form of a monopolist, but there are obvious parallels here with Lewis and Rostow. The modern sector would usually have been established by foreign capital engaged in primary production for export and is usually characterised by a high degree of openness, in that the bulk of its output is exported and the great bulk of its capital equipment and requirements for manufactured goods is imported. The undeveloped economies cannot themselves produce the capital equipment needed by the modern sector and the number employed in the modern sector is typically a small proportion of total population. Traditional agricultural is, however, usually characterised by forms of land tenure which inhibit expansion of agricultural output. Undeveloped economies are characterised by domestic supply rigidities in key branches of the economy: the supply of domestically produced goods will not respond easily to changes in demand and the modern sector demands imports almost regardless of price. Inflation is always likely, therefore. These factors make it very difficult to control these economies by conventional techniques of monetary management. In short, there is a tendency to inflation and balance of payments crises from the very structure of the economy. The final structural characteristic of the undeveloped economies is the tendency to have high rates of population growth. These characteristics lead the structuralists to conclude that development (which they define in terms of not only raising per capita incomes, but also of transforming the structures of these economies so that they are more capable of sustaining growth internally) they must seek to become less dependent on external trade. They needed to be less dependent on exports of primary products and also less dependent on imports of manufactures from the colonial powers. Thus, the key to development was industrialisation, but it had to be industrialisation directed by the state rather than by the domestic social, land-owning elite. Structuralists were very active in calling for ISI, import substitution industrialisation. They advocated the use of tariffs, import quotas, the rationing of foreign exchange, low interest rates and tax concessions for industry. In addition, they argued that foreign investment be welcomed as a potential source of finance and technology. This package was combined with a populist rhetoric, notably by Juan Peron in Argentina, who placed heavy taxes on the land-owners involved in supplying meat exports to the rich countries, and used the revenue to finance domestic industrialisation. He also set up many public sector firms to push forward domestic industrialisation.

Would it then be possible for the undeveloped economy to enjoy the smooth expansion of the modern sector, as Lewis and others had predicted? The answer, according to Furtado, is ‘It depends on a range of structural features of the under-developed economy’. First, on the amount of labour employed in the modern sector, secondly on the average real wage, thirdly on the amount of tax paid by enterprises in the modern sector (which would give the state revenue to finance its own development strategy), fourthly on the demand for locally manufactured producer goods which the modern sector induces and finally on the extent to which profits and salaries are spent within the developing economy. Furtado was pessimistic, believing that only about 5 per cent of the active population would be drawn into the modern sector in a typical developing economy. However, in the 1950s and 1960s, some Latin American economies were growing strongly. Moreover, two of these economies, Mexico and Brazil, were being designated Newly Industrialising Countries, and classified among the best prospects for full development outside South East Asia. It is certainly true that the problems of the huge numbers of poor in urban area had not abated, nor indeed had Brazil’s pattern of very uneven regional development (itself associated with different phases of exploitation of the country’s natural resources by metropolitan capitalists) remained pressing. But real per capita incomes had been rising at an impressive rate and the potential for further growth seemed very real. The structuralists did have an answer, that by withdrawing from the international system in ISI they had given themselves breathing space to industrialise, but as we have seen with Furtado, they did not expect development to continue.

In part, this was because the outlook for all developing economies was clouding over in the late 1960s and early 1970s as the growth rate in most developed economies began to slow as they began to struggle to contain inflation. But as we saw in the last lecture, East Asian economies had already decided that their problems lay not in the way that the division between core and periphery had loaded the dice against them, but rather in the limited potential of ISI. Latin American countries, on the other hand, were very, very committed to the idea that full exposure to the international economy would cause them great harm. The structuralists proposed a modified economic policy, which retained the main elements of protectionism, but sought to adopt new initiatives drawn from Europe. A threefold strategy of import substitution, the creation of a larger indigenous market by the creation of a Latin American Free Trade Area and reform of the traditional sector, particularly via land reform, could begin to tackle the structural problems at the heart of the failure to develop.

Dependency


Baran’s work was general, tied to no particular country or specific part of the underdeveloped world. But it was taken up by Andre Gunder Frank, who was probably less important to Latin American development economics as a thinker than as a populariser. Gunder Frank was a US-trained development economist, but he moved to Latin America, where he came into contact with economists with a very detailed knowledge of their economies and had contacts with the ECLA economists and their work on trade. He used this material and a version of Baran’s analysis to write detailed studies of the economic development of Brazil and Chile. Frank’s model and conclusions have some substantial points of difference with those of Paul Baran, but these are essentially questions of doctrinal purity that will be familiar to anyone who has seen Monty Python’s Life of Brian and knows the Judea Liberation Front sketch by heart. Gunder Frank was very good at turning Baran’s rather abstruse work into a form that would have wider appeal.

