The presentation explores the economic policies and theories implemented in Latin America in the 20th century.

1. INTERNATIONAL RELATIONS
OF LATIN AMERICA
Topic 2. Latin American International Relations and
Foreign Policies.
Economic Development Theories and Practice
Dr. Jacqueline LAGUARDIA MARTINEZ
Jacqueline.Laguardia-Martinez@sta.uwi.edu

2. Latin America until first half of the 20th century
• Spain and Portugal colonized Latin American in the early 1500s.
• The colonies were sources of precious metals and natural resources.
• Most of these colonies fought for and achieved independence in the
1820s.
• 1880s -1920s: Economic Liberalism. Latin American countries
continued the pattern of exporting natural resources, now to the UK
and increasingly to the United States. Most FDI came from both
countries.

3. The post war period and its impacts on Latin America
• Colonies obtain political independence in Africa, Asia and the Caribbean.
• New world institutionalization: UN and Bretton Woods institutions (World Bank, IMF,
GATT).
• Rise of the Socialist Bloc in Europa: State intervention and central planning.
• Strengthen of unions and working class.
• Rise of Marxism and Decolonialization: Emergence of a Latin-American critical social
science and ideologies (to reinterpret Marxism according the socioeconomic
characteristics of the colonized world).
• The Cuban Revolution.
• Popular mobilizations.
• Increase of FDI in the developing countries.

4. Latin America’s economic policy and program’s goals
• Structural economic change (to move from the colonial heritage)
• Shift away from agriculture and mining as main economic and export activities
• Industrial and manufactures’ production
• Economic diversification and “balanced” economy with inter sectoral linkages
• Increases in productivity and competitiveness
• Creation of employment (population growth)
• Urban development
• Middle class increase
• Less poverty
• Less inequality
• Improvements in social wellbeing: public policy and investments in health, education,
infrastructure, social benefits and subsidies
• Development vs. underdevelopment

5. Modernization Theory
• Modernization theorists perceived development as a standard process that all
countries follow (from ‘traditional’ societies to ‘modern’ societies).
• Latin American countries are to follow the same development path taken by
developed countries. They only are at an earlier point or stage of
development.
• Developed countries could assist development through aid, investment and
technology transfers.
• Developing countries need to improve educational levels and adopt the
Western cultural values to facilitate development.
• Developed countries are the benevolent force.

6. https://www.slideserve.com/kylie-alvarado/chap-9-development

7. Latin America’s introspection and search for development
• Structuralism
• Dependency
• Marxist and
social justice
analyses
• Growing rejection to the idea that there is one recipe
for growth.
• Heavy emphasis on historical analysis.
• Emphasis on development of national capabilities and
the role of the State as engine of economic
development.
• “most of our theory fails to explain the structure and
development of the capitalist system as a whole and to
account for its simultaneous generation of
underdevelopment in some of its parts and economic
development in others”, André Gunder Frank in “The
Development of Underdevelopment” Monthly Review,
(1966).

8. https://www.pinterest.com/pin/399835273137317384/?lp=true

9. Crisis of 1929 - 1930

10. Prebisch–Singer hypothesis
• In two papers published in 1949, one by
Hans Singer, one by Raúl Prebisch, both
authors observe that the price of
primary commodities declines relative to
the price of manufactured goods over
the long term, which causes the terms of
trade of primary-product-based
economies to deteriorate.
• Underdeveloped countries were able to
purchase fewer and fewer manufactured
goods from the developed countries in
exchange for a given quantity of their
raw materials exports.
Structuralism

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12. Structuralism
• The 1940s
• Developing countries exported primary commodities to the developed countries who in
turn manufactured (value added) products out of these commodities and sold them back.
• Prices of manufactured products > prices of raw materials: Trade inequality.
• Due to the declining terms of trade primary producers face, Latin American countries
should diversify their economies and lessen dependence on primary commodity exports by
developing their industrial sector.
• Proposed solution: Import Substitution by Industrialization (ISI).
• Emphasis on historical analysis of processes of late industrialisation in the periphery.
• Emphasis on state-induced industrialization through governmental investment.
• Emphasis on development of national capabilities. • Raúl Prebish
• Celso Furtado
• Aníbal Pinto

13. Import substitution industrialization (ISI)
• Rationale: To replace imports with domestic production to reduce foreign
dependency through the local production of industrialized products.
• Some degree of protectionism in trade is needed to encourage domestic
production.
• Opposed to trade-and-export strategy.
• It looks for the development of domestic market and national consumers.
• The State is a key actor on design and implementing economic policy.
• Latin American countries began to implement ISI policies during the depression
of the 1930s.
• ISI strategy was widely emerged after WWII until the 1980s.

14. United Nations Economic Commission for
Latin America and the Caribbean (ECLAC)
• It was established in 1948
• It includes 46 member States (20 in Latin America, 13 in the
Caribbean and 13 from outside the region), and 13 associate
members.
• Its goal is to encourage economic cooperation.
• The founding of ECLAC is connected to debates on
structuralism and its policy implementation in Latin America.

