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A Southern Perspective on Development Studies

Carlos Mallorquin

Chapter 4. Theoretical Misrecognitions as the Source of Development Theory Déjà vu

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Ah, what happened to you, written and painted thoughts! Not long ago you were so colorful, young and malicious, so full of thorns and secret spices that you made me sneeze and laugh –and now? Already you have doffed your novelty, and some of you, I fear, are about to become truths: so immortal do they already look, so distressingly honorable, so boring!


1This chapter describes an episode in economic theorizing in Latin-America during the 1950s. After a brief glimpse at economics (The End of Postmodern Economics), it examines Albert O. Hirschman’s theoretical evolution before his work on development (On the Road to the Mecca of Development). Then the story moves to examine the structuralist vocabulary of Celso Furtado and Raúl Prebisch (Disembarking at the Mecca of Development) and returns to Hirschman once again to scrutinize his classic work on development (Mr. Hirschman Through the Looking Glass). Lastly, in (Remembering the Future) I argue that structuralism can certainly be examined as a feature of a cyclically found and lost tradition in economic thought that insists on highlighting the power asymmetry of the social relations to understand the evolution of the economy and its agents. In this last segment I attempt to make a defense for Latin American Structuralism, contradicting the worst and perhaps silly occurrences which were said about the perspective. Given that this story tries to recover the notion of development for today’s reexamination of policies in the “Center” and “Periphery” alike, we can say that if it wasn’t for Hirschman’s work, perhaps Latin-American structuralism would have not been heard at all, given that nobody was obliged to read or publish in Spanish or Portuguese then or now. I was told once by perhaps one of the most important sources in Western-centric academia on these issues (Joseph Love) that having asked for a research grant to develop a work on these matters, one of the reviewers said he had never heard the name of Raúl Prebisch, circumstance which perhaps the chapter might redress a little!!! But today we are under an inverse phenomenon, paraphrasing Mirowski and Nik-Khah (2017), a vast amount of “knowledge” on Prebisch and Furtado is lost to the “information.”

2Although development theory had its heyday between the fifties and the mid-seventies, recent revivals (Chang 2003, Toye 2004, Vernengo 2007) bring to mind a series of theoretical misinterpretations which are valuable to recall, especially for Western-centric readers. Some even find the discourses surrounding the notions of growth and development as part of a forgotten or lost world. As Jolly et al. explain:

One of the more interesting discoveries that digging into UN archives of the 1950s brings out is the central role of the UN in development thinking regarding two major issues which have been at the genesis of the emergence of development economics as an autonomous branch of knowledge and which even today are at the heart of the debate on development. These are the role of the state versus the role of the market and the role of external versus internal factors. (2004: 51, my emphasis)

  • 1 Later its acronym includes “the Caribbean.”

3Certain aspects of Krugman’s work on geographic economic differences are interesting, however we find a phrase which establishes that “the theory of economic development was correct” (Krugman 1995: 29) mentioning A. O. Hirschman as its genealogy and intellectual hero, and yet nearly the whole story is left untold or “skewed.” Much of Hirschman’s classic work published in 1958 (The Strategy of Economic Development) leaves out most of the theoretical and practical debates of the fifties and sixties at the Economic Commission for Latin America (ECLAC)1 and other institutions.

4As seen above much of which was constructed in Latin America as “structuralism” during the fifties had a very specific theoretical source and perspective: 1) the questioning of orthodox economics, 2) the construction of a theoretical tradition, and 3) the theoretical recovery of the historical conditions of the agents to understand their behavior and their calculus. Indeed, like the institutionalism of the 1920s, most of its promoters were intellectuals that composed the first generation of ECLAC functionaries.

5This could be put in a somewhat more elliptical fashion: if Keynes thought that neoclassical thought was a “special” case, structuralists like Raúl Prebisch and Celso Furtado argued that Keynesianism was just another “special” case within the corpus of the economics mainstream in general, which in turn should be transformed to think not only the Latin-American problematic, but mainstream’s own conditions of existence and its pretense of “universality.”

6We will see that in a similar fashion Hirschman’s vocabulary on development went through an analogous conceptual transformation once he discovered that those elements perceived in “underdeveloped” economies that inhibited its “proper” functioning could also be found in “developed” ones.

7Initially the theoretical strategy adopted by Latin-Americans in the fifties (later on called “structuralists”) was to refuse the relevance of economics’ general categories, arguing that they could not explain the specific structural features of “underdeveloped countries,” and therefore the reconstruction of the theoretical vocabulary was required for its own specific field of application, but the process finally culminated with a general perspective which could be used to examine and explain the “Center” and “Periphery” economies alike.

8Krugman’s reminder of Hirschman as one of the most important pioneers in development thought is not in doubt here, but Hirschman certainly took his time to signal or articulate much of his ideas to Latin America’s own pioneers in the field. In his classic work The Strategy of Economic Development (1958) much of his vocabulary seems consciously constructed so as not to be confused with them, in other words, pardon the pun intended, they both shared some similar notions.

9Nevertheless, the publication of Furtado’s review (Furtado 1959a) of Hirschman’s book The Strategy… (1958), scolding its author for his omissions of ECLAC theoretical and practical discussions on growth and development in Latin America, brought about important changes in the way Hirschman communicated certain intellectual currents. Undisturbed, Furtado stated:

This book is an extremely useful reading because it shows much more a desire to comprehend a reality of underdevelopment and lagging development than a preoccupation to submit reality under a pre-established academic scheme. He is a heterodox in his own way (…) Analyzing this interesting book by Hirschman, we cannot but reflect on this point. Large part of what is said in the book was already said and repeated by Latin-American economists. Particularly, the analysis of the problems of the external disequilibrium and of inflation is for us extremely familiar, that is why they are less interesting. Meanwhile the author nearly does not quote the Latin-American bibliography and, in particular, the contributions of ECLAC. Given that the bibliography is well known by Hirschman, who opened his eyes to the problems of underdevelopment in Latin America, it is possible to deduce that there exists a deliberate purpose to ignore the contribution of the organ that acted as an authentic pioneer in the field of the study of underdevelopment and especially, in the analysis and interpretation of the Latin-American economies. (1959a: 64)

  • 2 See also Hirschman on “structuralism” (1961).
  • 3 Also, to Carlos Lleras Restrepo, a Colombian intellectual and politician.

10Without a doubt this brought on an important change in Hirschman’s evaluation and acknowledgement, to say the least, of the issue about the presence of “indigenous theories” (Hirschman 1961a: 5). Judging by the latter book, the vocabulary of “structuralism” takes on a much more prominent place and mention, especially as an alternative explanation of inflation vis-à-vis the orthodox perspective, including Prebisch’s perspective and theory on the “Center”/ “Periphery” where it gets a short and honest presentation. But from then on, for example, in the book Journeys Towards Progress (1963), more than four years after his classic work The Strategy… (1958), Hirschman never lost the opportunity to recall the structuralist perspective.2 Indeed, Journeys Towards Progress is dedicated to one of its founders: Celso Furtado3 as a “reform monger.” Notice nonetheless, that the notion is much closer to a “dealer,” a “haggler,” a “negotiator,” or politician instead of an able theoretician.

