The Global Political Economy of

Raúl Prebisch

The Global Political Economy of Raúl Prebisch offers an original analysis of global
political economy by examining it through the ideas, agency and influence of one
of its most important thinkers, leaders and personalities. Prebisch’s ground-break-
ing ideas as an economist – the terms-of-trade thesis and the economic case for
state-led industrialization – changed the world and guided economic policy across
the global South. As the head of two UN bodies – the Economic Commission for
Latin America and the Caribbean (ECLAC) and later the United Nations Con-
ference on Trade and Development (UNCTAD) – he was at the frontline of key
North–South political struggles for a fairer global distribution of wealth and the
regulation of transnational corporations.
Prebisch increasingly came to view political power, not just economic capabil-
ities, as pivotal to shaping the institutions and rules of the world economy. This
book contextualizes his ideas, exploring how they were used and their relevance
to contemporary issues. The neoliberal turn in economics in North America, West-
ern Europe and across the global South led to an active discrediting of Prebisch’s
theories and this volume offers an important corrective, reintroducing current and
future generations of scholars and students to this important body of work and
allowing a richer understanding of past and ongoing political struggles.

Matias E. Margulis is Lecturer in Political Economy at the University of S

­ tirling,
UK. A former Canadian delegate to the WTO, OECD and United Nations agencies,
his research focuses on global governance, international trade and human rights.
Recent publications include ‘Canada at the G8 and UN Committee on World Food
Security: forum-shifting in global food security governance’ (Canadian Foreign
Policy Journal, 2015), ‘Trading Out of the Global Food Crisis? The WTO and the
Geopolitics of Food Security’ (Geopolitics, 2014) and Land Grabbing and Global
Governance (2014, edited with Nora McKeon and Saturnino Borras, Jr.).
RIPE Series in Global Political Economy
Series Editors: James Brassett (University of Warwick, UK), Eleni Tsingou (Copen-
hagen Business School, Denmark), Susanne Soederberg (Queen’s ­University,
­Canada) and Jacqueline Best (University of Ottawa, Canada)

The RIPE Series published by Routledge is an essential forum for cutting-edge

scholarship in International Political Economy. The series brings together new
and established scholars working in critical, cultural and constructivist political
economy. Books in the RIPE Series typically combine an innovative contribution
to theoretical debates with rigorous empirical analysis.
The RIPE Series seeks to cultivate:

•• Field-defining theoretical advances in International Political Economy

•• Novel treatments of key issue areas, both historical and contemporary, such
as global finance, trade, and production
•• Analyses that explore the political economic dimensions of relatively
neglected topics, such as the environment, gender relations and migration
•• Accessible work that will inspire advanced undergraduates and graduate
­students in International Political Economy.

The RIPE Series in Global Political Economy aims to address the needs of stu-
dents and teachers.
For a full list of titles in this series, please visit www.routledge.com/RIPE-
Series-in-Global-Political-Economy/book-series/RIPE

Culture, Political Economy and Civilization in a Multipolar World Order

The Case of Russia
Ray Silvius

Gendered States of Punishment and Welfare

Feminist Political Economy, Primitive Accumulation and the Law
Adrienne Roberts

Corporate Human Rights Violations

Global Prospects for Legal Action
Stéfanie Khoury and David Whyte

The Global Political Economy of Raúl Prebisch

Edited by Matias E. Margulis

Critical Methods in Political and Cultural Economy

Johnna Montgomerie
The Global Political
Economy of Raúl Prebisch

Edited by Matias E. Margulis

First published 2017
by Routledge
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A catalogue record for this book is available from the British Library

Library of Congress Cataloging in Publication Data

Names: Margulis, Matias, editor.
Title: The global political economy of Raúl Prebisch / edited by Matias
Margulis.
Description: Abingdon, Oxon ; New York, NY : Routledge, 2017. |
Series: RIPE series in global political economy | Includes b­ ibliographical
­references and index.
Identifiers: LCCN 2016043500| ISBN 9781138219779 (hardback) |
ISBN 9781315414614 (e-book)
Subjects: LCSH: Prebisch, Raúl. | Development economics. | Economic
development. | International economic relations.
Classification: LCC HD75.P72 G56 2017 | DDC 337.01--dc23
LC record available at https://lccn.loc.gov/2016043500

ISBN: 978-1-138-21977-9 (hbk)

ISBN: 978-1-315-41461-4 (ebk)

Typeset in Times New Roman

by Sunrise Setting Ltd, Paignton, UK
Contents

List of figures vii

List of tables viii
Notes on contributors ix
Foreword xiii
Acknowledgements xvi
List of abbreviationsxvii

