Maria da Conceição Tavares (1930-2024)

(1930-2024)

Maria da Conceição Tavares passed away last Sunday. She was among the key thinkers of the Latin American Structuralist School, often associated with the Economic Commission for Latin America (ECLA). In her case, Anibal Pinto, who was her teacher in a ECLA course in the early 1960s, and Celso Furtado, who was never formally her teacher, were her major influences. She was instrumental in introducing Kalecki in Brazilian academic circles, and in her debate with Furtado on the possibilities of growth in the late 1960s (Furtado defended a stagnationist thesis) she started to move in the direction of demand-led growth theories. She also noted in the mid-1980s that the diplomacy of the dollar (and the end of Bretton Woods) essentially implied that American Hegemony was stronger than ever. She was associated to the failed stabilization plans of the 1980s (in particular the Cruzado Plan), and was critical of the neoliberal policies of her friend Fernando Henrique Cardoso, and her co-author José Serra. She was a member of congress (I should say I did work for her campaign back in 1994), and she was close to the Workers' Party administrations. Her contributions both to academia and to Brazilian politics were without comparison, and she will be missed.

For those that read in Spanish, here a paper I wrote a few years ago on her contributions to heterodox economics. It was published in this book edited by Juan Odisio and Marcelo Rougier on several key Latin American thinkers.

An obit written with Esteban Pérez is available here.

Prebisch After ECLAC and UNCTAD

My talk at the Universidad Nacional de Colombia last Friday, in Spanish of course. Part of the argument is that Prebisch, contrary to what is often assumed, moved from an argument that emphasized the role of the external constraint in leading to underdevelopment during his United Nations years, to one that put the emphasis on the patterns of domestic consumption, and its negative impact on the surplus, following the literature on stagnation, in his last book on peripheral capitalism. I suggest that the change is problematic.

Esteban Pérez on John Maynard Keynes

One of my favorite economists, and John Maynard Keynes too. Don't miss this lecture, in Spanish of course, on one of the central economists of the 20th century and its relevance for the periphery, particularly during the current pandemic. I'll post links to the Zoom and Facebook stream soon.

Raúl Prebisch as a Central Banker and Money Doctor

Here we edited with Esteban Pérez and Miguel Torres some unpublished manuscripts from Prebisch related to the Federal Reserve missions, led by Robert Triffin, to the Dominican Republic and Paraguay, in which he emphasizes the need of capital controls in peripheral countries that did NOT have the key hegemonic currency. There is also a discussion of Keynes and White's plans for Bretton Woods, which were partially published before. In Spanish. Happy New Year!

Economic Survey of Latin America and the Caribbean

 The Economic Commission for Latin America and the Caribbean´s (ECLAC) Economic Survey of Latin America and the Caribbean (“Dynamics of the current economic cycle and policy challenges for boosting investment and growth”) for 2016-2017 was published last Thursday (3 of August). It incorporates a number of heterodox concepts and ideas mainly in Part II. These include the notion of center and periphery (which provides the framework for Chapter III “The region’s current economic cycle and its various characteristics are partly a reflection of changes that have occurred in the international economy and in the way forces are transmitted from the more advanced to the developing economies.” p.117 ); the importance of the productive structure (Chapters III and IV) to analyze the impact of the impulses from the center to the periphery; aggregate demand as a key driver of the world slowdown in trade (pp. 123-124); the relative importance of income versus substitution effects (pp.147-149); the investment multiplier (“There is ample evidence that points to the importance of protecting public investment …it represents a significant boost to economic growth in the medium term. …the cumulative effects of public spending variations on the output of 16 Latin American countries, with results showing that the cumulative multiplier of investment spending is significantly higher than that of consumption” p. 158); and the concept of total monetary demand (pp.163-166). As such the report represents a significant attempt to return to ECLAC´s Structuralist roots while at the same including some of the main ideas of other heterodox schools of thought (i.e., post-Keynesian).

Angus Deaton wins the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel

For his work on "consumption, poverty and welfare" according to the press release. It wasn't Atkinson, for inequality, as I suggested it was possible, but given the other possibilities cited this is quite good. Deaton had received last year the Leontief prize, which usually goes to heterodox economists (the other Nobel to win the Leontief was Sen), together with Jamie Galbraith.