The End of Postmodern Economics

11Hirschman’s own social milieu and political proclivities of his early days as an anti-Nazi operator (Hirschman would immediately retort saying “my Weltanschauung”), as well as his intellectual formation explains to a punctuated degree his intrinsic subversive tendency to question orthodoxies in general. Meldolesi emphasizes that:

It is important to remember that, for a series of reasons, generally not considered, economy in that epoch in France [in the thirties] some peculiar characteristics have occurred: a practical inclination towards the description of economic facts, some tolerance with respect of the several different schools of thought (liberal, historical, social, mathematical, sociological, etc.,) and a marked interest for the political aspect of the economy. From here (and from Henry Pommery’s course at the École on money and banking) probably grew his interest [Hirshcman’s] to start an investigation on France’s monetary policy of the twenties and thirties, conceived in London and concluded in Trieste. (1997: 20)

12For our story, similar positive conclusions can be derived from the promiscuous and “postmodern” intellectual and academic landscape under which Celso Furtado received his academic formation, especially his doctoral thesis in Paris in 1948, under the guidance of Maurice Bye, one of Perroux’s disciples. In contrast, Raúl Prebisch (18- and 13-years Furtado’s and Hirschman’s senior respectively) was a totally different kettle of fish. The social and political milieu at the Faculty of Economics of Buenos Aires had just undergone a reform in 1918 when he started his studies, outstanding among them was the freedom of students not to attend classes, which Prebisch exploited to the fullest. What marked the difference in the Faculty, until he was forced to leave in 1948, was the presence of two prominent intellectuals: Alejandro E. Bunge (1880-1943), the “first apostol” of industrialization (Prebisch 2006), and Luis Roque Gondra (1881-1943), perhaps one of the most outstanding of Pareto’s disciples. Thus, on the one hand a F. List follower, and on the other a guardian of “Laissez-faire,” up to a certain point. With Gondra the mathematization of economics was based on the hegemonic currents of mathematics of the time, the influential views of Vito Volterra (Weintraub 2002). Part of this work was carried out by Ugo Broggi (another professor of Prebisch), from whom, perhaps in his younger years, Prebisch heard that he was trying, long before Gerard Debreu, to prove the existence of general equilibrium (López 2000).

On the Road to the Mecca of Development

13As discussed further on, notwithstanding certain similarities between the Latin Americans mentioned, and Hirschman, as to the role of reforms and reconstructing the economy as well as the appropriate mechanisms induced through which the growth/development gets started, their divergence cannot be any further apart with respect to the theoretical strategies of reconstruction, and supersession orthodox economic thought alike.

  • 4 For more details see first chapter, Santa Cruz (1984), Mallorquin (2006, 2009).

14Among the factors that promoted growth and development as a political and conscious policy objective in Latin America was the creation of ECLAC in 1947, which in turn was born under the drive for the political and economic reconstruction of Europe after World War II. The Marshall Plan and the Economic Commission for Europe were the basis for the “impertinent” idea by Latin Americans at the UN to create a similar organization for the region. The U.S. had alternative plans because it wanted to launch its project of development under the tutelage of the Organization of American States (OAS), created in 1948 and under its control. ECLAC started initially with a first three-year life trial; subsequently, a decision was to be taken if it were to become a permanent UN body. With the support of France and other Latin American countries, the opposition of the U.S. was defeated and in 1952 ECLAC established its new lease on life.4

  • 5 Hirschman published his seventh chapter in 1943 as “The Commodity Structure of World Trade” in Furl (...)

15Hirschman was quite close to these developments in Europe before he decided to move to Colombia in 1952. Before his arrival in Latin America, most of his work from the late thirties onwards concentrated on the international economic order: in 1939 he ventured into a study on the statistical trends of foreign trade (Hirschman 1939) and by 1945 he published his first book, National Power and the Structure of Foreign Trade5 where Germany’s foreign policy for the post first world war period and the rise of the Nazi regime were analyzed. Its focus was the function of commerce and foreign trade as the basis for enhancing national power. Therefore, the central role in the book of examining the trends in world trade between different nations and the importance of economic policies which tends to diversify the commercial external flows of some countries became the basis to curb their “dependency” or some sort of domination vis-à-vis other countries.

  • 6 Although rather naively, Hirschman says: “Any future reconstruction of world trade should take into (...)

16In National Power, Hirschman also illustrates the inadequate established view that the great bulk of world trade was undertaken between countries producing raw materials versus manufactured goods. Thus, Hirschman shows early his ability to question the prevailing orthodoxy, emphasizing the heterogeneity of the countries in question as well as their trade patterns.6

  • 7 As an example of some of his work of the period see Hirschman 1948a, 1948b, 1948c, 1949a, 1949b, 19 (...)

17That work is followed by a few texts which examine inflation and deflation as well as exchange control in certain European countries; much of which was done when he became a functionary at the Federal Reserve.7 And apart from his studies of the structure of world trade, Hirschman was quite oblivious of the economic conditions of the “underdeveloped” countries in Latin America.

  • 8 Example of this work in that period: Hirschman 1954a, 1954b, 1955, 1956, 1956a, 1957a, 1957b.

18His arrival in Colombia in 1952 (staying until 1957 working as a member of the Council for National Planning of Colombia during the first half, a post suggested by the World Bank, and the latter half as a private consultant), marked his first experiences and contact with the magical realism of the tropical rationality.8

  • 9 There is something which must intrigue anybody that has analyzed his work up to this period of his (...)

19As early on as 1951, Hirschman was already mentioning the “Notoriously inconsistent” policy of the most technically advanced countries towards the less advanced in hindering their policies and their desires for promoting some manufactured activity: “alternatively and sometimes simultaneously helped, feared and obstruct the efforts of these countries to acquire technical and industrial machinery” (Hirschman 1951c: 285); he was mainly focusing on the east central European countries.9 He insisted reminding us of some of his 1945 conclusions on foreign trade and market power that:

This development need not have any sinister consequences for the future of international trade; there will surely be space left for a profitable division of labor between nations. But it could be asked if this division of labor based on ability differences and the past history of the industrial development might not be more unstable than the simple and ‘natural’ labor between industrial and agrarian nations. (…) In each individual case, the loss of the preexistent international specialization will be small, although in aggregate figures these losses could be considerable. For this reason, the detailed disintegration of the international division of labor that we have in mind here is dangerously probable while the nations continue in freedom to follow autonomous internal economic policies, while sectoral interests put pressure under the banner of the national interest, and while the special risks that affect the international trade, in contrast to the internal ones, have not been eliminated. (…) This division of labor is based more on a historical accident than on any basic difference in natural or human resources. (Hirschman 1951c: 296)

20Even in his subsequent text he had not extricated himself totally from what can genuinely and legitimately be an industrialized country perspective and interests. Also, he spoke as a United States citizen. Thus, unlike those fears that in other industrialized countries prompted some policy strategies to inhibit the industrialization of some of their trading partners, Hirschman stated:

In the United States those fears never became very important because the dependency of our economy from external supplies has always been quantitatively and qualitatively of a much smaller magnitude than those of the industrial countries in Western Europe. (1952a: 310, my emphasis).

21Without any intention to downgrade in any way Hirschman’s early work, which in some sense can be branded as very brave indeed, in Colombia and South America (1952-1957), much of it can be defined as “advisory” and “technical” with none of the “curse” which haunted D. Seers’s work. In contrast to what could be thought as the run of the mill economic histories, the presentation of the economic descriptions of Colombia and Central America, and those aspects emphasized, seemed written as manuals to attract investment to the region. Nevertheless, although in similar light to his previous work in Europe, in Latin America he allows himself a much more open and participatory position in his evaluations of the themes, in part imposed on him given the scant information and certain limitations on the information gathered and the national accounts in question.

22But once stationed in the tropics we can also see that he is willing to go further politically and theoretically and question several of many economic theses. His colleagues at the Federal Reserve would certainly have been flabbergasted to hear Hirschman state:

There is no economic law that demands narrow and automatic parallelism between the means of payment and level of prices even though the experience of a period of several of years nearly always shows an approximate parallelism with the observation that prices nearly always stay a little behind the means of payment for the reason given in the previous point. (1954a: 325, my emphasis)

23But an overhauling of the monetarist conception was not yet in his mind. As Hirschman argued:

(…) or when the means of payment rise without a corresponding rise in prices, it’s obvious that the velocity of the means of payment has risen (…) having said this, nevertheless, even if it sounds scientific, it does not explain nothing rigorously (…) The problem consists, precisely in knowing why the velocity of money has risen… . (1954: 325, my emphasis)

24In other words, Hirschman shows an interesting period ofexperimentation. He insists as “artificial” (Hirschman 1954a) the polemics on the topic as to whether the origins of the rise of prices is monetary or non-monetary (Furtado 1954). As discussed later, those years exhibit the deliberations on the nature of inflation, a crucial theoretical and political issue in the region; and perhaps Hirschman forms part of those few scholars able to understand its basis given his experience in the region. As Hirschman states:

Equally, the economist does not have to wait for the economic and statistic documentation, even the most complete, to produce mechanically and automatically the best recipe; such documentation is an indispensable work instrument, that permits his orientation and the avoidance of many errors; but in the last instance (and this is in turn the most irritant and pleasurable of our profession), there is always an area of ignorance, variable interpretation of the facts and possible hesitation and discussion. (1954a: 336)

25In Hirschman (1954b), where he describes certain experiences in the field in Colombia, we find what appears to be his first break with economics as a stabilizing recipe for macroeconomics misadventures. It is in reference to that work (a confession in 1961) that Hirschman says: “first work written on general problems of economic development,” of which “various ideas, (but not all of them) were structured in a more systematic form in The Strategy of Economic Development” (1954b: 338).