Introduction: the global political economy of Raúl Prebisch 1

MATIAS E. MARGULIS

PART I
Prebisch as architect and theorist of the global
political economy 25

1 Development through tighter economic integration:

how might Prebisch size up some trends and issues
thus far into the twenty-first century? 27
P. SAI-WING HO

2 Thinking big from the periphery: Raúl Prebisch and

the world system 45
ANDRÉS RIVAROLA PUNTIGLIANO

3 Raúl Prebisch and the theory of regional economic

integration 61
JOSÉ BRICEÑO RUIZ

4 The Latin American origins of Bretton Woods78

ERIC HELLEINER
vi  Contents
PART II
Power and resistance in the global political economy 95

5 Raúl Prebisch and the historical roots of the current

movement against corporate-led globalisation 97
ROBIN BROAD AND ZAHARA HECKSCHER

6 From Palais de Nations to Centre William Rappard: Raúl

Prebisch and UNCTAD as sources of ideas in the GATT/WTO 116
ERIN HANNAH AND JAMES SCOTT

7 The West remains on top, economically and politically 135

ROBERT H. WADE

PART III
Diagnosing structural change in the global political economy 153

8 A changing role for agriculture in global political economy?

Brazil’s emergence as an agro-power 155
KRISTEN HOPEWELL

9 Back to the future reloaded: Latin America’s development

strategy during the commodity boom 172
ESTEBAN PÉREZ CALDENTEY AND MATÍAS VERNENGO

10 Raúl Prebisch and the terms of trade: how things

have changed… 194
RAPHAEL KAPLINSKY AND MASUMA FAROOKI

Index215
Figures

0.1 All Commodity Price Index, 2005=100, includes both

fuel and non-fuel price indices 11
6.1 Frequency of uses of the term ‘policy space’ in TDRs 124
6.2 Percentage of ministerial statements using the term
‘policy space’ 124
6.3 Percentage of WTO minutes including the term
‘policy space’ 125
9.1 Latin America, financial balances as percentage
of GDP 1990–2014 176
9.2 Five-year rolling correlation coefficient between goods
exports in real terms and the terms of trade 1985–2006 177
9.3 Discrete change in the terms-of-trade indices between
2003–7 and 1990–2000 179
9.4 Latin America, export composition by technological
content 1980–2012 (percentage of total) 180
9.5 Export share of petroleum products and natural gas in
total leading export products (percentages),
2002–5 (averages) 181
9.6 Latin America, net unilateral transfers 1980–2013
(US$ millions) 182
9.7 Latin America, current account with transfers and
adjusted for transfers 1990–2013 (US$ billions) 183
10.1 IMF Commodity Price Index, January 1992–June 2015
(2005=100)197
10.2 Which way forward for commodity prices? Reversion
to long-term trend (price spike), supercycle or
structural break 198
10.3 Copper cost changes 2003–13 202
10.4 World manufacturing export price 1986–2000 206
10.5 Percentage of sectors which experienced falling prices
in EU imports between 1988–9 and 2001 206
10.6 Market-led linkage development and the effect of policy 209
10.7 Recent changes in the terms of trade 211
Tables

9.1 GDP per capita growth rates for Latin America and
the Caribbean 1963–2013 175
9.2 Average annual growth of commodity indices 1980–2013 178
9.3 Latin America, net resource transfer 1980–2006
(in percentage of GDP) 184
9.4 Latin America (countries that experienced favourable
terms-of-trade effects), current account adjusted for
remittances and contributions of remittance to narrow
the external gap 1990–2013 188
9.5 Latin America (countries that experienced unfavourable
terms-of-trade effects), current account adjusted for
remittances and contribution of remittances to nar­row
the external gap 1990–2013  189
10.1 China’s percentage share of global production and
consumption of hard commodities (1990–2009) 199
Contributors

