Maria da Conceição Tavares and demand-led growth in developing countries

New paper by Franklin Serrano, Miguel Carvalho and Ricardo Summa on Maria da Conceição Tavares (1930-2024) and her contributions to demand-led growth theory. The paper reviews the pioneering contributions of Maria da Conceição Tavares to the theory of demand-led growth, emphasizing her early recognition that effective demand is central not only in the short run but also in the long-run process of capital accumulation. In that respect, it is more focused and detailed in the discussion of economic growth, than my paper (in this book) that tried to put her ideas in the context of the Latin American Structuralist School, and the emergence of heterodoxy in Brazil.

From the 1960s onward, Tavares developed a framework that departed from dominant development economics, which typically treated growth in developing countries as supply-constrained. Instead, she argued that developing economies function like any capitalist system, where output and growth respond to demand.

A key contribution highlighted in the paper is Tavares’s analysis of structural change during import substitution industrialization. She explains how growth regimes can shift from export-led to domestic demand-led as the economy develops a capital goods sector and increases the domestic content of demand. Public investment and industrial policy play a central role in sustaining this transition, reinforcing the idea that growth is driven by expanding demand rather than limited by supply constraints.

The paper also stresses her critique of stagnationist theories. Against views (including Celso Furtado’s work) that predicted long-run stagnation due to structural constraints, Tavares argued that slowdowns are typically the result of insufficient effective demand rather than inherent limits to growth. By distinguishing between capacity and its utilization, she shows that apparent structural problems often reflect cyclical demand deficiencies.

Another central element discussed in the paper is her Kaleckian inspired separation between distribution and accumulation. Tavares argued that income distribution does not mechanically determine growth. Instead, it affects demand conditions but does not impose a necessary trade-off between consumption and investment. Growth depends on autonomous components of demand, and different distributive regimes can sustain accumulation depending on the broader demand structure.

The paper emphasizes her original contribution regarding autonomous demand, particularly capitalist consumption and public expenditure. These components, along with residential investment, are seen as crucial drivers of long-run growth because they sustain demand without directly expanding productive capacity. This insight anticipates later developments in demand-led growth theory, especially the supermultiplier framework.

Finally, and perhaps more importantly, the authors discuss Tavares’s views on investment and financial capital. Drawing on Hilferding, Hobson and Schumpeterian ideas, she incorporates autonomous investment linked to innovation and financial structures. The paper concludes by showing her influence on two strands of contemporary research, one that treats investment as fundamentally autonomous, related to the financialization literature, particularly as developed at Unicamp, where Tavares taught starting in the 1970s, and another, associated to Serrano himself and his co-authors at Tavares's alma mater in Rio, that led to the Sraffian supermultiplier, where investment is entirely induced.

Arguments for austerity, old and new

Here what I think may be is Fernando Cardim de Carvalho's last published paper (who passed away recently), published in Intervention. From the abstract:

Much of the criticism directed at austerity programs implemented after the 2007/2008 financial crisis, more forcefully in the eurozone, have relied on the same arguments Keynes and others raised against the (British) Treasury View developed in the 1920s and 1930s. Austerity, however, has been proposed most insistently in the 2010s by European authorities, led by the German Federal Ministry of Finance, the Bundesfinanzministerium (BMF). While the arguments for austerity then and now share some common elements, there are enough original arguments being presented by the BMF to make many of the criticisms ineffective. The paper reconstructs both views, the Treasury's and the BMF's, to show and evaluate their similarities and their differences.

There is also an obituary by Fernando Ferrari here (subscription required).

Fernando Cardim de Carvalho - RIP

Fernando, Cardim for most in Brazil, and Carvalho in the US and abroad, has sadly passed away. I took his macro class back in 1992 at the Federal University in Rio, before he actually moved there definitely as full professor two years later. We used his book Mr. Keynes and the Post Keynesians (still somewhere here in my bookshelf) as a textbook, even though most of the course was based on several papers.

From that period I remember reading his papers on time and expectations, which were two of his main concerns within post-Keynesian economics. Although much of his course was theoretical, most of his later work seemed to be related to the workings of international financial institutions, and real world macro issues. He wrote extensively, and there are papers on the role of the IMF, and critiques of the idea of central bank independence, besides discussions of the Brazilian economy. My favorite paper is based on his discussion of Keynes' political views, and to what extent his policy proposals can be seen as close to social democracy. A great loss for the profession, for his students, and for his friends.

Can we trust each other?