  • 10 For many reasons, both theoretically as well as politically, in ECLAC the word “planning” was not u (...)
  • 11 Thus, the paperback edition of The Strategy of Economic… pays homage to Nurkse with a long note in (...)

26In the latter text, Hirschman is not very amicable to ECLAC’s role. His thesis against the notion of “balance growth,” although not expressed in these terms, lurks huge in the background. He questions the “myth of integrated and global plans of growth” (Hirschman 1954b: 341) arguing instead for precise planned projects by sectors. Apart from various notes of “skepticism,” (Hirschman 1954b: 353), ECLAC appears as one of the culprits of global planning,10 as much as all those projects of growth and capitalization thought in “The Point IV of the United States.” Hirschman also complains that Nurkse’s “demonstration effects,” solely in terms of consumption, forgets or bypasses its counterpart: the “investment demonstration effect” given the high capital or technological intensity of the machinery used in Colombia and other underdeveloped countries. Years later Nurkse would be, if not the central focus, one of the most important theoreticians of “balance growth”11 critiqued by Hirschman.

  • 12 Hirschman and Kalmanoff (1955, 1956, 1957).

27Just prior to The Strategy of… (1958), Hirschman’s work involved, as mentioned before, simultaneously economic macro descriptions of Colombia and Central America, and a project and diagnosis for the creation of an electricity plant. Most of which is coauthored with George Kalmanoff.12 On the other hand, having returned to the U.S. he published “Economic Policy for Underdeveloped Countries” (Hirschman 1957a), which is a preface to his classic work: the pervasive presence and importance and impertinence of “national plans of development”; the problematic nature of the recurrent “inflation” and the distinct social and political conditions in underdeveloped countries vis-à-vis developed ones. The problematic nature of the characteristic of the region opens the possibility that perhaps economic discourse may need some overhauling to explain them.

Disembarking at the Mecca of Development

  • 13 I intentionally use the “Spanish” spelling.

28Retracing a little our steps, by the year 1954 many theoretical and political events had taken place in Latin America. Prebisch’s irruption at ECLAC Habana13 in the 1949 reunion with his The Economic Development of Latin America and its Principles Problems was to be branded from then on as the Latin American “manifesto” for development, a depiction elaborated by Hirschman himself. In retrospect, Furtado’s own explanation of the appearance of Prebisch’s as having superseded the previous manuscript discussed in ECLAC as “monetarist” (Furtado 1985: 53) only points to the theoretical evolution of Prebisch’s perspective unknown to many and the political difficulties surrounding USA’s scrutinization of ECLAC. Notwithstanding Prebisch’s manuscript was published under his own signature and not as an anonymous official U.N. document.

29The famous text not only claimed that in the region “reality” was undermining much of past and present economic doctrines and the international division of labor, it also argued that the Periphery had an inherent external disequilibrium (“desequilibrio” not “desbalanceado” = “unbalanced”) tendency. Its stop and start shaky growth process denotes the limitation of the traditional external pull of the Periphery’s growth: its export-led growth (“hacia afuera”) process of the past now required an alternative driving force mechanism, one of which is the industrialization process of certain sectors, which in turn presupposes a whole series of “structural reforms”: land, fiscal, state reform, etc.

30The inherent disequilibrium is not simply a product of fiscal mismanagement or badly thought investment priorities, in the long run, balance of payments receipts decline as the deterioration of its terms of trade vis-à-vis the products which the Center manufactures makes its presence felt.

31Prebisch thought that this process materialized through the cyclical repetitive process, which meant that unlike the industrial Centers, the Periphery did not manage to retain the fruits of its own technical progress. The Center even manages to appropriate for itself those productivity gains via price decline of raw materials elaborated by the Periphery. He argued that the asymmetry between the Center and the Periphery and its negative effects can be seen in many areas of the industrial countries and within the Periphery itself, a notion of power that would be developed extensively by Furtado in his interregional and country analysis.

32But what a well-designed and programmed process of investment did ensue in Prebisch’s proposal, requiring the incorporation, the integration, of higher numbers of the population within the “modern” circuits of production, especially given the importance of the reforms (land, fiscal). The “liberation” of the work force from traditional forms of “bondage” of all sorts (heterogeneity) was also a prerequisite, industrialization and the cities were to soak up that labor producing a sort of “social mobility” coupled with the rising of productivity levels and standards of living. That explains Prebisch’s insistence in the Central Latin American common market and other arrangements between and within countries to expand markets and make possible economies of scale.

33Prebisch was well aware of the ubiquity of the “heterogeneous” nature of much of the technical and social relations in the region, a notion which in the coming years, especially with the work of Furtado, would become central: the “structural heterogeneity” of the Periphery was to be transformed through structural reforms: at the technical and geographic social division of labor.

  • 14 See Toye in Mallorquin (2003), also Mallorquin (2006).
  • 15 See chapter on Prebisch for the evolution of his ideas.

34He agreed with Furtado on the transformation of those societies and their industrialization, but always thought industrialization per se had its limits given the asymmetries involved.14 The issue was not “caching up” with the West but rather simultaneously prepare the Periphery to withstand the necessary downswing of the cycle as well as promoting the conversion of the technical division of labor: economic development was precisely the transformation and the rise of the productive capacity of its societies. As mentioned previously, distribution of productivity gains between the Center and the Periphery was an issue related to the power asymmetries in question, theoretically examined through the lenses of time. Classical and neoclassical economics eluded this issue by introducing money as a “vicarious” entity to restore a balance between the real and financial levels of the economy.15

  • 16 And yet Prebisch could not help himself. In 1953, after many important economists of North-American (...)

35Although Prebisch did not make explicit many of the theoretical considerations,16 he was adamant that his purpose for heading ECLAC’s project for Latin America was to produce practical and well-organized policies and technical advice to development projects (Prebisch 1952: 24). Prebisch’s reminder of ECLAC’s mission and objectives represents just one of a series of difficult episodes at the organization, among them with Furtado as mentioned previously. Especially, Furtado’s argument of a specific version of the growth process examining the power asymmetries among and between diverse heterogenous agents evading the so called “inflationary” policies, aspects of which remained an unresolved problematic between Prebisch and Furtado.

  • 17 Noyola seems to be the only one to have reviewed Furtado 1954 (Noyola 1955). On Furtado and Noyola (...)

36Growth in Brazil was realized under a very positive socializing cost effects that fell on coffee exporters and importers of consumer goods given the existent foreign exchange controls then in force, which in turn favored the introduction of capital goods. The narrative questioned the idea that the recent growth of Brazil in the 1945-1954 years was a product of an “inflationary” process unless one forgets the parallel product growth during the period. The accounts of inflation, which later was to be named “structural,” implied differentiating the “static” orthodox notion vis-à-vis the “dynamic” heterodox one in Furtado’s terms. It was the Mexican colleague J. F. Noyola (1956)17 who managed to synthesize those views a couple of years later as “structural.” Noyola, following the trails of Furtado, argues:

inflation is not a monetary phenomenon; it’s the result ofdisequilibriums whose characteristics are real that are manifested in the form of a general price level rise. The real character of the inflationary process is much more perceptible in underdeveloped countries than in the industrial ones. (1956: 67)

  • 18 O. Sunkel published a similar article two years later, but here he talks of three types of “pressur (...)

