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Raúl Prebisch

Raúl Prebisch (1901–1986) was an Argentine economist known for his contribution to structuralist economics, in particular the Prebisch-Singer hypothesis that formed the basis of economic dependency theory. He is sometimes considered to be a neo-Marxist though this label is misleading.

Early years

He was born in Tucumán, Argentina, to German settlers and studied at the University of Buenos Aires, where he later taught. As a young man his writing was marked by a complete adherence to the free-trade orthodoxy adhered to by the Argentine stockbreeding aristocracy at the Sociedad Rural where he was employed, but in the 1930s he was "converted" to protectionism and the economics of John Maynard Keynes. The orthodox belief was supported by the spectacular economic growth of Argentina from the 1860s to 1920s as the country exported large amount of beef and wheat to the world power Britain. However, by the 1930s the Great Depression and the growing economic dominance of the United States, which exported beef and wheat rather than buying them, had devastated the Argentinian economy.

Centre and periphery

The plight of Argentina forced Prebisch to reexamine the principle of comparative advantage described by David Ricardo, marking the creation of a new school of economic thought in the late 1940s. Prebisch separated out the purely theoretical aspects of economics from the actual practice of trade and the power structures that underlie trading institutions and agreements. His resulting division of the world into the economic "centre", consisting of industrialised nations such as the U.S., and the "periphery", consisting of primary producers, remains used to this day. As president of Argentina's central bank he had noticed that during the Great Depression the prices of primary products, such as agricultural goods, fell much more than the prices of manufactured secondary products. However, he and his colleagues were unable to specify the exact mechanism for the difference, beyond noting that supply conditions of primary and secondary goods were different in that while farmers planted the same amount every year regardless of the price they would get, manufacturers were able to reduce or increase capacity to respond to expected changes in demand.

However, these ideas remained unformed until he was appointed director of the Economic Commission for Latin America (ECLA or CEPAL) in 1948. In 1950, he released a study The Economic Development of Latin America and its Principal Problems that stated what is now known as the Singer-Prebisch thesis, a major contribution to economic thought. German economist Hans Singer had separately arrived at a similar conclusion as Prebisch at roughly the same time, although his paper used a more empirical approach based on analysis of world trade statistics. The thesis begins with the observation that in the present world system the periphery produces primary goods to export to the center, and the centre produces secondary goods for export to the periphery. It goes on to say that as technology improves, the centre is able to retain the savings made, since it can retain higher wages and profits through developed unions and commercial institutions. At the periphery, companies and workers are weaker, and have to pass on technical savings to their customers in the form of lower prices. Prebisch pointed to the decline in the terms of trade between industrialised and non-industrialised countries, which meant peripheral nations had to export more to get the same value of industrial exports. Through this system, all of the benefits of technology and international trade would accrue to the centre. While the 1950 study has been shown to have several flaws, particular in its selection of data, there are studies that hold that the central insight is correct.

After this finding, ECLA became the center of Third World activism in the UN, giving birth to the Latin American school of structuralist economics. At ECLA, Prebisch became firmly associated with import substitution industrialization (ISI), in which a nation isolates itself from trade and tries to industrialize using only its domestic market as an engine. As ECLA became the target of increasingly harsh criticisms, and as ISI began to show serious flaws, Prebisch left.

UNCTAD secretary-general

Between 1964 and 1969 he served as the founding secretary-general of the United Nations Conference on Trade and Development (UNCTAD). Selected for his unparalleled reputation, he tried to forge UNCTAD into a body advocating the case of the whole developing world. His approach to development took a more trade-focused approach, advocating preferential access to the markets of developed countries and regional integration - building up trade between peripheral countries. Increasingly he stressed the extent to which developing countries had to bring growth through internal reforms, rather than through external help. He publicly condemned ISI as having failed to bring proper development. Prebisch found years at UNCTAD frustrating and "sterile", as it became increasingly bureaucratic and failed at its main objectives. His sudden resignation in 1969 signified his lack of patience with the organisation's failures.

Dependency theory

During the 1960s, economists at ECLA developed an extension of Prebisch's thoughts on structuralism into dependency theory, in which economic development of the periphery is seen as a nearly impossible task. While dependency theory was the polar opposite of Prebisch and the ECLAC's original purpose, he continued to criticize the neo-classical economic forces that he felt were victimizing the global poor.

Literature

  • Raúl Prebisch, “Commercial Policy in the Underdeveloped Countries,” American Economic Review 49 (May 1959): 251–273
  • Raúl Prebisch, The Economic Development of Latin America and Its Principal Problems (New York: United Nations, 1950)
  • Joseph L. Love, “Raúl Prebisch and the Origins of the Doctrine of Unequal Exchange,” Latin American Research Review 15 (1980): 45–72.
  • Flechsig, Steffen (1999), "Raul Prebisch's Contribution to a Humane World" in "Global capitalism, liberation theology, and the social sciences: An analysis of the contradictions of modernity at the turn of the millennium" (Andreas Mueller, Arno Tausch and Paul Zulehner (Eds.)), Nova Science Publishers, Hauppauge, Commack, New York

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