I should say, I recently read his The Great Escape. An interesting book, full of relevant data. But it does maintain the conventional neoclassical view on growth. Supply side constrained, and dependent on investment in education (aka human capital), and the institutions to guarantee investment (e.g. property rights, rule of law). The Douglas North New Institutionalist view. In his words:

“possession of common knowledge does not imply that all countries should have the same living standards. To be able to use rich-country methods of production requires rich-country infrastructure—roads, railways, telecommunications, factories, and machines—not to mention rich-country educational levels, all of which take time and money to achieve. Yet the gaps between rich and poor provide plenty of incentives to make the investment in that infrastructure and equipment, and, as Robert Solow showed in one of the most famous papers in all of economics, average living standards should draw closer over time. Why this has not happened is a central question in economics. Perhaps the best answer is that poor countries lack the institutions—government capacity, a functioning legal and tax system, security of property rights, and traditions of trust—that are a necessary background for growth to take place.”

It does say something about investment in infrastructure, and one can read the need for money as an acknowledgment that the balance of payments is an important restriction (but that might be reading too much). So as most mainstream economists he seems to think that lack of convergence is somewhat of a mystery. He says: “puzzling is the failure of the poor countries to catch up.”

There are interesting things in his book anyway. He does say, for example, that:

“One key to African growth is what happens to commodity prices. Many African countries have long been and are still dependent on exports of 'primary' commodities, mostly unprocessed minerals or agricultural crops. Botswana exports diamonds; South Africa, gold and diamonds; Nigeria and Angola, oil; Niger, uranium; Kenya, coffee; Côte d’Ivoire and Ghana, cocoa; Senegal, groundnuts; and so on. The world prices of primary commodities are notoriously volatile, with huge price increases in response to crop failures or increases in world demand and equally dramatic price collapses, none of which are easily predictable."

The preoccupation with commodity price volatility has a long history in economic development, but probably Raúl Prebisch and the economists at the Economic Commission for Latin America and the Caribbean (ECLAC) have been the pioneers and the most persistent in emphasizing its relevance. That tradition, of course, emphasizes demand as the engine of growth, and the balance of payments as its main constraint in peripheral countries.

More importantly, Deaton seems to take the profession and even the Nobel prize with humor and skepticism. Again from the book: “The great economist and Nobel laureate James Meade used to complain that the three great disasters of the twentieth century were the 'infernal' combustion engine, the population explosion, and the Nobel Prize in economics.”

Macroeconomics, mainstream and heterodox approaches

An interview with Esteban Pérez Caldentey in Tan Cerca/Tan Lejos, a radio program produced at the University of Massachusetts, Amherst. First half in English, second one in Spanish.

Interview on neo-structuralism

The World Economic Association conducted and interview with Esteban Pérez Caldentey, Miguel Torres and Romain Zivy, from Economic Commission for Latin America and the Caribbean (ECLAC), on a recently published book on neo-structuralism by Alicia Bárcena and Antonio Prado (eds.), Neo-structuralism and Heterodox Currents in Latin America and the Caribbean at the Beginning of the XXI Century. From the interview:

What is neo-structuralism?

Neo-structuralism is a modern version of the structuralist current of thought which flourished in Latin America and the Caribbean in the 1950s and 1960s based on the thinking of a group of economists mostly based in ECLAC. Famous structuralists include Celso Furtado (1920-2004); W. Arthur Lewis (1915-1991), Raúl Prebisch (1901-1986), Juan Noyola Vázquez (1922-1962); Aníbal Pinto Santa Cruz (1919-1996); Osvaldo Sunkel (1929-) and Ignácio Rangel (1914-1994). The development of structuralism also benefited substantially from the work of economists such as Nicholas Kaldor and Michael Kalecki.

Structuralist thought emerged as a response to the development problems of Latin America and the Caribbean and dissatisfaction with orthodox responses. For structuralists underdevelopment was not due to exogenous forces or shocks or to bad policy, but it was rather an intrinsic feature of Latin America and the Caribbean ingrained in its own social and economic structure. Hence structuralism was a way to conceptualize the Latin American and Caribbean reality. Structuralism ‘became a practice, before being a policy and a policy prior to becoming a theory.’