37Although Noyola said that “inflation is in each Latin American country a specific and distinct problem” (1956: 68), its comprehension needs a distinction between “basic inflationary pressures” and the “propagating mechanisms.” The first aspect refers to its causal origin which generally is observed in growth “disequilibriums localized nearly always in two sectors: foreign trade and agriculture”; the second is about a “propagating” mechanism that could vary among many, but they can be “grouped around in three categories: fiscal mechanism (in which it has to be included the system of social welfare), and the mechanism of readjustment of prices and incomes” (Noyola 1956: 69).18 But for Furtado, the original forces of the inflationary “pressures” were the antagonistic mechanisms generated by the agents through which they defended their income, or the distribution patterns in place. Therefore, the intensity of the inflation is measured not by the circulating mass money or its velocity, but rather considering the “pressures” (the antagonistic moment) and “propagating” forces (by Banks and monetary logic).

38Years before Nurkse’s visit to Brazil in 1952, we encounter one of the first “misunderstandings” on the role of growth/inflation couple between Furtado and Nurkse, claiming he was misread by the latter:

If I understand correctly, he advocates in the last part of his essay a deliberate concentration of domestic as well as foreign investment on export industries and on industries producing import substitutes, as a mean to meet the pressures on the balance of payments that arise in the process of economic development. I must confess I have little faith in this prescription. It will not avert inflationary trends and balance of payments difficulties unless an attack is made on the root of the trouble; the tendency of money income to run ahead of productive capacity. In my view these pressures may have not even be related to high income elasticity of demand for imports. Besides, the very concept of income elasticity is usefully applicable only if the basic relationship between income and imports (that is, the ‘import function’) can be assumed to be fairly stable. If, as I am inclined to believe, the main trouble lies in the so-called ‘demonstration effect’ and its influence on the propensity to consume, a change in the direction of the current flow of investment may accomplish little or nothing. The problem is rather to ‘make room’ for his investments by keeping a firm check on the growth of expenditures other than capital outlays. To recognize that inflation may have various underlying causes is one thing; but to say (as Furtado seems to say) that inflation is therefore not a monetary problem is quite another thing and, in my opinion, misleading. (Nurkse 1953: 80, my emphasis)

39Prebisch certainly took his time to get involved in these discussions. Given his insistence on the importance of taking care of monetary aspects with anticyclical policies, he still thought he could find room for a non “orthodox monetary stabilization” formula (Prebisch 1961: 53). Prebisch argued that income contraction per se was not recommended when the structural factors were the primary origin of inflation, but:

It would be a serious error to attribute exclusively to the structural vulnerability of the economy the cost and investment inflation. Because Latin American experience has shown repeatedly the importance of monetary and financial policies. There is no automatic relation between the structural vulnerability and inflation or the intensity with which it develops. (1961: 58)

40Certainly Prebisch, during the 1950s, did not think structuralism could encompass the whole field of economics, Furtado on the other hand developed a general conception that not only referred to specific problems of the “underdeveloped economies,” but also could explain the “structural obstacles” of developed countries. In Furtado’s vision, the power asymmetries which Prebisch brought to light between the Center and the Periphery could be translated to any other social or geographic spaces, because what was at issue was the disparity, power asymmetry between and within certain economic agents whose main characteristic was their heterogeneity. The structural heterogeneity was a universal phenomenon, manifesting itself in a wide variety of power and institutional forms through which certain agents possess in separation certain of their conditions of their existence.

41In Hirschman’s terms it could be said that the driving force and organizational structure of the production units within and between sectors and regions depended on their inherent “unbalanced” empowerment. Hence the importance of structural reforms that addressed those “disequilibriums.”

  • 19 For an expanded discussion of these issues see section “Mobile Army of Metaphors: Post-Keynesianism (...)

42This is one of the aspects of Latin American Structuralism which has been less understood: the state was needed not just for implementing and creating investment opportunities, just as important was its role in “creating” the “market (s).” Establishing rules of possession in separation of the conditions of the existence of the units and sectors of production, as well as more “modern” social relations for the labor force which was going to join a new social-technical division of labor, aspects of which had to be taken into account by the industrial policy to follow. Structural obstacles meant that the incorporation and articulation of new technologies and social relations was not an automatic process.19

Mr. Hirschman Through the Looking Glass

43If Muslims are obliged at least once in their lifetime, if conditions permit, to visit Mecca, Western-centric economists should themselves be under the same constraint to stopover at the Mecca of Development. Hirschman made it his lifelong laboratory center: theoretically and existentially.

44By the mid-fifties Hirschman also had reached a notorious disbelief about the capacity of economic discourse to explain specific rationalities that motivate change and transformation of societies; he initiated the task of reconstructing a perspective that could be “fitted” in underdeveloped regions.

45Once you assume that capitalization or aggregate investment cumulatively does not tell the whole story of development, that it does not incorporate various human and capital resources, an argument is required in respect of the best way to combine these elements. In other words, you need a “binding agent” (Hirschman 1958: 6) to explain the particular way in which it will make decisions and get the economy growing, in other words, Keynesian remedies are insufficient. The growth models have no problem in this respect because they consider investment or “induced investment” as an automatic behavioral process of the functional relationship between output and capital formation. Therefore, Hirschman deliberates on the importance of the inducement mechanisms of investment, a phenomenon that in contrast to the developed nations, in underdeveloped countries saving and investment decisions are “interdependent” (Hirschman 1958: 32).

46The notion that development requires a simultaneous process ofinvestment along a series of sectors or production units, or otherwise a negative vicious circle ensues, is also questioned by Hirschman. In underdeveloped countries, something else is required, a mechanism which Hirschman calls the “complementary effect,” it:

Reinforces and supplements the slowly growing ability to invest (…) The investments of one period call forth complementary investments in the next period with a will and logic of their own, they block out part of the road that lies ahead and virtually compel certain additional investment decisions (…) is therefore the essential mechanism by which new energies are channeled toward the development process and through which the vicious circle that seems to confine it can be broken. To give maximum play to this effect must therefore be a primary objective of developmental policy. (1958: 42)

47The complementarity effects dissipate as the economy reaches “higher levels of development,” some investment exhausts its importance since the input-output matrix of the economy has most of its boxes filled. But all in all, Hirschman has no intention to displace Rostow’s notion of the “take off” period. H. A. Simon (Hirschman 1958: 48) is brought to the rescue to explain the learning process of investment by which is meant that the preliminary process of development will need some initial force to enhance the pace so that the agents in question don’t give up once they become conscious of the cost of reaching the task in hand. Thus, Hirschman insists that he is not proposing a “rigid” model of development, but steady growth has to do with the ability to invest, considering the great variety of negative forces that can appear, which is the reason why a conscious “development strategy” is needed.

48One of its ingredients supposes the deconstruction of the “balanced growth” perspective (Rosenstein, Nurkse, Lewis) which presupposes an initial effort of investment in various sectors at the same time so that they can complement each other, but the theory fails as a theory of development. As Hirschman observes:

Development presumably means the process of change of one type of economy into some other more advanced type. But such process is given up as hopeless by balanced growth theory which finds it difficult to visualize how ‘underdevelopment equilibrium’ can be broken into at any one point. (1958: 52)

49But that perspective assumes an absence of differences between sectors and production units, and wants to impose an “entirely new, self-contained modern industrial economy […] on the stagnant and equally self-contained traditional sector” (Hirschman 1958: 52). This is not “growth” since in a dualistic division conception both aspects of the economy require an articulation. According to Hirschman, even if this is an exaggerated view of the balance theorist’s account, what makes it its worst ally is the notion that it:

requires huge amounts of precisely those abilities which we have identified as likely to be in very limited supply in underdeveloped countries. (…) In other words, if a country were ready to apply the doctrine of balance growth, then it would not be underdeveloped in the first place. (1958: 53)