By Rudi von Arnim (Guest Blogger)

About four years ago, the collapse of Lehman Brothers marked the beginning of the Great Recession. The world is still reeling from the consequences of this all-encompassing financial crisis. What, though, were the causes of the crisis? Much has been said about derivatives, failed regulations and greed. These things matter, but here I would like to offer a simpler and maybe deeper explanation: Globalization forces countries to hollow out their social contracts. Reduced real wages promise gains through investment and exports, but ultimately undermine growth everywhere.

If real wages do not sustain growth globally, what can? The answer is that a global credit bubble—from California and Florida to Spain and Ireland—could, until it couldn’t any longer. The underlying trends ultimately catch up: If real wages do not keep up with productivity growth, the labor share of income is falling. The global credit bubble often manifests locally—for example, as a real estate boom in, say, Miami or on the mediterranean coast of Spain—but is propelled by a liberalized global financial market. Thus we can identify three dominant but interdependent drivers in this story: accelerating globalization, increased inequality and financialization.

To trace out very broadly how we got here, consider post World War II economic history split into two periods: the Golden Age of capitalism of the immediate post-World War II era, which ended with the collapse of the Bretton Woods system in the 1970s, and the second era of globalization, which began with the conservative revolution towards the end of that decade. The Golden Age saw fast global growth, including in developing economies. Trade links between economies strengthened, but integration was not as deep as today. Capital account openness was very limited. In many advanced as well as catching-up economies, welfare states deepened. Expanding labor institutions protected jobs and ensured sharing of rapid productivity growth. Generally, these developments supported the labor share of national income. In that manner, global growth was sustained by local demand.

The second era of globalization, in sharp contrast, saw accelerating globalization. Trade integration deepened substantially, international production defragmented into flexible—“footloose”—transnational production networks, and capital accounts were liberalized. All these trends discipline labor through the very real threat of relocation. Indeed, labor contract negotations that are not subject to a threat of offshoring tend to be the exception, partly due to the increased tradeability of services. As a result, real wage growth has lagged productivity growth in many countries, leading to falling labor income shares and increased inequality. Thus, globally, consumption demand cannot absorb what can be produced: global effective demand is lacking and unemployment and stagnation follow.

Open capital accounts take center stage in this narrative. First, countries need to offer low corporate taxes (if not tax exemptions) as well as low wages to attract and hold foreign direct investment of “footloose” multinationals. These tax policies limit fiscal space of the state to support social safety nets, invest in education, and maintain crucial infrastructure systems. Crucially, financialization in combination with open capital accounts tends to produce volatile, pro-cyclical capital flows, which provide fertile ground for unsustainable credit expansion. Such credit growth often feeds into real estate bubbles and debt-led consumption on the way up, but balance-of-payments crises on the way down. In recent years, specifically, financialization—through the presumed innovation in the use of securitization and derivatives—sustained a global credit bubble that served to postpone the day of reckoning: As long as middle and lower class households in advanced countries maintained standards of living through buildup of debt, growth continued despite the underlying “real” lack of demand.

In summary, accelerating globalization and financialization forces nations to dismantle social contracts and welfare states, to suppress wages and weaken labor standards. In the process, inequality rises, demand lacks, and the community of nations undermines itself. To illustrate the issue, consider a scenario originally concocted by Rousseau: Two men are out to hunt. They are on opposite sides of a hill, and can not communicate. Now, they can set off individually to hunt a hare, which will provide food for a day. Alternatively, they can hunt a stag together, which provides food for several days for both of them. Why not go for the stag, every time? Hunting the stag requires trust and cooperation, and institutions that foster and enforce them.

Similarly, it requires trust and cooperation to institute policies that support a thriving middle class—as during the Golden Age. Simply put, two countries benefit if both institute such policies, because it deepens the extent of the market for goods and services. Globalization has made it increasingly difficult for one country to trust that the other won’t give tax breaks to corporations, won’t undermine real wages, won’t manage its exchange rate, all to increase its share of the existing global market.

Joan Robinson called such untrusting tactics beggar-thy-neighbor policies. Many countries pursues these policies since no global economic or political institutions exist that effectively foster and enforce trust and cooperation. But, market economies must be embedded in a web of socio-political institutions that buffer their disruptive effects. The social democracies of the last century managed to do that, to a degree, for the conditions rendered by the Golden Age. It has become clear that globalization destroyed that model—and that renewed efforts at embedment must be pursued on a global scale. Will that be possible?

PS: Orginally published a slightly different version in Spanish by Página/12 here. The academic version of the argument (co-authored by Daniele Tavani and Laura Carvalho) can be found here.