Read rest here.

PS: I had written on the evolution ECLAC's economics and structuralism here before.

A periodization of Latin American development in the Robinsonian tradition

New Working Paper available here. From the abstract:

This paper analyzes Joan Robinson’s growth model, and then adapted in order to provide an exploratory taxonomy of Growth Eras. The Growth Eras or Ages were for Robinson a way to provide logical connections between output growth, capital accumulation, the degree of thriftiness, the real wage and illustrate a catalogue of growth possibilities. This modified taxonomy follows the spirit of Robinson’s work, but it takes different theoretical approaches, which imply that some of her classifications do not fit perfectly the ones here suggested. Latin America has moved from a Golden Age in the 1950s and 1960s, to a Leaden Age in the 1980s, having two traverse periods, one in which the process of growth and industrialization accelerated in the late 1960s and early 1970s, which is here referred to as a Galloping Platinum Age, and one in which a process of deindustrialization, and reprimarization and maquilization of the productive structure took place, starting in the 1990s, which could be referred to as a Creeping Platinum Age.

Regional Reserve Funds

The last issue of the Economic Commission for Latin America and the Caribbean (ECLAC) journal, CEPAL Review, has a paper on extending Latin American Reserve Fund (FLAR; Spanish acronym). The topic of regional reserve funds has been in the news as a result of the Contingent Reserve Fund proposed by the BRICS last month.

From the abstract:

"This paper analyses the viability, implications and challenges of expanding the Latin American Reserve Fund (FLAR) to Argentina, Brazil, Chile, Mexico and Paraguay. A regional reserve fund should be viewed as one of a broad range of mechanisms offered by the international financial architecture to address balance-of-payment difficulties. A fund with resources of between US$ 9 and US$ 10 billion at its disposal would be able to cover the potential funding needs of its members in the most likely scenarios, without necessarily becoming the lender of last resort for all its members. In more extreme scenarios, the fund should be able to "broaden its shoulders" by drawing on other components of the international financial architecture. Fund governance would present the main challenge resulting from an increase in the number of members."

Download paper here.

Sunkel and Conceição Tavares on Prebisch and Furtado at ECLAC

Short excerpt from the Furtado biopic "O Longo Amanhecer." Osvaldo Sunkel and Maria da Conceição Tavares on the early contributions of Prebisch and Furtado. In Spanish and Portuguese, but with subtitles in English.

Esteban Pérez on Prebisch, Central Banking and Economic Dynamics

The video below (in Spanish) explains Prebisch's intellectual evolution from the creation of the Argentinean Central Bank (BCRA) to his Economic Dynamic Lectures at the Universidad de Buenos Aires (UBA).

A paper covering some of these issues is available here. The full video is here.

Is Argentina on the verge of an external crisis?

There is for starters the question of what causes external crises. As I have noted in other places (chapter 7 here or here, for example), external crises are NOT caused, in general, by fiscal deficits (quite the opposite, fiscal crises are the result of balance of payments crises). External crises result from the inability to service foreign debt (and to import intermediate and foreign goods), which are caused by a shortage of foreign currency (i.e. dollars).

As it can be seen in the graph above (data from Orlando Ferreres for those concerned with the sources), the current account surplus as a share of exports has shrunk and is now negative (at around 4% or so of exports). Note, however, that the level is far from desperate, and well below the crises levels when the current account deficit is above 60% of the exports.

Part of the anxiety is associated to the fall in the central bank's reserves, which stand at around US$33 billions now, down from slightly more than US$50 in 2011. The European crisis and the negative real rates of interest explain the drain on reserves, which are also not at a critical point right now. A combination of exchange controls, that have been in place (and have not been particularly efficient), and higher rates of interest might stop the outflows.*

Sure enough a balance of payments crisis could ensue, if say Vulture Funds eventually force a default, or if an external shock like a worsening of the crisis in the central countries followed by flight to safety, or a collapse of the terms-of-trade lead to a sudden decrease in the value of exports. But those do not seem to be necessarily intrinsic to the Argentine situation, and a slow recovery in the center, with significant amounts of international liquidity, and no incredible collapse of the prices of commodities seems as likely as the alternative.