50Hirschman maintains that if the balance growth theory is put forward precisely to get governmental intervention, then it’s “hardly “convincing,” because what “private enterprise” does not undertake, public authorities may not be able to guarantee. There are thus some activities which cannot be undertaken, no matter who it is entrusted to realize them. And a multitude of centrally planned investments so that it internalizes only “external economies” and simultaneously excludes external diseconomies and social costs of new ventures is hardly possible. But the image behind it, says Hirschman (1958: 56), is what defeats it since it presupposes sectors that won’t be touched by the process of development while maintaining the idea of a rise of a “brave new sector to be built from the ground up in isolation”. In this fashion, all those who might possibly suffer losses in the course of the development process are effectively assumed away. (…) But in general, economic development means transformation rather than creation ex novo: it brings disruption of traditional ways of living, of producing, (…) and (…) social costs. (Hirschman 1958: 56)

51Thus, Hirschman’s answer is “unbalanced growth”:

Just as on the demand side the market can absorb ‘unbalanced’ advances in output because of cost reducing innovation, new products, and import substitution, so we have isolated forward thrusts on the supply side as inputs as redistributed among users through price changes, and at the cost of some temporary shortages and disequilibria in the balance of payments or elsewhere. In fact, development has of course proceeded this way, with growth being communicated from the leading sectors of the economy to the followers, from one industry to another, from one firm to another. In other words, the balanced growth that is revealed by two still photographs taken at two different points in time is the end result of a series of uneven advances of one sector followed by the catching up of other sectors. (…) this kind of seesaw advance over ‘balanced growth’ (…) is that it leaves considerable scope to induced investment decisions and therefore economizes our principal scarce resource, namely, genuine decision-making. (…) An ideal situation obtains when (…), one disequilibrium calls forth a development move which in turn leads to a similar disequilibrium and so on ad infinitum. If such a chain of unbalanced growth sequences could be set up, the economic policy-makers could just watch the proceedings form the side lines. (1958: 62-63 and 71)

52Thus, development presupposes a “chain of disequilibria.” The retroactive decisions to invest will produce the possibility to precisely jettison those forces and disequilibria which brought it on. As Hirschman explains:

our aim must be to keep alive rather than to eliminate the disequilibria of which profits and losses are symptoms in a competitive economy (the task of development policy is to maintain tensions, disproportions, and disequilibria. That nightmare of equilibrium economics, the endlessly spinning cobweb, is the kind of mechanism we must assiduously look for (…) Therefore, the sequence that ‘leads away from equilibrium’ is precisely an ideal pattern of development from our point of view. (Hirschman 1958: 66)

53Although all investment can be considered as induced investment, the notion of the complementarity effect mechanism supposes that those investments are “net beneficiaries of external economies” (Hirschman 1958: 71). Therefore, each induced investment should remind everyone of the multiplier effects: each new investment induces a series of subsequent ones, although not all investments will necessarily converge. Now, obviously external diseconomies will appear with new investments, damaging established plants, but its effects will spread over longer periods while novel investments inaugurate and renew a positive cycle of external economies in a different sector. It is in this context that Perroux is brought to the attention of the reader as “closer to our viewpoint” (Hirschman 1958: 74).

54The election or “guidepost” of the optimal developmental strategies requires a reflection on the order or sequences of the investment pattern, which means that “profitability” per se cannot be assumed a priori to be the best way to generate a continuous reinvestment process. Thus, the election process for Hirschman requires a more complex system in terms of a jigsaw puzzle: “The fitting in of individual pieces would represent the taking of discrete development steps. The problem would again be to minimize the time needed to put the puzzle together” (Hirschman 1958: 81). Since the aim would be to surround the neighbor’s parts, “the process becomes more determinate since you’ll chose those pieces that take less time to install” (Hirschman 1958: 82). Thus “efficient sequences” will necessarily entail a variable dependent on the pieces that have been installed initially. The exercise is a way to establish that there is no preordained order or sequence that the productive chains should follow. This also takes Hirschman to discuss the issue as to the priority or otherwise of pushing the investment in Social Overhead Capital (SOC) versus Directly Productive Activities (DPA). Again, no necessary order can be established beforehand. Although investment in SOC is “safer” than in DPA, since it is supposed to materialize throughout the economy it can also be a burden because planners are basically blinkered and thus unable to articulate it to the DPA sectors. Thus, only history and economic analysis can help to see which would be the more “productive” sequence: “whether DPA investments lead to SOC or vice and versa, better still which ‘maximizes’ ‘induced decision-making, ’ as Hirschman observes:

it is the experience of unbalanced growth in the past that produces, at an advanced stage of economic development, the possibility of balanced growth” (1958: 93).

55What makes Hirschman much more than just the “traditional developmentalist” of the epoch is that he is willing to reconstruct a series of categories to fill the theoretical void once you question the basic notions implied by the maximizing agent. Thus, the process of industrialization does not have a preordained sequence either in terms of the sectors or the factories. Within the DPA sectors, the derived demand can be thought in terms of “backward linkage effects” (Hirschman 1958: 100), that is, the inputs needed for the unit of production, or output utilization products: forward linkage effects, in other words, intermediary inputs needed by other sectors or production units.

56Thus, traditional complementarities and external economies, cumulative causation, etc., cannot help to think a “developmental path,” even though we might have the input-output statistics requirements at hand. But with the “well-known backward and forward effects” (Hirschman 1958: 100) development policy can supersede traditional analysis and evaluate the strength of the stimulus between certain industries vis-à-vis each other. Interdependence of the input-output matrix is a consequence of the industrialization process, but some modes of linkages, especially if they involved export and or import ties, can be difficult to displace. But it is much easier to perceive backward linkage effects than forward ones. Forward linkage effects presuppose a backward linkage effect, which drives on certain demand, in contrast forward linkages have no “independent inducement mechanism,” and it “acts as an important and powerful reinforcement to backward linkage" (Hirschman 1958: 117).

57Thus, Hirschman states:

The ability of underdeveloped countries to start industrialization in this fashion by giving the ‘last touches’ to imported materials is no doubt an advantage inasmuch as it permits industries to be started even in areas where markets are small and technical knowledge and organizational know-how are scarce. But it is also a disadvantage, for it builds resistance for every new step in the trickling down process. In dealing with backward linkage effects, we have thus far taken it almost for granted that as soon as domestic demand passes the threshold of minimum economic size, domestic production will be undertaken. (1958: 118)

58However, given the resistance or antagonisms by various interests, importers or exporters for the establishments of new industries, gradualism may not be the best option.

59On the other hand, paradoxically, protectionists and industrialization forces are oblivious to the connections between imports and industrialization and adopt self-defeating policies instead of promoting certain imports, which in turn reinforces the comparative advantage for the elaboration of these goods.

60Yet the “cohabitation” (Hirschman 1958: 125) of modern and preindustrial industries, sometimes even “neolithic techniques” or so-called dualism, is an important phenomenon to be understood in Hirschman’s perspective, because it is not just a question of technological discontinuities, it also has to do with important existential parameters relating “attitudes” and “ways of living” (Hirschman 1958: 126).

61Unlike the preindustrial experience in Europe, in underdeveloped countries the incorporation of new machinery and technological advances do not necessarily eradicate previous techniques or ways of doing things. Also the appropriate labor or levels of capital intensity that the production functions has to be seen in light of past and present processes of industrialization because “today’s underdeveloped countries” can concentrate on a wide range of useful and desirable products that are entirely new to the economy (Hirschman 1958: 126), and therefore handicrafts and cottage industries are not necessarily involved in a tenacious competitive classic cycle such as it occurred during the industrialization in the West, which in turn means that wage differentials are not the best horizon to measure efficiency. Thus “dualism” may bring many tensions but also some rewards since it leaves untouched a whole set of sectors and firms by the new capitalization evolution of several portions of the economy.

  • 20 In a very cryptic note Hirschman also mentions that the absence of “growth mentality” and difficult (...)

62Orthodoxy’s insistence on the market and competitive struggle among firms as the inducement mechanism leaves out of the picture market size as well as all sorts of “collusive agreements” in custom driven economies. Thus, there are reasons for imposing strategies to construct “complementary” and “competitive relationships” (Hirschman 1958: 135). Given certain collectives practices20 in underdeveloped countries the nonexistence of “proper” motivations, an interesting cultural phenomenon arises: an “imbalance” between their ability to promote new ventures which fly way ahead of their capacity to run them efficiently.