He did this in three ways. The first was to create memorable phrases to fix key parts of the analysis into the popular mind. What was happening in the periphery, according to Gunder Frank, was the development of underdevelopment. In other words, the world system was working to deprive the poor countries from the prospects of the same growth and development path enjoyed by the rich nations. Second, he treated orthodox development studies, particularly orthodox American social science, with real scorn. The main US development economists of the time – Rostow, Simon Kuznets, Hollis Chenery – were working upon the assumption that there was a single pattern to growth that all countries would follow, and that it was possible to study the various patterns to produce an optimum development strategy. Gunder Frank had little time for such activities, from whatever social science discipline they originated. He produced vigorous criticisms of orthodox economics and sociology. This made him almost a charismatic figure in the radical intellectual world. Finally, he made the whole package much more radical. Latin America needed to protect itself from the influence of the multinational corporations of the rich countries. Latin America also needed social revolution to break once and for all the power of the traditional landed elite, which had been able to frustrate structuralist policy on land reform in parliament. Gunder Frank championed the cause of the indigenous peoples of Latin America.

At the same time, the theoreticians tweaked the economic ideas just a little more and came up with the idea of dependency. The main contributor was Dos Santos, and many of the ideas are already very familiar. He defines dependency thus:

a conditioning situation in which the economies of one group of countries are conditioned by the development and expansion of others. A relationship of interdependence between two or more such countries or between such countries and the world trading system becomes a dependent relationship when some countries can expand through self-impulsion while others, being in a dependent position, can only expand as a reflection of the expansion of the dominant countries, which may have positive or negative effects on their immediate development.

Dos Santos is making the point, familiar from Baran, that the periphery is not essential to development of capitalism at the centre. There is no true interdependence between centre and periphery, in the sense of being equal partners in exchange. The centre has found it convenient to exploit the periphery in order to aid its own development trajectory. In so doing, it has taken from the periphery the power to find its own development trajectory; the periphery is dependent on the centre for markets, capital and technology. These are the same ideas that have been circulating with rather different emphases, and with slightly different detailed justifications since Baran and the early 1950s. All try to examine what might be termed the reverse side of the theory of imperialism – what did imperialism do to the countries on the receiving end? The major new addition at this juncture was to define stages of dependence. They began with the mercantile dependence of the colonial era, a second phase of financial and industrial dependence that was consolidated at the end of the nineteenth century. A third phase of technological-industrial dependence after 1945 was based on the increasing penetration of the periphery by multinational corporations, which began to invest in industries geared to the growing market of the peripheral countries themselves.

But there have been two increasingly large and obvious problems with this approach. The first is that dependency is a very, very woolly concept. None of the South American approaches to development lends itself to empirical testing and this version least of all. Any number of critics have pointed out that under the definitions of dependency offered, there are very, very few countries that are not in a dependent relationship. Take the UK, where the main politically contentious issue of the late twentieth century was Britain’s relationship with Europe. On the one hand there are those who have argued that the very existence of the EU has circumscribed British national independence and freedom of independent political and economic action. On the other are those who argue that European markets are so important for British exporters and European imports are so important for British manufacturers that Britain has no alternative but to work within the EU. What is distinctive about both those positions is that they fit easily into the notion of dependency, as defined by Dos Santos. Even the USA, might be described as dependent, in some respects. In the 1930s, the US economy withdrew in large part from the collapsing international system and suffered high and persistent unemployment as a result. It is arguable that even the USA is unable to pursue self-impelled expansion. If it is well nigh impossible to exclude the vast majority of countries from the definition, then either the definition is poor or the underlying thesis is faulty.



Pushing towards the latter conclusion has been the economic success of countries that were equally poor at the beginning of the twentieth century but who pursued rather different policies from Latin America in he 1960s when it had become clear that ISI had run out of steam. The Table with which we began also shows the twentieth century economic development of four Asian countries, and they have a very different pattern to the Latin American countries. The Asian countries have grown stronger as the century has progressed, whereas the Latin American position weakened. It is not easy to see how Taiwan, Thailand and South Korea were any less dependent than Brazil, Chile or Mexico at the start of our period. There is thus something wrong with the theory if only Latin American countries can be dependent. Perhaps in recognition, Cardoso has modified the arguments about dependency a little. He still accepts most of what the neo-Marxists say about the importance of the integrated world capitalist system in creating problems of underdevelopment. But the specific economic and political conditions in each LDC are determined by interaction between internal and external factors. Thus there is no single overriding pattern of dependency relations because of the huge diversity of economic, social and political conditions in the periphery. Peripheral economies have different resource endowments, different local class formations, varying ideologies resulting in a variety of dependency relations.

Conclusions


The main challenge to conventional development economics in the twentieth century to emerge from the non-communist world has come from the ideas of the development specialists of Latin America. These ideas have at their core a distinction between a metropolitan centre and the periphery, in which trade is unequal and favours the rich centre. They assumed in their earliest, and least sophisticated, forms that the gap between the centre and the periphery was widening as a result of structural weaknesses and class relationships in the periphery and the monopoly capitalism of the centre. Their concern has been to try to show the reverse side of (the poor country perspective on) imperialism. They have been created and transformed in moments of crisis in the Latin American economy. Thus, structuralism was born in the decade of crisis following the world slump of 1929-32, and had a major impact until the strategy of import substitution industrialisation combined with populist rhetoric ran into difficulties in the late 1950s. Dependency analysis was developed to justify the new way forward, but it too ran into difficulties in the late 1970s. If one asks what is left of these Latin American perspectives on development studies, the answer is almost nothing. It is now believed that developing countries should fully commit to international trade and the world capital market. It is now believed that the role of the state in economic and social development should be heavily constrained. The reasons for this will be the principal subject of the last lecture for this semester.


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