Raul Prebisch and Developmentalism

A CULTURE OF DEFIANCE: History of the Reform-Conservative Party of Canada

In 1964, delegates of 122 countries met in Geneva, Switzerland, to discuss international trade relations.

One of the organizers of the event was Raul Prebisch, who had been head of the U.N.'s Economic Commission for Latin America from 1950 to 1963.

[Prebisch] told the delegates that the underdeveloped countries are draining off almost all the foreign aid that they receive because they have to pay so much to carry their foreign debts and because their export prices are falling.

Poorer nations were looking to the wealthier, for some relief. (1)

"You in the West tell us to work harder and we will get rich," said Nigeria's Minister of Commerce and Industry, Zanna Dipcharima. "Well, we are working hard, and we are getting poorer."

Not much was accomplished during the meetings, except the strengthening of an "us vs them" mentality.

...the underdeveloped nations moved toward creating a new alliance—along economic, not ideological lines. Though they bickered among themselves, they held fairly firm against the richer lands, both free and Communist. (2)

The wall put up by the West, especially the United States, was in response to the Developmentalism of Latin America, as espoused by Raul Prebisch.

Developmentalism and Marxism

As U.N.'s Economic Commissioner for Latin America:

Prebisch urged governments to take idle lands away from the rich, distribute them to the poor, modestly compensate the original owners with long-term bonds, force higher taxes on the high-living upper classes and use the money to build roads and power plants that would speed industrialization. Proposing and prodding from his U.N. post, he was the intellectual father of the thriving little Central American common market and the still-struggling Latin American Free Trade Area ... (3)

In response to post-war Keynesian policies, Prebisch carved out an economy that promoted education, healthcare, and the eradication of poverty. And he did it with a vengeance.

[this] mood was on the rise in the developing world, usually going under the name developmentalism, or Third World nationalism. Developmentalist economists argued that their countries would finally escape the cycle of poverty only if they pursued an inward-oriented industrialization strategy instead of relying on the export of natural resources, whose prices had been on a declining path, to Europe and North America. They advocated regulating or even nationalizing oil, minerals and other key industries so that a healthy share of the proceeds fed a government-led development process.

By the 1950s, the developmentalists, like the Keynesians and social democrats in rich countries, were able to boast a series of impressive success stories. The most advanced laboratory of developmentalism was the southern tip of Latin America, known as the Southern Cone: Chile, Argentina, Uruguay and parts of Brazil. The epicentre was the United Nations' Economic Commission for Latin America, based in Santiago, Chile, and headed by the economist Raul Prebisch from 1950 to 1963.

Prebisch trained teams of economists in developmentalist theory and dispatched them to act as policy advisers for governments across the continent. Nationalist politicians like Argentina's Juan Peron put their ideas into practice with a vengeance, pouring public money into infrastructure projects such as highways and steel plants, giving local businesses generous subsidies to build their new factories, churning out cars and washing machines, and keeping out foreign imports with forbiddingly high tariffs.

During this dizzying period of expansion, the Southern Cone began to look more like Europe and North America than the rest of Latin America or other parts of the 'Third World. The workers in the new factories formed powerful unions that negotiated middle-class salaries, and their children were sent off to study at newly built public universities. The yawning gap between the region's polo-club elite and its peasant masses began to narrow. By the 1950s, Argentina had the largest middle class on the continent, and next-door Uruguay had a literacy rate of 95 percent and offered free health care for all citizens.

Developmentalism was so staggeringly successful for a time that the Southern Cone of Latin America became a potent symbol for poor countries around the world: here was proof that with smart, practical policies, aggressively implemented, the class divide between the First and Third World could actually be closed. (4)

But to the Americans, especially those economists at the Chicago School, what was happening in the Southern Cone, was the spread of Marxism.

The U.S. had already been involved in the successful coups of Iran and Guatemala, however,

Eradicating developmentalism in the Southern Cone, where it had taken far deeper root, was a much greater challenge. Figuring out how to achieve that goal was the topic of discussion between two American men as they met in Santiago, Chile, in 1953. One was Albion Patterson, director of the U.S. International Cooperation Administration in Chile—the agency that would later become USAID—and the other was Theodore W. Schultz, chairman of the Department of Economics at the University of Chicago. Patterson had become increasingly concerned about the maddening influence of Raul Prebisch and Latin America's other "pink" economists.

.... The two men came up with a plan that would eventually turn Santiago, a hotbed of state-centred economics, into its opposite—a laboratory for cutting-edge free-market experiments, giving Milton Friedman what he had longed for: a country in which to test his cherished theories. The original plan was simple: the U.S. government would pay to send Chilean students to study economics at what pretty much everyone recognized was the most rabidly anti-"pink" school in the world—the University of Chicago. Schultz and his colleagues at the university would also be paid to travel to Santiago to conduct research into the Chilean economy and to train students and professors in Chicago School fundamentals.

What set the plan apart from other U.S. training programs that sponsored Latin American students, of which there were many, was its unabashedly ideological character. By selecting Chicago to train Chileans—a school where the professors agitated for the near-complete dismantling of government with single-minded focus—the U.S. State Department was firing a shot across the bow in its war against developmentalism, effectively telling Chileans that the U.S. government had decided what ideas their elite students should and should not learn. This was such blatant U.S. intervention in Latin American affairs that when Albion Patterson approached the dean of the University of Chile, the country's premiere university, and offered him a grant to set up the exchange program, the dean turned him down. He said he would participate only if his faculty had input into who in the U.S. was training his students. Patterson went on to approach the dean of a lesser institution, Chile's Catholic University, a much more conservative school with no economics department. The dean at the Catholic University jumped at the offer, and what became known in Washington and Chicago as "the Chile Project" was born.

"We came here to compete, not to collaborate," said Schultz of the University of Chicago, explaining why the program would be closed to all Chilean students but the few selected." This combative stance was explicit from the start: the goal of the Chile Project was to produce ideological warriors who would win the battle of ideas against Latin America's "pink" economists. (5)

However, despite this, Developmentalism continued to thrive.

Prebisch had warned that if more wasn't done to help third world economies, the conditions would be ripe for the rise of a demagogue.

So this became the Chicago School's next step.

Sources:

1. World Trade: Robin Hood at Geneva, Time magazine, April 03, 1964

2. World Trade: The Underdeveloped Get Together, Time magazine, February 21, 1964

3. Trade: When Poor Meets Rich, Time magazine, June 19, 1964

4. The Shock Doctrine: The Rise of Disaster Capitalism, By Naomi Klein, Vintage Canada, 2007, ISBN: 978-0-676-97801-8, Pg. 64-65

5. Klein, 2007, Pg 68-69