63Once the classic notions on “maximization” are left out, there is the problem to find the criteria for the decision to gauge the appearance or creation of new products as well as the mechanisms of inducement. The question of “maintenance” seems to be one of the processes which could be most effective as a guiding hand to undertake projects “which do not require it” (Hirschman 1958: 141):

We have argued that economic development typically follows a path of uneven growth, that balance is restored as a result of pressures, incentives, and compulsions: that the efficient path toward economic development –and therefore the one that will often be instinctively taken if we can rely on the ‘principle of least effort’– is apt to be somewhat disorderly and that it will be strewn with bottlenecks and shortages of skills, facilities, services, and products; that industrial development will proceed largely through backward linkage, i.e. will work its way from the ‘last touches’ to intermediate and basic industry. (Hirschman 1958: 158)

64Likewise, following Chester Barnard, Hirschman would argue that “product-centered” industries do not contribute as much as “process centered” ones to enhance labor’s efficiency, since in the latter case technology imposes a logic and a specific process of coordination. In other words, the technology enhances management with its own labor competence.

65Given the apparent ingrained instability of underdeveloped countries, the question of inflation and balance of payments difficulties is an obligatory theme. Having laid waste classical explanations on inflation (“long discarded theories”), Hirschman concentrates on the “inflationary” impulses which are a consequence of certain types of “development sequences.” A price rise (given the short-run supply limitations of underdeveloped economies) seems a disproportionate response, but it could be argued that it has always been the case also in today’s Western nations during their transitional period towards industrialization. Hirschman insists that those forces were “less powerful,” and received simultaneously a matching response in terms of a periodic price decline. But in latecomers the pressure towards a downward price movement cannot be compared with those of the industrialized world because the equipment in use has already gone through the competitive price/cost cut struggle. The benefit in the “high” technological advances is exhibited in most capital imports. Thus, avoiding inflation in underdeveloped countries is much more difficult given the sectoral price movements. But Hirschman seems to have forgotten his thesis that not all of imports are manufactured goods.

66Therefore, the relative high price rises make for better signals for investment in certain sectors, but low supply elasticities do not explain the whole picture since it also depends on the skill and “determination” of the monetary and fiscal management (Hirschman 1958: 161).

67Of a possible scenario of four types of price and output behavior, the most convenient one is that which promotes investment in certain sectors where price rises acted and thus overcome those “imbalances” that engendered price rises. As Hirschman argues:

But there is a real difference between an economy that solves new supplies problems in every round of inflation and one in which it is the same supply problem that is constantly causing prices to resume their upward course. (1958: 162)

68And yet in some areas Hirschman argues that price signals are not always the only or best incentive mechanism: “Fortunately the strategy of unbalanced growth does not stand or fall with the efficacy of price signals” since alternative “methods for restoring balance between sectors” create those “uneven growth” and “economic tensions” (Hirschman 1958: 163), which in turn promote additional forces for development.

69Unlike Latin-American structuralists, Hirschman seems dubitative to say the least on shedding traditional notions of inflation: although the so-called “price-price spiral” (Hirschman 1958: 163) is more akin to the “wage-spiral inflation of developed nations,” its problems and difficulties are much more pronounced than the usual excess demand for “investment and consumption,” notwithstanding that the latter explanation is “correct at times”. As Hirschman explains:

Nevertheless, anti-inflationary policies must certainly be re-examined if excess demand is not considered to be the only or even the principal villain. In the first place, we can understand why both the commercial banks and the central bank are often taken aback by the admonition that they must not finance an investment boom. All they are doing, they will maintain, is adjusting existing credit lines to the higher prices that have come to rule for some commodities. We see now that this opinion may not be as naive as we usually tend to think. The role of the banking system in a price-price spiral inflation is far more passive than in a demand inflation. The banks merely permit their clients to pass on all price increases, in the interest (…) maintaining economic activity at previous levels, not of expanding it. (1958: 164)

70He concludes that inflation in “underdeveloped countries arises principally from supply imbalances that are characteristic of the growth process” (Hirschman 1958: 164). On the other hand, balance of payments difficulties is seen because of excess demand. But in underdeveloped countries balance of payments difficulties could be a product of the typical growth sequences and hence not a reflection of domestic inflation. Shortages could be solved importing goods under that circumstance, if foreign exchange is available, and the demand in question will not necessarily generate any rise in prices. In these cases, it will be sane for a government not to allow the price to signal movements in demand, especially if it cannot guarantee that additional production will be forthcoming.

71Thus a “respite granted” by an import surplus can be extremely valuable, provided it is utilized by the public authorities to push through some of the reforms required to “increase supply elasticities” (Hirschman 1958: 167).

  • 21 Hirschman’s “Preface” (1961: viii) of the paperbound edition of the book acknowledges similarities (...)

72The thesis that the balance of payment difficulties are seen as a consequence of “output-input imbalances and disproportionalities” during the growth process, becomes something close to the notion of “structural factors” as the cause of those complications rather “than the inability of developing countries to live within their means” (Hirschman 1958: 169).21

  • 22 The only appearance of “Prebisch” in Hirschman’s classic work can be seen in the longest footnote o (...)

73Also, fluctuations in foreign exchange earnings are an endemic part of the underdeveloped economy given the price fluctuations of their products, however Hirschman does not waver an inch to convey his support for the Singer-Prebisch thesis.22

74Whereas much of Hirschman’s argument on unbalanced growth can be seen in terms of interregional and international power asymmetries, terms which evoke much more within structuralists’ circles, he prefers the use of the “polarization effects” within and between different regions or sectors, or countries. But then power asymmetries become central in his consideration. If a region could in some instances be “treated as though they were a country and, in some others, treat a country as though it were a region” (Hirschman 1958: 199), it would be easier to create situations favorable to all parties in development.

75Much depends on the mechanisms of transmission of growth which he labels the “trickling-down” and “polarization effects.” Instead of using the developed and underdeveloped couple or for that matter Prebisch’s Center-Periphery one, Hirschman uses “north and south,” a kind of spatial metaphor to portray the process of growth via their interaction to think the policies necessary to limit the “polarization effect.” One of the effects of the north’s growth as a stimulating force on the “south” would be the “trickling-down effects” by certain demands for its products. But it could also be the foundation of the profound interregional polarization, which in turn could drive the south to sponsor policies to counteract these effects.

76But the fact that the trickling-down and polarization effects can be overturned shows that what is needed is some sort of “sovereignty” for the south as a mechanism to counteract the polarization effects. Therefore “the polarization effects will be stronger when there are no frontiers to cross, [and] so will the trickling-down effects” (Hirschman 1958: 197). In an international context between countries, the “trickling-down effects will mean an important force as a promoter of development if some sort of mutual dependency is involved. The problem is when a country has no goods or resources to articulate itself to the international transmission of growth pattern, which can be seen when a region is integrated into a larger country” (Hirschman 1958: 197). Although interregional, the north might have the possibilities to acquire its necessities outside the shared space with the south, internationally the obstructions for the trickling-down effects are much “stronger, just as the trickling-down effects themselves are weaker, than in interregional relations” (Hirschman 1958: 198).

77In other words, given the absence of an international entity, “forces making for interregional transmission of growth are likely to be more powerful than those making for international transmission” (Hirschman 1958: 198).

78But for Hirschman there are no general optimal institutional arrangements. The mere posing of the question is a mirage because “closing the gap” between “north and south” requires the use of instruments that would ordinarily be thought to be disruptive of the very integration they are designed to achieve. While it is the purpose of these instruments to cut down the strength of the polarization effects, great care must be taken, of course, not to interfere with the efficacy of the trickling-down effects:

Thus, economic policies are designed to insulate the South sufficiently so that it may undertake certain industrial and export activities in competition with the North; but, at the same time, the complementary relationships that make the South a supplier of the North must be preserved and intensified. (1958: 200)

79In contrast, Hirschman asserts:

For international transmission of growth (…) The task here is to keep the polarization effects as weak as they normally are among independent nations, but to increase the strength of the trickling-down effects. In other words, the underdeveloped countries ought to retain the developmental advantages of sovereignty. (1958: 200)

  • 23 “development also draws new strength from the tensions it creates.” (Hirschman 1958: 209)

80Nonetheless, Hirschman feels “uneasy” about the argument that “pressures,” “tensions and disequilibrium” are virtuous, which is the extension of the argument that “economic growth creates profitable opportunities and the concept of disequilibria include these opportunities” (1958: 208),23 since not all productive sectors and induced investment have the same scope for growth.