José Briceño Ruiz is Associate Professor in the Faculty of Social and Economic
Sciences at the University of the Andes, Mérida, Venezuela. He holds a PhD
in Political Science from the Institut d’Etudes Polítiques d’Aix-en-Provence
(Science Po Aix). His research areas of expertise include Latin American
regionalism, comparative regionalism, international political economy and
foreign policy. He has been a visiting scholar at Stockholm University, Aoyama
Gakuin University in Tokyo, Universidad de Sonora (México), the University
of São Paulo and the University of Buenos Aires. He has edited several books
on Latin American regionalism, including The Resilience of Regionalism
in Latin American and the Caribbean. Autonomy and Development (2013),
co-edited with Andrés Rivarola Puntigliano.
Robin Broad is Professor of International Development at the School of
International Service, American University in Washington, DC, USA. She
teaches courses on economic globalization and development as well as
environment and development, with a focus on social, environmental, and
economic accountability. Her books include Development Redefined: How
the Market Met Its Match (2009), co-authored with her husband and frequent
collaborator John Cavanagh, which follows the rise of the Washington
Consensus and its failure as a model for economically, environmentally,
and socially sustainable development. Dr Broad is also the editor/author
of Global Backlash: Citizen Initiatives for a Just World Economy (2002),
which combines her analysis with 45 original documents to demonstrate
that opponents to the current corporate-led, neoliberal globalization present
viable, sophisticated alternatives. Her earliest book – Development Debacle:
The World Bank in the Philippines, co-authored with Walden Bello and others
in 1982 – was one of the first to present an in-depth critique of World Bank
lending. She is also the author of the books Plundering Paradise: The Struggle
for the Environment in the Philippines (co-authored with John Cavanagh) and
Unequal Alliance: The World Bank, the International Monetary Fund, and
the Philippines.
Masuma Farooki is Associate Director for the metals and mining consulting
unit at S&P Global Market Intelligence. She is a development economist and
x  Contributors
her current focus is on the socio-economic impact of the mining industry,
with a particular interest in the capture and distribution of resource rents,
the development of linkages from the mining sector and the preparation of
investment-promotion strategies for the state. Her work involves analysis of
global value chains and industrial, trade and mineral policies.
Erin Hannah is Associate Professor of Political Science at King’s University
College at the University of Western Ontario, Canada. She is an international
political economist specializing in trade politics, global governance,
sustainable development, poverty and inequality, global civil society, and
European Union politics. She has published articles on these topics in the
Journal of International Economic Law, Journal of Civil Society, Journal
of World Politics, Third World Quarterly, Politics, and Global Policy. She is
the co-editor (with Silke Trommer and James Scott) of Expert Knowledge in
Global Trade (2015) and author of NGOs and Global Trade: Non-State Voices
in EU Trade Policymaking (2016).
Zahara Heckscher is a writer, educator, and social-justice advocate. Her work
is grounded in her volunteer experiences overseas, planting fruit trees in
rural Zambia and helping to build a medical clinic in Nicaragua. She is the
co-author of How to Live Your Dream of Volunteering Overseas (2002), a book
Noam Chomsky called ‘informed, sensitive, and comprehensive’. Zahara is
a contributing editor at TransitionsAbroad.org. Her writing has appeared in
books, magazines, and newspapers including the Washington Post. She has
taught at the Writer’s Center in Maryland and the University of Maryland,
USA. Her current works in progress include Rethinking Volunteer Travel: The
Learning Service Guide. Her website is ZaharaHeckscher.com
Eric Helleiner is Faculty of Arts Chair in International Political Economy and
Professor of Political Science at the University of Waterloo, Canada. His most
recent books include Forgotten Foundations of Bretton Woods: International
Development and the Making of the Postwar Order (2014), The Status Quo
Crisis: Global Financial Governance after the 2008 Meltdown (2014) and (as
co-editor) The Great Wall of Money: Power and Politics in China’s International
Monetary Relations (2014). He is presently co-editor with Jonathan Kirshner
of the book series Cornell Studies in Money, and is currently researching a
global history of IPE thought.
P. Sai-wing Ho is Associate Professor in Economics at the University of Denver,
USA. Most of his research relates to the globalization debate. In particular,
he has sought to establish intellectual roots for globalization sceptics by
re-examining and re-interpreting the works of the classical economists, the
so-called protectionists, and many early-generation development economists.
These exercises have informed his own critique of the major agreements reached
during the Uruguay Round of multilateral trade negotiations as well as some
of the agenda items discussed during the ongoing Doha Round. They have also
 Contributors xi
helped formulate critical assessments of the push toward joining global value
chains as a means to achieving development. His research effort has resulted
in a book, Rethinking Trade and Commercial Policy Theories: Development
Perspectives (2010), and many journal articles, which have been published
in the Cambridge Journal of Economics, Contributions to Political Economy,
Review of Political Economy, Metroeconomica, Journal of Economic Issues,