In other words, the problem in Argentina, which is relevant for many countries in the region, is the long-term development strategy, and not the short-run balance of payments position. What the shrinking of the current account surpluses, and the resulting constraints on policy space, suggests is that the continuous dependence on commodity exports (manufacturing exports go mostly to the region, i.e. Brazil, and produce a deficit), and the absence of a more coherent policy of import substitution and of industrial development, continues to be relevant, as predicted more than 60 years ago by Prebisch and ECLAC.

* Higher rates can be compensated by subsidized credit by the public banks if demand for credit increases, but that would require demand expansion.

John and Richard Toye on the Prebisch-Singer hypothesis: or did Prebisch wholly rely on Singer's work?

Prebisch (center) presiding over an early meeting at ECLA

(Furtado second from the right)

John and Richard Toye paper (subscription required) on Prebisch's contribution to the Prebisch-Singer Hypothesis has had a significant impact on the accepted view about the development their theory. They argue that in their view:

“of the events surrounding the United Nations Economic Commission for Latin America (ECLA) conference in Havana in May 1949 reveals that Prebisch did not discover independently that the terms of trade of primary products were secularly declining, but relied wholly on the previous work of Singer” [italics added].

In other words, they argue that while Prebisch is more well-known in many respects it was the work of Singer that was essential and original in determining the eponym hypothesis. Toye and Toye (2003, p. 443) do NOT argue that Prebisch was unaware of falling commodity prices, but they do suggest that he thought of this as being merely short run phenomena. In their words:

“He [Prebisch] published an article in 1934 arguing that "it is a well-known fact that agricultural prices have fallen more profoundly than those of manufactured articles," and that Argentina had to export 73 percent more than before the depression to obtain the same quantity of manufactured imports (Prebisch [1934] 1991, 341). However, Prebisch was merely noting a fact, and did not provide any theoretical analysis of it (Magariños 1991, 63-64). He saw it as a feature of depression economics, that is, as a short-run cyclical problem. He believed that the remedy was to be found in expansionist economic policies, not, as the Prebisch-Singer thesis would later imply, in major changes in the structure of the international economy” [italics added].

In other words, Prebisch's notion of a structural problem that required a radical change, industrialization, rather than just anti-cyclical macroeconomic policy, basically "wholly relied" on Singer. This is why they believe the first draft of Prebisch's famous Development Manifesto was changed, as accounted by Celso Furtado in his memoirs.

Note, however, that Prebisch was from the early 1930s starting a long trajectory of rethinking his orthodox (somewhat eclectic, but essentially marginalist) views of the functioning of the economy, one in which the fluctuations in the periphery where for the most part accounted by an connected to the oscillations on the central economies. He was also keenly aware of the changes in the hegemonic positions of the US and the UK, and the tribulations of the international financial system.

In a series of papers with Esteban Pérez Caldentey, I have argued that Prebisch was developing a dynamic theory, that would be developed fully in his classes at the University of Buenos Aires, before his Manifesto was conceived in 1949, in which cycle and trend are seen as parts of the same economic impulses. In Prebisch's discussion of the cycle in Argentina, as early as 1934, Prebisch does show awareness of the consequence of a fall in the trend of commodity prices. In the paper we note that:

“The events of the year 1929 were viewed as a further extension of the 1927-1928 cycle. Initially he dated the ascending phase of the cycle between May 1927 and September 1928 (RP, Vol, I. p. 587). Later on however, once the effects of the year 1929 were visible in the Argentine economy he states that the descending phase of the cycle started during 1929 with some symptoms appearing by the middle of 1928 (Ibid. p.613). This point is also emphasized in his 1934 article 'The Present Moment of Our Economy.' He states (RP, Vol. II., p. 158): 'If we were to judge the year 1933…by the evolution of our agricultural exports, we would only be able to say that it was an additional year of contraction adding to those that have …the Argentine economy since 1929.' Prebisch came to realize the distinct character of the Great Depression when he became aware of the profound contraction in agricultural prices. The contraction was so sharp that the agricultural price index reached levels that it had not witnessed since the nineteenth century. As he put it (Ibid., p.346-347 and also 135): 'The collapse in prices…does not constitute the usual phenomenon of cyclical reaction…rather an intense and pertinent decline to positions each time farther away from the level on which developed the relations of production and credit.' And (p. 135) 'It [the decline in agricultural prices] is not a simple return to a previous situation, but of an accentuated and progressive contraction of values, that violently upsets the economic structure of the country'” [italics added].