15. • The 1950s – 1960s
• Keynesianism
• The World-Systems Theory
• Latin American Structuralism
• Marxist inspiration
• Dependence describes a situation in which the economy of certain countries is conditioned by
the development and expansion of another country’s economy to which the former is
subjected.
• Development and underdevelopment constitute the two sides of the same coin: capitalism.
• The periphery is underdeveloped because of the development of the center.
• Modernization, Industrialization, Urbanization do not lead to Development. They produce a
“caricature” of the developed societies, perpetuates underdevelopment and leads to a
pathological form of modernization).
Dependency Theory
• Theotônio Dos Santos
• Ruy Mauro Marini
• Vânia Bambirra
• Fernando Henrique Cardoso
• Enzo Faletto

16. The Dependency Theory
• To understand Latin America from a world/global
context embracing a historical perspective that
explain Latin America role in the world economy
considering its role as provider of raw materials and
market for European (high value-added) goods
(history of expoliation from international capitals).
• The current underdevelopment of Latin America is
the result of its centuries-long participation in the
process of world capitalist development.
• Latin American societies and economies were shaped
according global markets demands.
• Latin American economies were born from and for
trade, ancillary to the European metropolitan
economies.
• Anticolonial
• Antiimperialist
• Discussions with
Communist Parties
(Orthodox Marxist
opposed to new Latin
American Marxism)

17. Latin American Marxisms
• To understand the colonial processes and its impacts.
• The focus is on the analysis of imperialism impacts on Latin American economies.
• In Latin America, the capitalist class does not respond to the national interests and to the
promotion of a capitalist economy and society, but rather acts as an ally of foreign capitals.
• In Latin America, the working class needs to be allied with peasants to move forward for the
social transformation.
• Socialist Revolution is possible without having to go through a liberal bourgeoisie Revolution
(French Revolution) to build capitalism.
• Latin American has an imperfect capitalist economy, better defined as a mercantile pre-capitalist
economy. Marxism needs to be reinterpreted in this different context.
• A Marxist president was elected by liberal democratic elections in a peaceful society. The Chilean
President, Salvador Allende, was overturned by a coup d'état. • Paul A. Baran
• Paul Sweezy
• Andre Gunder Frank
• Ernesto Che Guevara

19. Sir William Arthur Lewis and the dual-sector model
• The model explains the growth of a developing economy in terms of a labor transition
between two sectors, the capitalist sector and the subsistence sector.
• The capitalist sector is that part of the economy which uses reproducible capital and
pays capitalists thereof. It includes manufacturing, plantations, mines.
• The subsistence sector is the indigenous traditional sector or the “self employed sector”.
• When the capitalist sector expands, it extracts or draws labor from the subsistence
sector.
• This gives rise to the possibility of creating new industries and expanding existing ones.
• Surplus labor can be used instead of capital in the creation of new industrial investment
projects, or it can be channeled into nascent industries, which are labour - intensive in
their early stages.
• The only route to a higher standard of living was to effect a transition, from “traditional”
subsistence agricultural production to manufacturing.

20. Economic crisis 1973–75
• The roots are in the 1973 oil crisis.
• It put an end to the overall Post–World War II economic expansion.
• It differed from previous recessions by being a stagflation, where high
unemployment and high inflation existed simultaneously.
https://www.theguardian.com/environment/2011/mar/03/1970s-oil-price-shock

21. The 80’s: The Lost Decade

22. Return to Liberal Economic Policies
Neoclassical economic orthodoxy Washington consensus and Neoliberalism

23. The Washington Consensus
• The economic crisis of the 70s and the debt crisis of the early 80s discredited ISI
• Free market ideas (neoclassical or neoliberal) emerged.
• Macroeconomic stability (control of inflation and reduction of fiscal deficit).
• Free trade and markets: elimination of trade barriers adopted during the ISI.
• privatisation and deregulation: privatisation of large national firms (particularly in the
provision of basic services.
• Deregulation of labour and financial markets: markets work well and are superior to
governments in resource allocation.
• One recipe for economic growth (all economies behave in the same way).
• World Bank and IMF imposed Structural Adjustment Programs (SAPs) promoting global
market-driven liberalization.

24. Chicago Boys
• Group of Chilean economists prominent around the 1970s and 1980s.
• Most of them were trained at the University of Chicago under Milton
Friedman and Arnold Harberger.
• They were appointed as economic advisors in South American
governments including the military dictatorship of Chile (1973–90).
• They advocated widespread deregulation, privatization and free
market policies.
• Pioneers of neoliberalism in Latin America.
https://www.youtube.com/watch?v=9uVoktXVPNY

25. The end of the Cold War and Neoliberalism in Latin America
• It takes from the basic principles of neoclassical economics.
• It advocates for economic liberalization and policies that extend the rights and abilities
of the private sector over the public sector.
• Neoliberalism is associated with laissez-faire economics, a policy that prescribes a
minimal amount of government interference in the economic issues . Therefore, the
State should not interfere with the economy: governments must limit subsidies, make
reforms to tax laws in order to expand the tax base, reduce deficit spending, limit
protectionism, open markets up to trade and privatize public services and natural
resources.
• It also seeks to abolish fixed exchange rates, back deregulation, permit private property,
implement fiscal austerity.
• Economic model of export-led growth, so Latin America would export labor intensive
manufactured products within the new internationalized context known (globalization).

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