and Forum for Social Economics.
Kristen Hopewell is Senior Lecturer in International Political Economy at the
University of Edinburgh, UK. Her research examines international trade, global
governance and development, with a focus on emerging powers. Her book
Breaking the WTO: How Emerging Powers Disrupted the Neoliberal Project
(2016) analyses the rising power of Brazil, India and China at the World Trade
Organization (WTO) and their impact on the multilateral trading system.
Raphael Kaplinsky is Emeritus Fellow at the Science Policy Research Unit at
Sussex University and Emeritus Professor at the Institute of Development
Studies (Sussex) and the Open University, UK. His research interests span
the terms of trade, linkages into the resource sector, global value chains, the
rise of China and its impact on southern economies, inclusive innovation and
industrial policy. For many years he was a colleague of Hans Singer, a close
collaborator of Raúl Prebisch. He has also had a long association with UNCTAD
and in recent years has advised the Economic Commission for Africa and other
international institutions on the historic significance of the post-2002 rise in
global commodity prices and strategies to achieve green industrialisation.
Matias E. Margulis is Lecturer in Political Economy at the University of Stirling,
UK. A former Canadian delegate to the WTO, OECD and UN agencies, his
research focuses on global governance, international trade and human rights. His
work has been published in journals such as Global Governance, Globalizations,
Current Opinion in Environmental Sustainability, Canadian Foreign Policy
Journal and Geopolitics, and he is the co-editor, with Nora McKeon and
Saturnino Borras, Jr., of Land Grabbing and Global Governance (2014).
Esteban Pérez Caldentey is Chief of the Financing for Development Unit
at ECLAC. He holds a Master’s and PhD from the New School for Social
Research, USA. He has worked at UNICEF, as a consultant for the UNDP and
in different positions and geographical locations in ECLAC, including Mexico,
Trinidad and Tobago, and Chile. He held the positions of Officer-in-Charge
for the ECLAC Subregional Headquarters for the Caribbean and Coordinator
of the Economics Unit in the same office. He also teaches Economics at the
University of Santiago de Chile and has taught at the University of Chile. He
has published extensively on Latin America and the Caribbean. He is a member
of the Editorial Board of Investigación Económica, the International Journal
of Political Economy and the Review of Keynesian Economics, and co-editor of
the World Economic Review.
xii  Contributors
Andrés Rivarola Puntigliano is Associate Professor in Economic History and
Director of the Institute of Latin American Studies, Stockholm University,
Sweden. He has long experience in teaching and research about Latin America,
with a focus on regional integration, international political economy and
geopolitics. Some of his recent publications include Resilience of Regionalism
in Latin America and the Caribbean: Development and Autonomy (2013,
co-edited with José Briceño Ruiz), Integración Latinoamericana y Caribeña.
Política y Economía. Política y Economía (2012, co-edited with José Briceño
Ruiz and Angel Casas Gragea) and ‘Prebisch and Myrdal: Development
Economics in the Core and on the Periphery’ in the Journal of Global History
(with Örjan Appelqvist).
James Scott is Lecturer in International Political Economy in the Department
of Political Economy at King’s College London, UK. He works primarily on
trade governance, particularly with regard to developing countries in the World
Trade Organization, the impact of rising powers, and the prospective benefits of
South–South trade. His most recent work focuses on the provision of expertise
to developing countries by individuals, non-governmental organisations and
intergovernmental organisations. Dr Scott’s most recent books are Trade,
Poverty, Development: Getting Beyond the WTO’s Doha Deadlock, co-edited
with Rorden Wilkinson (2013) and Expert Knowledge in Global Trade,
co-edited with Erin Hannah and Silke Trommer (2015).
Matías Vernengo is Professor at Bucknell University, USA. He was formerly
Senior Research Manager at the Central Bank of Argentina, Associate
Professor of Economics at the University of Utah, and Assistant Professor at
Kalamazoo College and the Federal University of Rio de Janeiro. He has been
a visiting professor at the Universidad Nacional Autónoma de México and
at the Université de Bourgogne in Dijon. He has been an external consultant
to several United Nations organizations, and has five edited books and more
than 50 articles published in scientific peer-reviewed journals. He has written
on the effects of external liberalization in Latin America and alternatives to
the Washington Consensus, on the international role of the dollar, on current
monetary and fiscal policy, on macroeconomic policy during the 1930s, on the
history of economic ideas, and on several other topics. He is also co-editor of
the Review of Keynesian Economics.
Robert H. Wade is Professor of Political Economy at the London School of
Economics, UK. Educated in New Zealand, he has taught at the Institute of
Development Studies (University of Sussex), Princeton, MIT and Brown,
and has worked as a staff economist in the World Bank. He won the Leontief
Prize for Advancing the Frontiers of Economic Thought in 2008 and his book
Governing the Market (1990) won the American Political Science Association
award for Best Book or Article in Political Economy, 1992. In recent years his
research has focused on global patterns of employment and income distribution,
financial booms and busts, and global and regional economic governance in the
context of intensifying inter-state rivalries.
Foreword

