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

Milton Friedman, the Southern Cone and "Authoritarian Democracy"

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

The Southern Cone refers traditionally to the Latin American countries of Argentina, Chile, Paraguay, and Uruguay, and often includes Brazil.

In the 1970's, the area was the hotbed of left-wing ideals, with Salvadore Allende becoming the first democratically elected Marxist, when he became President of Chile.

But not everyone saw Allende's victory as positive.

Allende was hated by the Chilean monied classes for understandable reasons: he expropriated their large estates for peasant co-operatives and supported policies of large wage increases in industry. When he nationalized all U.S.-owned copper companies whose mines had been developed with U.S. capital and technology in the early years of the century and were still lucrative, he made an implacable enemy of the United States and its president, Richard Nixon. Henry Kissinger, then U.S. secretary of state, openly stated American intentions after Allende's election in 1970 when he said, "I don't see why we need to stand by and watch a country go Communist due to the irresponsibility of its people. " (1)

Fortunately for the monied classes, Chile already had a complement of free marketeers, who had been studying under the Chicago School of Economics. In the climate of the Cold War, a school was established in Santiago, to indoctrinate young students in the principles of neoliberalism.

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. "What we need to do is change the formation of the men, to influence the education, which is very bad," he had stressed to a colleague. This objective coincided with Schultz's own belief that the U.S. government wasn't doing enough to fight the intellectual war with Marxism. "The United States must take stock of its economic programs abroad ... we want [the poor countries] to work out their economic salvation by relating themselves to us and by using our way of achieving their economic development ... (2)

The economic policy of developmentalism, then rampant in South America, was viewed as "pinko", and just a step away from Communism.

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

But despite the fact that they were churning out hand picked neoliberals, the Southern Cone was still progressive.

But the Allende victory, gave Friedman, and what were referred to as the "Chicago Boys", an opportunity to create a laboratory, to test aggressive free market principles.

And to achieve this, it was necessary to engage in what Augustus Pinochet, the planted dictator of Chile, would call "Authoritarian Democracy". And Milton Friedman, the man who once accused President Kennedy of trying to create a police state, when he announced that he would be regulating the price of steel (Time. April 22, 1962), would oversee the project from start to finish.

And not just in Chile:

... the next fix came from other countries in Latin America's Southern Cone, where the Chicago School counter-revolution quickly spread. Brazil was already under the control of a U.S.supported junta, and several of Friedman's Brazilian students held key positions. Friedman travelled to Brazil in 1973, at the height of the regime's brutality, and declared the economic experiment "a miracle."" In Uruguay the military had staged a coup in 1973 and the following year decided to go the Chicago route.

Lacking sufficient numbers of Uruguayans who had graduated from the University of Chicago, the generals invited "Arnold Harberger and [economics professor] Larry Sjaastad from the University of Chicago and their team, which included former Chicago students from Argentina, Chile, and Brazil, to reform Uruguay's tax system and commercial policy. The effects on Uruguay's previously egalitarian society were immediate: real wages dropped by 28 percent, and hordes of scavengers appeared on the streets of Montevideo for the first time. (3)

And the revolution spread:

Next to join the experiment was Argentina in 1976, when a junta seized power from Isabel Perlin. That meant that Argentina, Chile, Uruguay and Brazil—the countries that had been showcases of developmental ism —were now all run by U.S.-backed military governments and were living laboratories of Chicago School economics. According to declassified Brazilian documents just released in March 2007, weeks before the Argentine generals seized power, they contacted Pinochet and the Brazilian junta and "outlined the main steps to be taken by the future regime. (3)

And despite the human atrocities throughout this period, Milton Friedman is still considered to be a hero.

It's important for us to understand the mind of this man, because his Chicago School begat the Calgary School, and the Calgary School begat Stephen Harper. And the late Milton Friedman was one of the most influential men in the Canadian neoconservative movement.

Sources:

1. Long Shadows: Truth, Lies and History, By Erna Paris, Alfred A. Knopf, 2000, ISBN: 0-676-97251-9, Pg. 428

2. The Shock Doctrine: The Rise of Disaster Capitalism, By Naomi Klein, Vintage Canada, 2007, ISBN: 978-0-676-97801-8, Pg. 68-73

3. Klein, 2007, Pg. 102

Milton Friedman and the Destruction of Argentina

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

It is just as important to study Milton Friedman as Leo Strauss, in understanding Canada's neoconservative movement.

Friedman is one of the authors of the "shock therapy" economic system, where disasters are created or exploited, by the corporate sector. Free Marketeers will call it progress. Others see it as shocking and inhumane.

Because in order for the U.S. to control a foreign nation's economy, an authoritarian is needed, and that authoritarian is often a ruthless dictator. Case in point, Augustus Pinochet in Chile.

If you read Lawrence Martin's Harperland, or Christian Nadeau's Rogue in Power, you'll see how Stephen Harper took control, using ruthless means, and is now in a position to implement Friedman's policies. A bloodless coup.

Argentina's Shock Therapy

In her memoirs, Margaret Thatcher says of Argentina:

Whatever the Argentineans thought about it at the time ... the Falklands War provided a shock which brought first democracy and more recently, under President Menem, the economic benefits of free-market policies. Inflation has been brought down and a far-reaching privatization programme has been undertaken. Subsidies, regulation and tariffs have all been cut. Economic growth has sharply accelerated.