Remembering the Future

  • 24 Term used about Furtado in the conversation between Gudin and Harbeler (Furtado 1985: 124).
  • 25 For an account of dependency theory, see Kay (1989).

81It could be assumed that the recovery of Latin American Structuralism as perhaps one of the earliest theoretical currents to engage on issues of development forms part of a Latin-American nationalist chauvinism or worse still “fanaticism.”24 A case for its paternity can certainly be made. But it would take a Hirschman’s like stance, but which is frowned upon in other quarters. Hirschman is explicit in assuming the role of grandfather to “dependency”25 theory, and equally in his revised version of his 1945 book National Power and the Structure of Foreign Trade, he states priority for developing the notion of “Gini index or coefficient” (Hirschman 1945: xviii).

82But what is at issue is a very distinct problem: Latin American Structuralism forms part of a very long tradition in social and economic thought that once in a while reappears to reiterate the theoretical central importance of power asymmetries in social relations, and the examination of the calculating agent in specific historical contexts. Perhaps Perroux and his followers had said something similar having also questioned the mechanical notions of general equilibrium, hence the study of inter and intra-regional asymmetries (“poles of development”), power asymmetries that underlie the exchange/production mechanisms among the various sectors and production units.

83Economic thought has been haunted constantly by this future, that is, the return of power relations to think the economy: see the Schumpeter and the German historical debate Morishima (1998), or the early questioning in classical political economy (William Thomas Thorton) of the price and market mechanism as simple consequence of the supply and demand schedule (Mirowski 2004), as well as Talcott Parsons whose strategy during the 1930s simultaneously assigned the question of power to “political theory” and evaded the matter which was preeminent among those who were until then his intellectual mentors: the institutionalists.

84Structuralists in Latin-America certainly constructed the tradition from which they searched alternatives and emancipation, and although their reading of the classical Western-centric tradition could be a source of debate, what was central was the need of a new vocabulary for its own policies. We mentioned that Furtado denied classical political economy as simply a comedy of errors because it did not address the question of “underdevelopment” and also Prebisch’s critique of economics and its downfall for not considering the notion of “time.” Hirschman in turn with the question of the inherent “disequilibria” of the economy as its driving force certainly did not attempt to retrace these notions in economic thought but given that there was already, in its initial phase, a theoretical space in academic life that maintained that “underdeveloped countries” had to be treated with a different set of lenses, it was perhaps futile. And yet much of his subsequent work is undertaken in the field of the history of social thought especially around the notion of the “market.”

85The most important part of this episode, in terms of Furtado and Hirschman alike, is that it became the laboratory which was to witness the transformation of a particular discourse that privileged its questions on a specific geography of the world economy into a general conception. In this context, Hirschman observed:

It appears, therefore, that the very characteristics on which I had sought to build economics specially attuned to the underdeveloped countries have a wider, perhaps even a universal, range and that they define, not a special strategy of development for a well-defined group of countries, but much more generally valid approach to the understanding of change and growth. In other words, I set out to learn about others, and in the end learned about ourselves. (1984: 95)

86On the other hand, Latin-American development process between 1950 and 1980 cannot be seen simply as the materialization of “structuralist” policies, although it’s a period of high rates of “growth,” which it’s difficult to compare with what happened afterwards under the so-called neoliberal era.

87The “black legend” created by neoliberalism on state intervention and “closed economies” of the region to engender changes in policies cannot be read simply as the result of structuralists’ proposals during the 1950s and 1960s. ECLAC and Prebisch were the first to criticize the exaggerated level of protection in some industries and countries in the region. And perhaps what is the most misunderstood aspect of the structuralist thesis is the so-called state and market opposition (especially in Western-centric literature): great part of the aims of the structural reforms during the 1950s was to reconstruct the rules of the game, institutions, not state intervention. To recreate the relations of possession in separation of the conditions of existence of production units, generating the “market.” How the articulation of the production units gets organized is a different matter and debate. But structuralist analysis of the region’s economies found that they were hardly consolidated as “totalities” as such, and sometimes not even at a regional level. State “intervention” not only meant facilitating financial help for potential entrepreneurs but also sponsoring policies with the aim to establish the social and political conditions for the market. Which did not mean that the heterogeneity, technologically or socially speaking, would just evaporate with the reforms, but that was precisely what a developmental perspective had in mind. Given the notion that structural heterogeneity is the product of diverse and distinct power conditions, the more “modern” were those institutional rules, the better.

88Another aspect of the history of the policies sponsored by structuralists has also been “misconstrued.” Let us hear it from the man himself. For Prebisch, the option whether to produce locally certain industrial products or to import them had to consider the proportion of the income which was to remain in the local economy:

  • 26 The paragraph sends the reader to a foot note: “This was the assumption made by the Currie Mission (...)

Let us first clarify one important point. Industrial costs higher than import prices do not necessarily mean that an industry is not economic for a country as is sometimes assumed. Of course, the smaller the difference the better. The problem has to be considered from another angle. It is not really a question of comparing industrial costs with import prices but of comparing the increment of income obtained in the expansion of industry with that which could have been obtained in export activities had the same productive resources been employed there. (1959: 255)26

89Also it was never recommended that countries should fill all their input-output matrix sectors by local production: it was always thought that as economies evolved what actually changed was their import composition, a rate of substitution which could not be sustained given foreign exchange limitations, hence the inherent disequilibria of these economies and the need to think of rates of growth by sectors. Last but not least, industrial countries were not, and have not been a haven to the export of manufactures from economies “in development.”

  • 27 Latin-American structuralists should appropriate for themselves Hirschman’s graphics (1984: 107) on (...)

90This brings us to another theme which was only to become clearer later in the sixties: “development” is the way economies evolve, how they transform themselves, which in turn requires certain “rates of growth” but development and growth don’t necessarily coincide.27 That is why structural reforms were thought as the generators of reservoirs of capital and social energy unaccounted for by our national statistics.

  • 28 I mean, has anybody out there read Polanyi’s The Great Transformation..? Is economics in such a sta (...)

91But tracing these problems and theoretical debates to World War II “planning debates” as Arndt (1987) does leaves unaccounted the theoretical work done in the region. Is this to be blamed on the absence of reading of Spanish or Portuguese literature? It is easier to confront Latin American Structuralism if it’s made out to appear as an anti-market discourse when what was at issue for structuralists was precisely how to think the market and reform institutions so that “markets” could be thought of as more precise “information” providers.28 Thus the importance to analyze the specific social relations of the agents and the productive units, as well as the notion of heterogeneity in terms of power symmetries of the social relations and technologies, and the time horizons of the entities in question. The structural obstacles that could be the causes of a series of “bottlenecks” as Western-centric discourse theorists name them, required specific policies and structural reforms. But in the last instance all economies are ridden by heterogeneities and structural obstacles.

  • 29 Luis Daniel Torres (2006) has reviewed the whole literature of the past 30 years, and incorporated (...)

92Before I conclude some readers must be wondering what transpired to the whole deterioration of the terms of trade conundrum, the so-called “Prebisch-Singer” thesis.29 The point is that even if the deterioration in question could not be “proved” some structuralists would still argue that their conception of how to reorganize the economy and transform its technical division of labor is much more efficient and profound with respect to its aims to incorporate the masses to its circuits of production than orthodox versions of economics. Given that the price mechanism is the reflection of power asymmetries these are always the object of struggle to be transformed with all sorts of policies which are practiced in a day to day basis in the industrial countries and last but not least it’s plainly a matter of making “sovereignty” matter through our own policies.


