Transcript The Structuralist/Neo

NS4053
Winter Term 2015
Monetarist/Structuralist Debates
Overview
• Structuralism – Cristobal Kay Handbook of International
Political Economy
• Neo-Liberalism – Robert Looney Handbook of International
Political Economy
• Deepak Lal, Preface, Handbook of Emerging Economies
• Debate between the two schools in the Latin American context
has carried on since the 1950s
• The debate represents two somewhat opposed views of how
economies grow and expand
• Each school has had its ups-and-downs as events have
unfolded
• Neo-liberal view mainly that of the international financial
organizations and free market economists
• Structuralism mainly indigenous to Latin America and has not
been a factor in other parts of the world. Embodies many of the
historical and social factors unique to Latin America
2
Structuralism I
Structuralism
• Often compared with Marxist, and institutional
perspectives
• Latin American Structuralist school emanated from ECLA
under Raul Prebisch
• Structuralists perceive the economies in Latin America as
being inflexible and confronting manor constraints or
structural barriers
• They distrust the price mechanism and justify
government intervention in the economy as accelerating
the process of economic development and structural
transformation
• They regard distinct asymmetries in international political
economic structures and relations as having a
detrimental impact on Latin America
3
Structuralism II
• By contrast the neo-liberal position emphasizes flexibility
in which prices dominant and government intervention is
discouraged
• Neo-liberal position in Latin America often associated
with the Chicago School of economic thought – many
graduates became finance ministers
• Characteristics and originality of structuralism
• Key propositions of structuralism concern the world market
economy and unequal exchange
• The center-periphery model
• Idea is that the disparities between the center and the periphery
are reproduced through international trade
• Thus the periphery’s development problems are located
within the context of the international political economic
system.
4
Structuralism III
• This analysis of the world economic system directly
challenged prevailing orthodox theories and continues to
generate controversy
• The argument that the center and periphery countries are
linked in a series of asymmetric relationships a sharp
break from theories such as Rostow stage theory
• Rostow maintained all developed countries (DCs) were
once underdeveloped and that present day
underdeveloped countries can evolve into DCs following
similar polices and states
• Structuralists consider such theories deficient as they do
not take into account
• the different origins, structures and dynamism of the peripheral
economy or
• The changing nature of the world-system
5
Structuralism IV
• Structuralism grew out of dissatisfaction of neo classical
economics which did not seem to contribute to an
understanding of the development problems of he
periphery.
• Structuralists wanted to develop an alternative based on
major obstacles to development in Latin America and one
that could be used to propose remedial policies
• Structuralism is historical –examines the origins of
developing counties into the dominant capitalist system
as producers of agricultural and mineral primary
commodities.
• Structuralists term this pattern of development in the
periphery and the “primary-export model” or “outward
oriented development model
• Wanted to distinguish it form the industrial-export model
and autonomous development model of the center
6
countries
Structuralism V
• Structuralist approach goes beyond economics
• Emphasizes the part played by institutional and social factors in
the functioning of an economy.
• Key element is the role of the state in the development process.
• Structuralism was influenced by Keynesian economics in
its advocacy of manor increases in government
expenditure for development purposes.
• Went further than Keynesianism in regarding the state as the
crucial agent for economic social and political change (the
Developmental State)
• Through economic planning and protectionism state
seen as spearheading industrialization process in
developing countries
7
Structuralism VI
• Structuralism provide the rationale for land reform and
state owned enterprises
• Its ideology was
• Anti-feudal
• Anti oligarchical
• Democratic
• Reformist and technocratic
• It questioned the perverse effect of capitalism in the
periphery and the resulting inequities in the institutional
arrangements
• While it promoted economic change, it did not advocate
revolution
8
Center Periphery Model I
Features of the Center and Periphery
• Linkages between the center and periphery
• Increased the productivity of the factors of production
dramatically
• However diffusion of technological progress was very uneven
throughout the world
• Center countries internalized the new technology by
developing an industrial capital goods sector and
employing more advanced technology across economic
sectors
• Resulted in the development of a homogeneous and
integrated economy
9
Center Periphery Model II
• In the periphery things different
• New technologies were largely imported and manly confined to
the primary commodity producing export sector
• The industrial sector was insignificant and the capital. goods
sector rudimentary or non existent
• As a result the peripheral economy became disarticulated
and dualist
• Disarticulated because it had to import advanced technology
from the center and
• Dualist because of the large productivity gap which existed
between the export and subsistence
10
Center Periphery Model III
• Periphery is characterized as having a sizeable lowproductivity pre capitalist sector which continuously
produces a large surplus of labor
• This surplus labor keeps wages low and prevents the
periphery from retaining the fruits of its own
technological progress
• Productivity increases in the export sector largely being