A little "shock" was good for them, says the lady who once declared that there was "no such thing as society".

In their book Commanding Heights, Daniel Yergin and Joseph Stanislaw, provide a bit of insight into the pre-coup Argentina, and what Thatcher called a "black economy".

Argentina had long been an economic paradox. How did a country that was one of the world's richest in the first decades of the twentieth century, end up in such economic disorder? A good part of the answer rested with Juan Peron. He is now best remembered, of course, as the husband of Evita, but in the years after World War II he was the embodiment of populism with an almost fascist tinge. Building on the prewar popularity of fascist ideas, Peron turned Argentina into a corporatist country, with powerful organized interest groups, big business, labor unions, military, farmers—that negotiated with the state and with each other for position and resources. He incited nationalist passions, stoked pretensions of grandeur, and pursued stridently anti-American policies. He nationalized large parts of the economy and put up trade barriers to defend them. He cut Argentina's links to the world economy which had been one of its great sources of wealth—embedded inflation in the society, and destroyed the foundations of sound economic growth. (2)

Viewed through a free-market lens, Peron would have been a disaster. So many opportunities for profit going to waste.

Peron was no saint, but according to Namomi Klein in The Shock Doctrine, life for Argentines was not as bad as suggested. Protectionism made many things unaffordable ($2000 just to install a phone), but the welfare state was alive and well. And like Chile, before their U.S. financed coup, the country had just undergone an intellectual revolution, where the arts thrived.

By the 1950s, Argentina had the largest middle class on the continent. Juan Peron had introduced Keynesian style economics "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." (3)

Naturally, this was anathema to the free marketeers, and when Peron died and his widow Isabel named leader, they sprang into action. From Henry Kissinger's records, recently made public, we learn that the U.S. were behind the 1976 coup that initiated the Argentine shock therapy.

Wages fell to 40% of what they had been and poverty became the norm.

But worse, was the wave of terror, under the planted dictator, General Jorge Videla, that followed the Chilean blueprint, to the Milton Friedman letter. According to Klein's Shock Doctrine:

When someone was targeted to be eliminated, a fleet of military vehicles showed up at that person's home or workplace and cordoned off the block, often with a helicopter buzzing overhead. In broad daylight and in full view of the neighbours, police or soldiers battered down the door and dragged out the victim, who often shouted his or her name before disappearing into a waiting Ford Falcon, in the hope that news of the event would reach the family.

Some "covert" operations were even more brazen: police were known to board crowded city buses and drag passengers off by their hair. In the city of Santa Fe, a couple was kidnapped right at the altar on their wedding day in front of a church filled with people."

The public character of terror did not stop with the initial capture. Once in custody, prisoners in Argentina were taken to one of more than three hundred torture camps across the country. Many of them were located in densely populated residential areas; one of the most notorious in a former athletic club on a busy street in Buenos Aires, another in a schoolhouse in central Bahia Blanca and yet another in a wing of a working hospital. At these torture centres, military vehicles sped in and out at odd hours, screams could be heard through the badly insulated walls and strange, body-shaped parcels were spotted being carried in and out, all silently registered by the nearby residents.

The Argentine junta was particularly sloppy about disposing of its victims. A country walk could end in horror because mass graves were barely concealed. Bodies would show up in public garbage bins, missing fingers and teeth (much as they do today in Iraq), or they would wash ashore on the banks of the Rio de la Plata, sometimes half a dozen at a time, after one of the junta's "death flights." On occasion, they even rained down from helicopters into farmers' fields."

All Argentines were in some way enlisted as witnesses to the erasure of their fellow citizens, yet most people claimed not to know what was going on. (much like Nazi Germany). There is a phrase Argentines use to describe the paradox of wide-eyed knowing and eyes-closed terror that was the dominant state of mind in those years: "We did not know what nobody could deny." (4)

As Canada is now in the throes of its own shock therapy, the need for torture chambers are not necessary.

We have our authoritarian leader in Stephen Harper, who allows no dissent. Witch hunts are now the norm, and while people don't disappear, their careers are ruined or threatened, if they dare to challenge.

The G-20 saw the worst human rights abuses and mass arrests in Canadian history; and police brutality at protests like the one over the Prison Farm closures, saw no age barrier. Those from 14 to 88 were victimized.

We are now part of the Shock Doctrine under the Harper regime, and what is happening in our country is just as shocking to many, as they were in places like Chile and Argentina.

And "the paradox of wide-eyed knowing and eyes-closed terror", was evident, when despite the horrors of the G-20, many Canadians simply shrugged and said "you should have stayed home".

Sources:

1. The Path to Power, By Margaret Thatcher, Harper Collins, 1995, ISBN: 0-06-017270-3, Pg. 583

2. The Commanding Heights: The Battle for the World Economy, By Daniel Yergin and Joseph Stanislaw, Touchstone, 2002, ISBN: 0-684-82975-4, Pg. 242

3. The Shock Doctrine: The Rise of Disaster Capitalism, By Naomi Klein, Vintage Canada, 2007, ISBN: 978-0-676-97801-8, Pg. 63

4. Klein, 2007, Pg. 106-107