1 Later its acronym includes “the Caribbean.”

2 See also Hirschman on “structuralism” (1961).

3 Also, to Carlos Lleras Restrepo, a Colombian intellectual and politician.

4 For more details see first chapter, Santa Cruz (1984), Mallorquin (2006, 2009).

5 Hirschman published his seventh chapter in 1943 as “The Commodity Structure of World Trade” in Furlo-Blasco (1998).

6 Although rather naively, Hirschman says: “Any future reconstruction of world trade should take into account the complexity of its structure which our statistics reveal. (…) The policy of all countries during the period of mercantilism was to prevent the spreading out of their particular skills and industrial arts. But this vestige of mercantilism has assumed a most beguiling disguise -that of the maintenance of “sound” international division of labor. An encouraging aspect of present thought on postwar reconstruction is therefore the radical change from the traditional outlook in this respect. Today [1945], schemes for the future industrialization of underdeveloped countries (…) are proposed and discussed on many quarters; and the future economic mission of the older industrial countries is conceived less as the mechanical workshop of the world than as the initiator and educator in industrial processes. International trade has nothing to fear from these developments, since there will probably always remain a fruitful division of labor between the various countries and parts of the world. But it is highly improbable that any particular pattern of the international division of labor will last forever. (…) But to conclude that the world trade is doomed because the traditional pattern of the international division of labor seems imperiled is one of these flights of imagination at the start of which we find a lack of real imagination: and incapacity to conceive of a state of affairs radically different from that which we have been acquainted.” (Hirschman 1945: 150)

7 As an example of some of his work of the period see Hirschman 1948a, 1948b, 1948c, 1949a, 1949b, 1951a, 1951b, 1951c, 1952a.

8 Example of this work in that period: Hirschman 1954a, 1954b, 1955, 1956, 1956a, 1957a, 1957b.

9 There is something which must intrigue anybody that has analyzed his work up to this period of his life and perhaps even there after: I have yet to find some mention or discussion in Hirschman of the Romanian Mihail Manoilescu (see Love 1996) or the German Frederick List!!!

10 For many reasons, both theoretically as well as politically, in ECLAC the word “planning” was not used, especially during Prebisch’s reign, but instead, the term “programing” which is a way to start questioning Hirschman’s reading, that as mentioned previously had changed after Furtado´s recriminations in 1959. From 1961 onward Hirschman started speaking of “close adversaries” referring to Prebisch, Nurkse, Rosenstein Rodan. Also, the issue of the term “balance” comes to light, since most of the translations of Hirschman to Spanish and Portuguese use the term “equilibrio,” that is “equilibrium,” so unbalanced growth means in Spanish “crecimiento desequilibrado” or “desarrollo desequilibrado.” It is interesting to note that in his letter to Andre Gunder Frank in 1959, Hirschman talks in terms of “disequilibriums” (Hirschman 1984: 105). The not so speculative point on my part is that Latin American structuralists used openly “desequilibrio,” that is “disequilibrium,” on the one hand, and on the other, it may perhaps be too much of a heresy if used by Hirschman. That would have obliged him to engage with the general equilibrium debate in process in Western-centric academia. Perhaps this strategy, perceived in Hirschman’s vocabulary, hoped to keep simultaneously both perspectives at a distance liberating him from a futile discussion on the notion of “equilibrium,” hence the use of “balance-unbalance” couple. As we have showed above, Latin American “structuralists” were perhaps more theoretically and politically transparent as to the (ir) relevance of “equilibrium.” Both Furtado and Prebisch were disequilibrium theorists: so what is there of so-called price stability or of some sort? The answer was elaborated via the notion of power and domination of certain unit or sectors of production in specific geographic locations. For more details, Di Filippo (2009, 2009a, 2013) and the fifth chapter up ahead.

11 Thus, the paperback edition of The Strategy of Economic… pays homage to Nurkse with a long note in its “Preface” insisting on the importance of his notion elaborated as the “unbalance growth sequence” (Hirschman 1961: viii).

12 Hirschman and Kalmanoff (1955, 1956, 1957).

13 I intentionally use the “Spanish” spelling.

14 See Toye in Mallorquin (2003), also Mallorquin (2006).

15 See chapter on Prebisch for the evolution of his ideas.

16 And yet Prebisch could not help himself. In 1953, after many important economists of North-American universities visited Brazil: G. Harbeler, J. Viner, R. Nurkse, L. Robbins, in a sense to counter ECLAC’s ascendancy, E. Gudin wrote a series of articles in O Correio Da Manha with the title “The mystical planning”, to which Prebisch responded with “The Spontaneous Mystical Equilibrium of the Economy”: “its proof that Dr. Gudin continues to believe in the tendency towards equilibrium, inherent in the economic system, when perturbing elements are not introduced in the economy. I don’t believe in all of that. The cycle is the typical form of growth of the capitalist economy, that is to say, an uninterrupted succession of disequilibriums.” (Prebisch 1953a)

17 Noyola seems to be the only one to have reviewed Furtado 1954 (Noyola 1955). On Furtado and Noyola relation, see first chapter in Mallorquin (1998, 2020) and C. Danby (2006).

18 O. Sunkel published a similar article two years later, but here he talks of three types of “pressures”: “basic,” “circumstantially inflationary,” and “accumulative”, which turns problematic the causality explicitly developed by Noyola who insisted, on the double pronged division between “pressure” and “propagation” of the inflationary forces. (Sunkel 1958)

19 For an expanded discussion of these issues see section “Mobile Army of Metaphors: Post-Keynesianism and Latin American Structuralism” in chapter 6.

20 In a very cryptic note Hirschman also mentions that the absence of “growth mentality” and difficulties in the administration of firms is also “found in advanced industrial countries” (Hirschman 1958: 136).

21 Hirschman’s “Preface” (1961: viii) of the paperbound edition of the book acknowledges similarities with the Latin American “structuralists.”

22 The only appearance of “Prebisch” in Hirschman’s classic work can be seen in the longest footnote of the book in which he mentions the Singer-Prebisch thesis and the negative effects of the deterioration terms of trade: “need not be a losing proposition for the primary producing countries provided they industrialize” (Hirschman 1958: 159), a thesis which does not necessarily contradict Prebisch’s argument, as I hope I made clear. See the first two chapters.

23 “development also draws new strength from the tensions it creates.” (Hirschman 1958: 209)

24 Term used about Furtado in the conversation between Gudin and Harbeler (Furtado 1985: 124).

25 For an account of dependency theory, see Kay (1989).

26 The paragraph sends the reader to a foot note: “This was the assumption made by the Currie Mission on the iron and steel industry in Colombia, in the report presented to the International Bank some years ago.” It has been argued by Villamizar (2013) that Colombia could be classified as the country in Latin America where “structuralist” ideas were the least important, and where Lauchlin Currie invested much of his lifelong academic and political ideas. But Albert Hirschman and Lauchlin Currie diverged as to the role of the economic expert. According to Maas: “both were concerned with the patchwork approach to economic planning which they experienced during their consulting work in Colombia, they took opposing messages from this, with their respective positions premised on their divergent perspectives on the interplay between ‘sound economic principles’ and the force of local circumstances. While Currie was a believer in both sound principles and the need to adapt them to local circumstances, Hirschman was more skeptical about the existence of any such principles” (Maas et al. 2019: 203). In fact, the publication of “Commercial Policy in the Underdeveloped Countries (from the point of view of Latin America)” of 1958 has a unique characteristic given Prebisch’s posture. It was planned as a text in English with the view to open up a channel of communication with the “Western-centric” academy and published before its Spanish version. Published in American Economic Review 49 (2): 251-273.

27 Latin-American structuralists should appropriate for themselves Hirschman’s graphics (1984: 107) on “balanced and unbalanced growth” and “antagonistic growth” to represent the process of development.

28 I mean, has anybody out there read Polanyi’s The Great Transformation..? Is economics in such a state, that with all due respect which Chang’s (2002) work deserves, the latter book needs to be produced?

29 Luis Daniel Torres (2006) has reviewed the whole literature of the past 30 years, and incorporated new calculations and cross references of new data and the case for the existence of a deterioration of the terms that the Periphery endures is difficult to avoid.


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