The present volume, edited by Matias E. Margulis, is an important contribution

to the literature on the life and work of Raúl Prebisch, Latin America’s foremost
economist. It is a timely book. Dr Margulis deepens and broadens the understand-
ing of Raúl Prebisch’s legacy and approach to economics and international polit-
ical economy, highlighting important points of departure for new development
thinking in the current turbulent era of global transformation.
Prebisch was a pioneering economist of the twentieth century who left a lasting
imprint on international relations as theorist and practitioner, but his final years,
up to his death in 1986, coincided with the neoliberal upsurge of the Reagan–
Thatcher era. Even more than John Maynard Keynes, Prebisch was marginalized
by the new orthodoxy which swept the Atlantic world, and he was largely dis-
missed by established academicians as passé – easy prey for caricatures: radical
Leftist; doctrinaire protectionist; proponent of autarky and statism; anti-­American,
and so forth. It was an extraordinary reversal. From a leadership role in interna-
tional development thought and policy in preceding decades, Prebisch was recast
overnight from global statesman to historical footnote.
Dr Margulis and colleagues address this ‘peripheralization’ of Prebisch with
a set of original, provocative and carefully researched chapters. While scholarly
interest in Prebisch’s legacy has revived after the global financial crisis of 2008,
which underscored the evident limitations of neoliberalism and the importance of
Prebisch’s work, his contribution remains under-appreciated and often misinter-
preted. Much remains to be done, as this volume successfully demonstrates.
A moderate in a century of extremes, Raúl Prebisch was a target of constant
criticism from all sides during his long public life, which spanned a large part of
the twentieth century, from the end of the First World War in 1918 to Gorbachev
and the winding-down of the East–West Cold War. He invariably aroused strong
passions, revered by supporters and reviled by critics in Argentina, Latin America
and global capitals and institutions. That he was a driving force of international
development ideas and institution-building could not be denied; nor could his
leadership capacity in the United Nations after 1949 with the Economic Commis-
sion for Latin America (ECLA) and as founding Secretary General of the United
Nations Conference on Trade and Development (UNCTAD). But his main oppo-
nents were equally implacable.
xiv  Foreword
Raúl Prebisch was not a wallflower. ‘I am objective’, he would say, ‘but not
neutral’. His challenge to the established orthodoxy and power structure of the
international economic system faced by the periphery of developing countries
never varied, and it implied a reshaping of global governance for greater equity.
‘The currency of international trade’, he argued, ‘is power’. During the 1950s and
1960s in particular, he challenged the industrial or core countries at three levels:
in ideas, his structuralism advanced an alternative paradigm of the international
political economy which challenged the mainstream assumptions; institutionally,
in ECLA, UNCTAD and the Group of 77 (G77) he built teams and networks to
advance a new model of North–South relations in the Americas and at the global
level based on development rather than geo-political objectives; and in UNCTAD
he evolved the framework of a new multilateralism or ‘global compact’ based on
reciprocal responsibilities and long-term mutual interests for a sustainable and
more equitable world order.
Prebisch became the enfant terrible of Pax Americana, disliked in northern
capitals for his erudition, strong personality, the practicality and moderation of
his proposals for reform and his essential commitment to embedded liberalism.
He opposed both the Soviet model and classical liberalism in favour of what he
called ‘progressive capitalism’, guided by an ‘intelligent state’ with responsibili-
ties for global change shared between developed and developing countries. While
insisting on an activist state to guide development, Prebisch was the first to warn
against the abuse of import substitution industrialization (ISI) by excessive pro-
tectionism; while he railed against Reaganism in the 1980s, he equally criticized
governments in developing countries for clientelism, bloated states and corrup-
tion. His vision of the Good Society remained the embedded liberalism of Roos-
evelt’s New Deal, and for this he was denounced as a bourgeois fellow-traveller
by Marxist intellectuals in Latin America and elsewhere.
Dr Margulis’ judicious selection of authors, themes and multi-disciplinary
approaches collectively demonstrates the extraordinary range of Prebisch’s con-
tribution – much broader than just the familiar ECLAC debates or the Prebisch–
Singer thesis, important as they are. Educated entirely in Argentina, Prebisch
lacked resources for graduate work in the US or Europe and was largely self-
taught, only sporadically attending the Faculty of Economic Sciences of the Uni-
versity of Buenos Aires. Lacking the pedigree of a PhD from a Western charter
university, he faced the implicit assumption in the North that great theory could
not come from the South; he also began a scholarly career outside the mainstream
economic journals and networks. Virtually none of his publications before 1949
were translated into English, the essential language of the period, so that his early
theoretical work remained neglected in the Anglo-Atlantic community until after
his death. This lacuna has now been rectified: Margulis’ authors in this volume
write with a nearly complete Prebisch bibliography and impressive archives of
his private papers.
In fact, Prebisch was a major, multi-faceted figure as early as the 1920s – theo-
rist, professor, deputy minister of finance in the Great Depression, delegate to the
1932 London International Conference, pioneer of development banking, trade
 Foreword xv
negotiator and public intellectual. His life intersected the main historical move-
ments and crises of the twentieth century; every stage enhanced his understanding
of the regional and global economy and informed his later work with ECLAC,
UNCTAD and beyond. The unavailability of disciplined graduate work was bal-
anced by his access to national scholars and continental European economists
in cosmopolitan Buenos Aires with theoretical perspectives both within and out-
side the orthodox liberal mainstream of the 1920s – important preparation for his
change of policy while confronting the Great Depression. Similarly, Prebisch’s
roles in President Roosevelt’s New Deal and Good Neighbor Policy underline his
lifelong commitment to social and institutional reform, while similar initiatives
such as his negotiations with Washington and Brazil in 1940–1 to promote trade in
the Americas preview his later projects in regional integration. From 1943 to 1949
his advisory work throughout Latin America established him as its leading econ-
omist and honed his ground-breaking ‘Manifesto’, Latin American Development
and Some of its Principal Problems (1949), which changed the vocabulary of
international economic relations and set ECLA on its historic trajectory. Despite
the appearance of segmented periods in Argentina, Latin America and UNCTAD,
Prebisch’s life demonstrates both vast scope and essential unity of purpose.
This lifelong consistency was embedded in Prebisch’s distinctive model of
innovation. In his major achievements – whether creating the Argentine Central
Bank during the Great Depression in 1935, leading ECLA in the 1950s or found-
ing UNCTAD in 1964 – Prebisch was more than a conventional economist. He
dreaded the life of the ‘solitary scholar’. Instead, he was committed to agency – to
linking new theory with institution-building and policy leadership. He was a rare
thinker who was also an outstanding administrator, animating teams in Santiago
and Geneva committed to global development as an ethical imperative.
Prebisch’s thinking continued to evolve over his entire life, with his approach to
the discipline of economics expanding stage by stage from an initial conventional
liberal orthodoxy to include social transformation, institutional change, human
rights, environmental challenge and, above all, ethics. Faced by today’s com-
plexities, he would certainly counsel innovative thinking across disciplines, in a
no-holds-barred debate that would include rethinking his own work from previous
decades, in search of the elusive project of global justice indelibly launched – if
not yet achieved – by him and his followers.
Edgar J. Dosman, York University, Toronto
Author of The Life and Times of Raúl Prebisch, 1901–86
(McGill University Press, 2008)
July 2016
Acknowledgements