transferred to the center through a deterioration in the
terms of trade
• Thus in the Structuralist view, international trade both
• perpetuates and
• deepens the asymmetry between center and periphery
11
Inward Oriented Development Model I
Inward oriented development model
• To overcome constraining effects of this outward
oriented process ECLA and Structuralists proposed an
inward-oriented development model
• Centerpiece was import substitution industrialization ISI
• Structuralists expected an ISI strategy to transform
industry into the most dynamic sector of the periphery’s
economy and lead to a higher rate of growth than
comparative advantage and a primary product export
model
• Basically ISI an investment – lost income in the short-run
more than made up by higher income streams in the
futures
12
Inward Orientated Development Model II
• ISI policy was to be implemented by variety of policies
• Easy credit,
• Infrastructure support,
• Favorable foreign exchange rates, and
• (Mainly) protectionist measures – tariffs and quotas
• For Structuralists industrialization justified in the
periphery even where the cost of local industry is higher
than international price
• Otherwise some factors of production would remain
unemployed, or
• Would be used to produce export commodities with
adverse consequences for the terms of trade
13
Structural Inflation I
14
Structural Inflation II
15
Assessment
• Structuralists felt ISI would overcome limitations of
outward development process and
• Bring social and political benefits – strengthening middle
and working classes and of democracy
• By early 1960s talk of “exhaustion” of ISI process
• Wide-spread recognition that inward directed
development had not progress as planned
• Despite substitution, external bottleneck become even
more problematic as volume of imports continued to rise
• Set up need for capital equipment, spare parts
• Countries ran large balance of payments deficits – few
exports doe to overvalued exchange rate
• Led to massive devaluations and inflationary spirals
16
• Eventually economies stagnated – No TFP
Assessment II
• Structuralism versus monetarism
• Structuralists see the problem of inflation within the
context of the structural transformation of developing
countries
• For Structuralists inflation also arises from the sociopolitical tensions, sectorial imbalances and expectations
generated by the process of development. By contrast
monetarists regard the inflationary process as a major
obstacle to growth
• Monetarists see inflation as arising from excessive
demand
• Structuralists see it coming from maladjustments and
rigidities in the economic system
• Monetarists claim many of the supply rigidities stem from
distorted prices
17
Neo-Liberal Counter Revolution I
• Neoliberal counter revolution
• Came out of the work of Deepak Lal (preface to the
Handbook of Emerging Economies)
• Main beliefs:
• Imperfect Information – makes detailed planning impossible,
• Individual freedom, and
• The markets
• Neo liberals influential in designing World Bank and IMF
structural adjustment programs and their providing
advice to developing countries.
• While these structural adjustment programs don’t
incorporate the Structuralist ideas – actually the opposite
direction
18
Neo-Liberal Counter Revolution II
• Neo-liberal structural changes entail rolling back the
welfare state by
• Radically reducing government expenditure (especially welfare
expenditure.
• Eliminating subsidies and protectionism,
•
Liberalizing markets and
• Switching from inward oriented to outward oriented development
strategies so as to integrate developing countries even further
into the world market
• With the success stories of the market driven east Asian
economies in the 1970s into the 1980s and 1990s neoliberalism was the clear winner in the debate
• Overt time Latin America has fallen further and further
behind East Asia
19
Neo-liberal Critics I
• Nevertheless neo-liberalism has come under attack from
many sources
• To their critics neoliberal reforms have simply resulted
in:
• The rationalization of economic production and distribution on a
global scale along the lines of comparative advantage and
• The maximization of the rate of return (i.e., profit) on invested
capital for transnational banks and corporations and their
stockholders.
20
Neo-liberal Critics II
• The costs of these programs is reflected in one or
(usually) more of the following
• Increased concentration of wealth in the hands of the very rich
• Increased unemployment and underemployment
• Wages that remain low for those wo still have jobs, even as
workforce productivity increased
• Decreased power of trade unions under the pressure of
economic globalization
• Increased crime as more people become economically
marginalized
• Increased numbers of police and prisons to combat the increase
in crime
• An erosion of civil liberties
21
Neo-Liberal Critics
• Neoliberal costs (contd)
• Rural depopulation as small farmers are put out of business by
corporate agribusinesses which with free trade can take full
advantage of its economies of scale
• Armed resistance by traditional cultures put under economic
siege
• Increased immigration to more economically developed
countries by those who no lnger have land to work and/or cannot
find work in cities
• An increasingly irrelevant political system that is unable and/or
unwilling to start a genuine democratic debate because it is
controlled by corporate interests that have most to gain from
status quo
• An alarming decrease in social solidarity
22
Assessment
• More balanced view suggests that the neo-liberal reforms
make sense in the long term but:
• There have been serious technical errors in their application in
the short run
• Most neoliberal reforms have been untaken through IMF/World
bank coercion – bitter medicine
• Best to try buy-in of government and population with IMF/World
Bank so that everyone is looking for ways to minimize their
short-run pain.
23