In other words, it is a matter of trend not cycle, and hence an antecedent of the Prebisch-Singer hypothesis, which is in fact based on his theoretical development of a type of dynamic foreign trade-multiplier story of the cycle.

Also, a careful reading of Furtado's discussion of the writing of the Manifesto suggests that what the Singer paper provided was NOT the empirical basis for a new and radical theory, but the incentive for a more militant and pro-industrialization version of the report. A change in political tone, rather than a significantly different understanding of the problems of development in Latin America, which as we have argued with Esteban, where quite solidified by this time.* As result, I would suggest that Prebisch's fame as the key thinker behind the famous hypothesis is well-deserved, and that the notion that he wholly relied on Singer is hyperbolic at best.

* However, as noted by Mallorquín, Prebisch would put on hold his more radical ideas during his long sojourn in the United Nations system, at ECLAC and then UNCTAD.

PS: For more on Prebisch go to ECLAC's website about him and his legacy here.

Natural Resource Nationalism and Fiscal Revenues

One of the relevant points made by Amico and Fiorito for the case of Argentina, that apply to many countries in the region, is the increase in fiscal revenue that was associated to the higher national participation in the gains from exports of primary goods. This has been, in part, associated to the left of center governments and the so-called Natural Resource Nationalism. The table below shows the evidence.

It can be seen that, with the exception of Mexico and Venezuela, where State revenue from oil was already high, in all other countries there was a significant increase in State revenues. Governments have appropriated primary export earnings and turned them into fiscal resources by taking a share of operating earnings, either through public enterprises (which included nationalization in some cases) or through equity holdings, more stringent requirements on the payments of royalties, and by levying taxes on export earnings.

Read more on the fiscal situation in Latin America in ECLAC's report here. For more on Natural Resource Nationalism read the following paper by Carlos Medeiros (h/t Revista Circus).

What's the deal with MERCOSUR/SUL?

First there is the issue of whether it should be called MERCOSUL in Portuguese or MERCOSUR in Spanish. More people speak Portuguese, but more member countries speak Spanish. But that is not a real problem. The problem that almost nobody understands is that it is a Free Trade Agreement (FTA). While MERCOSUR/SUL is an alternative to the Free Trade Area of the Americas (FTAA) in the sense that it excludes larger integration with other regions, and the US in particular, it is a Free Trade Agreement (FTA), and was part of the neoliberal logic of integration that came to dominate in both Argentina and Brazil in the 1990s when the main agreements were signed. Per se the treaty is not better than the North American Free Trade Area (NAFTA), and the main advantage is that, given that the initial asymmetries between Argentina and Brazil were smaller than between Mexico and the US, the negative effects were also less significant.

There is little connection with the logic of integration that was defended from the 1950s onwards by the economists at the Economic Commission for Latin America (ECLA) – and the Caribbean, now (ECLAC) – which was based on industrial integration for the creation of economies of scale. In Prebisch's view the aim of integration was to support industrialization. In fact, to some extent the boom in South America – in contrast to Central America and Mexico – in the 2000s has been based on a peripheral integration with Asia, in particular China, that allows for the exports of commodities. In that sense, the Bolivarian project is based on a change in State ownership, wherever it was possible, and an increase in the State’s share of the absolute rents associated with commodity exports, and an increase in transfers programs. Something that has been named natural resource nationalism [on the problems of national resources and development strategies see the paper by Carlos Medeiros here].

The degree of industrial development has been limited in the region during the last decade (meaning import substitution re-industrialization), even if it is far from clear that deindustrialization has really occurred, that is, a Dutch Disease problem (I would argue there is almost no case for it). Also, integration of infrastructure or regional financial development have been limited at best, and most plans (like the Banco del Sur or Sul in Portuguese) remain in its early stages. But the limitations of the process of integration should not lead to the notion that we need more integration at any cost in the region. In fact, one of the great advantages of Brazilian external policy is that is has refrained from getting into FTAs and Bilateral Investment Treaties (BITs), preserving policy space, as noted by Kevin Gallagher.