The origin for this book began with a double panel entitled ‘The Global Political
Economy of Raúl Prebisch’, held at the 2014 Facultad Latinoamericana de Ciencias
Sociales-International Studies Association (FLACSO-ISA) conference in Buenos
Aires, Argentina. As the first ISA conference in Argentina – and, no less, in the city
where Prebisch created the Argentine Central Bank and lectured in economics at
the University of Buenos Aires – this was a unique opportunity to organize a set
of papers built around Prebisch’s ideas and contributions. As it was held in South
America, and by virtue of organizing one of the panels in English and the other in
Spanish, scholars from the region who normally would not attend the ISA annual
conventions in North America were able to participate. The panels led to a fas-
cinating interdisciplinary and transcontinental exchange on Prebisch, putting into
dialogue scholars who were previously unfamiliar with one another’s work due to
language and geography. Enthusiastic encouragement from the panel participants
spurred a plan for an edited volume. A subsequent conference panel on ‘The Global
Political Economy of Raúl Prebisch’ took place at the 2016 ISA annual convention
in Atlanta, this time showcasing chapters in the book by authors who had not been
participants at the original Buenos Aires conference. This panel was extremely well
attended and confirmed a much wider interest in putting Prebisch’s ideas, work and
leadership into conversation with contemporary global political economy (GPE)
debates. The modest aim of this book is to start that conversation.
I owe a sincere debt of gratitude to the contributing authors for their efforts and
patience with this project. I thank the editors of the RIPE Series in Global Political
Economy and three referees for their helpful comments and guidance. I would also
like to thank Diana Tussie, Mario Rapoport, Edgar Dosman, Cris Kay, Noemi Brenta
and Nora Lustig for their encouragement along the way. A final note of thanks to the
publishers for permitting us to include revised and updated versions of Robin Broad
and Zahara Heckscher, 2003, ‘Before Seattle: The historical roots of the current move-
ment against corporate-led globalisation’, Third World Quarterly 24(4): 713–28; Rob-
ert Wade, 2013, ‘The art of power maintenance’, Challenge 56(1): 5–39; and Esteban
Pérez Caldentey and Matías Vernengo, ‘Back to the future: Latin America’s current
development strategy’, 2010, Journal of Post Keynesian Economics 32(4): 623–44.
Matias E. Margulis
Edinburgh, UK
August 2016
List of abbreviations

AIIB Asian Infrastructure Investment Bank

BRICS Brazil, India, China and South Africa
CRA Contingent Reserve Arrangement
CTT Commodities terms of trade
DDA Doha Development Agenda
ECLA Economic Commission for Latin America
ECLAC Economic Commission for Latin America and the Caribbean
EP Export promotion
FDI Foreign direct investment
GATT General Agreement on Tariffs and Trade
GSP General System of Preferences
GVC Global value chain
G7 Group of Seven
G8 Group of Eight
G20 Group of Twenty
G77 Group of Seventy-Seven
IAB Inter-America Bank
IBRD International Bank for Reconstruction and Development
IMF International Monetary Fund
ISI Import substitution industrialization
LDC Least developed country
MFN Most favoured nation
NIEO New international economic order
OECD Organization for Economic Co-operation and Development
PST Prebisch–Singer Thesis
SDT Special and differential treatment
SSM Special safeguard measure
SSG Special safeguard
SVEs Small and vulnerable economies
TNC Transnational corporations
UN United Nations
UNCTAD United Nations Conference on Trade and Development
WTO World Trade Organization
http://taylorandfrancis.com
Introduction
The global political economy of Raúl
Prebisch
Matias E. Margulis

Raúl Prebisch (1901–1986) was a highly influential thinker and actor in the global
political economy of the twentieth century. His contributions are too numerous and
diverse to summarily list, but let us consider two of the most well known. Pre-
bisch generated one of the most powerful economic theories, the Prebisch–Singer
terms-of-trade thesis (PST),1 which showed that the gains from international trade
were unequally distributed between developing countries exporting mainly primary
goods and developed countries exporting manufactured goods. His insights into the
basic structural inequity in the world economy still hold true today and continue
to shape theory and policy on trade and development. Prebisch was also an influ-
ential leader of developing countries, advocating for a fairer international trading
order. As the first Secretary-General of the United Nations Conference on Trade
and Development (UNCTAD) in the late 1960s, he orchestrated the Third World’s
challenge to Western dominance over the norms and rules of the world economy.
Yet despite Prebisch’s importance and influence, I argue that Global Political Econ-
omy (GPE) has ‘peripheralized’ Prebisch by treating his ideas as not forming part
of the intellectual core of the field. Reading contemporary GPE scholarship, one is
unlikely to be alerted to his significance or relevance to key debates about power in
global economic governance. If a reader does come across Raúl Prebisch in GPE
works, Prebisch is likely to be presented as an historical figure without relevance
to contemporary events or incorrectly portrayed as a Latin American advocate for
economic autarky.
This volume starts from the position that Prebisch’s peripheral status in GPE
is problematic. Not only is GPE veering towards an erroneous account of Raúl
Prebisch, but the field is also obscuring his wider contributions to the study of
GPE itself. As I will demonstrate in this introductory chapter, Prebisch had a tre-
mendous influence on the development of GPE as an academic field. However,
Prebisch’s importance and influence is rapidly being erased, partly through acci-
dental forgetting due to the passage of time but even more so as a by-product of
the recent rewriting of GPE’s intellectual history. Peripheralizing Prebisch in GPE
has larger implications. It matters seriously for analysis of contemporary devel-
opments in the world economy, in which GPE has been far behind the curve and
2  Matias E. Margulis
where Prebisch’s ideas and past actions offer considerable insight, such as debates
about the long-term consequences of the recent commodities supercycle.
This introductory chapter is organized as follows. I first provide a brief overview
of Raúl Prebisch and his multiple roles in the real-world global political econ-
omy of the twentieth century. The next section draws on the cross-cutting themes
of ideas, agency and institutions to explore Prebisch’s role in constructing the
global political economy that we occupy today. I then show how Prebisch has been
peripheralized in GPE, and this is followed by a discussion of how reengaging with
the issues and topics to which he alerted us can enrich the field’s ­empirical scope
and analytical capacity. The final section describes the three thematic sections of
the book and provides a summary of the individual chapters contained therein.