It is important to emphasize that more trade does NOT depend necessarily on reducing the ability of the State to manage trade flows (what is often referred to as Free Trade; for critiques of the comparative advantage theories of trade see here, here and here). Trade integration should not be made at the expense of national development policies, and further integration, with Asia or even within the region, should take place, but subordinated to the development of national processes of industrialization. MERCOSUR/SUL too should be envisioned, less as a FTA, and more as an instrument of mutual support for those national strategies.

Heterodox (Development) Bankers

Robert Skidelsky recounts how Victor Urquidi was instrumental in changing the future World Bank from a reconstruction to a development bank. In the words of Urquidi:

"With our chief delegate’s approval, and without any consultation with US delegation… we drafted an amendment to Article III, in order to lend more emphasis to development….Because my English was better than my fellow delegate’s I was asked to read it aloud…Keynes was characteristically quick to realise the ‘political’ significance of our amendment, which was…supported only by Peru and Norway…As he pushed his spectacles to the top of his nose and shuffled the various amendments that were upon the table, he picked out and expressed agreement with ours if we would accept a drafting change. The original text merely stated that ‘The resources and facilities of the Bank shall be used for the benefit of members’. In the amendment we submitted, we wrote a second paragraph as follows: ‘The Bank shall give equal consideration to projects for development and to projects for reconstruction…’ Keynes suggested ‘The resources and facilities of the Bank shall be used exclusively for the members with equitable consideration to projects for development and projects for reconstruction alike’. We were pleased with the word ‘equitable’ and that he put ‘development’ ahead of ‘reconstruction’. I quickly nodded…and the amendment was carried by consensus."

Urquidi then worked at the then Economic Commission for Latin America (ECLA, later with the addition of the Caribbean ECLAC), when Raúl Prebisch was the secretary general in the 1950s. For more on Urquidi go here.

The meaning of structuralist macroeconomics

Semester started again.  Teaching Intermediate Macroeconomics, and trying to explain to students what is the meaning of structuralist macroeconomics.  The origins of the term are well known, and associated to the development of the theory of inflation by Juan Noyola Vázquez, and other economists at the Economic Commission for Latin America (ECLA). Development implies changes in the structure of production, with an increase of the industrial and service sectors, and a reduction of the agricultural sector, accompanied by significant increases in the levels of labor productivity in all sectors.

As the agricultural sector's size decreases, and its productivity increases, and workers migrate from rural to urban areas, the price of foodstuff goes up, and wage resistance by workers implies that costs increase in general.  In other words, inflation resulted from the transformation of the structure of production.  Hence, the term structuralism, that at the same time, in 1950s, was being popularized by Claude Levi Strauss. Structuralism in Latin America was, as a result, a response to Monetarist views of inflation, and seemed to be aligned with Keynesian economics.

However, there is a more profound meaning to structuralism.  Levi Strauss argued that science proceeds in two ways; it is reductionist when the object of analysis is simple, and it is structuralist when it deals with complex systems.  I tend to believe that a more productive understanding of social sciences should not distinguish between simple and complex phenomena, but emphasize the difference between methodological individualism and structuralism, that is, the presumption that one cannot understand social behavior unless one understands individual behavior, and the counter-argument that individual behavior is by definition constrained by social relations.

In that sense, classical authors (surplus approach), that emphasized the role of class as a central determinant of individual behavior, and Keynes, whose belief in the fallacy of composition implied that the whole is more than the aggregation of its parts, would be structuralists.  For example, it might seem reasonable to assume that an individual worker would accept to work for a lower wage in order to find a job, but if lower wages in the whole system lead to lower demand and a reduction in labor demand, the individual firm reducing wages, and the individual worker accepting it may not solve the problem. One has to understand the functioning of the system as whole first, in order to understand how the individual parts interact.  Or put it simply one needs macro-foundations for microeconomic behavior, not the other way round.

PS: The classic book on macroeconomic structuralism in the anglo-saxon world is Lance Taylor's one (image above).  A simple intro to structuralism in Spanish and Portuguese was the book by Carlos Lessa and Antônio Barros de Castro, the latter sadly passed away last Sunday.