Who was Raúl Prebisch?2

The above might read like an innocuous question, but who Prebisch ‘was’ depends
largely on whom you ask. Quite simply put, Prebisch had an extraordinary career
without parallel, holding positions of influence at the national, regional and inter-
national levels that placed him at the frontlines of key events in the world economy.
But Prebisch was more than a high-level functionary. He was also a critical, inno-
vative theorist of the global political economy, who published widely in ­academic
and other venues, and whose ideas diffused across the world.3 Prebisch’s life is
meticulously chronicled elsewhere (see Dosman 2008); here I provide a selective
outline of his career, focusing on the most relevant elements for GPE.
Although Prebisch is most closely associated with international trade, he in fact
first came to international prominence in the field of finance. In the mid-1930s Pre-
bisch was appointed chief officer of the Central Bank in his native ­Argentina – an
institution he had designed and built from scratch. In this role Prebisch pioneered an
activist, counter-cyclical monetary policy and import controls that revived the Argen-
tine economy after the Great Depression. Prebisch’s unconventional yet successful
policies transformed him into a national and international figure, celebrated as one
of the leading financial thinkers of his time, and commanding equal respect and
praise among economics professionals and central and private bankers. A changed
political climate in Argentina forced Prebisch out of the Central Bank in 1943. This
event prompted Prebisch’s first forays into international policy diffusion; for several
years he advised Latin American countries keen to replicate his successful monetary
policies. This included a money-doctoring mission to Paraguay in 1945 on behalf of
the US Department of Treasury to aid the country in setting up its Central Bank (see
Helleiner, this volume). Money-doctoring missions in the 1940s, which included
legal and technical support to establish central banks in developing countries, were
pivotal to paving the way for the Bretton Woods international financial order.
Prebisch spent the latter part of the 1940s teaching economics at the Univer-
sity of Buenos Aires, during which he worked on numerous studies of economic
growth, trade and money. Yet by 1949 Prebisch was back in the economic-policy
game, this time at the regional level, when the UN tasked him with first setting
up and later leading the Economic Commission for Latin America (ECLAC4) in
 Introduction  3
Santiago, Chile (a position he held until 1962). It was in this context that Prebisch
presented his ground-breaking study, The Economic Development of Latin Amer-
ica and Its Principal Problems (Prebisch 1950), that articulated what we know
today as the PST. Prebisch’s theory was highly original because it showed that
commodity-exporting developing countries experienced declining terms of trade
over the long run, meaning that the economic gap between core and periphery
countries would grow rather than narrow over time. This idea was highly contro-
versial as it challenged the theory of comparative advantage and the assumption
that developing countries should specialize in commodity production in order
to benefit from free trade (Kay 2006). In this report Prebisch also ushered in a
new approach to the study of the world economy – structuralism – which was
based on the experience of developing countries (unlike most other social sci-
ence that generalized exclusively from the experience of the West) and centred
on the inherently asymmetric relationship between core and peripheral econo-
mies. These ideas literally changed the world, with Prebisch’s new analysis of
international trade providing a theoretical and empirical foundation to support
state-led rather than market-led economic development in the developing world
(Hirschmann 1958; Toye and Toye 2003). At ECLAC, Prebisch and his team pro-
vided the theoretical justification and designed the blueprints for state-led import
substitution industrialization (ISI), which was widely implemented across Latin
America throughout the 1950s to 1970s. Less appreciated is the wider reach of
Prebisch’s analyses and prescriptions to other regions of the world, and most nota-
bly to the East Asian Miracle, where governments most closely followed the path
actually prescribed by Prebisch – initial selective ISI followed by a gradual shift
towards export-oriented industrialization – with remarkably successful results
(Amsden 2004). Prebisch’s structuralist approach, which established the concepts
of core–periphery and development–underdevelopment, also had a deep influence
on the production of knowledge, with many aspects of his approach later adapted
and extended across the social sciences.5
Prebisch’s global profile reached its height in the late 1960s after he took up
the helm at UNCTAD. This institution, which was Prebisch’s brainchild, was
instrumental in unifying developing countries into a cohesive political bloc on
international economic issues (Toye and Toye 2003; Dosman 2008). Under Pre-
bisch’s leadership, UNCTAD became a new forum for multilateral trade nego-
tiations that provided developing countries with a credible threat of exit from
the General Agreement on Tariffs and Trade (GATT). As a result, according to
Robert Hudec (1987: 42), this prompted a ‘permanent shift in the emphasis of the
GATT’s relationship with developing countries’, with the GATT agenda eventu-
ally shifting to attempt to accommodate developing countries’ priorities. More-
over, Prebisch also transformed UNCTAD into an agenda-setter by instilling in
the institution an activist bureaucratic culture geared towards challenging the sta-
tus quo of the international economic order. This involved norm-generating work
such as elaborating the principle of non-reciprocity in trade relations: the idea
that developed countries should be treated differently and have fewer obligations
due to their lower level of economic development. In addition, Prebisch initiated
4  Matias E. Margulis
forward-looking, evidence-based policy research, including the first-ever studies
on the restrictive business practices of transnational corporations (TNCs). In turn,
many of the ideas generated by UNCTAD on trade, such as special and differen-
tial treatment, later became incorporated into the rules of the GATT (see Hannah
and Scott, this volume). It was also during this period of UNCTAD’s history that
Prebisch coined the idea of a New International Economic Order (NIEO). As is
well known, the efforts to construct the NIEO became the first major North–South
political contest over control of the world economy. Prebisch’s ideas had a major
influence on the demands of developing countries, many of which were based on
a structuralist interpretation of the world economy, and his leadership positioned
UNCTAD as the main institutional vehicle for negotiating a North–South com-
promise for fairer economic relations.
This brief recap of Raúl Prebisch’s career shows us that he played different
roles – central banker, money-doctor, scholar, diplomat, UN functionary and
leader of the developing world, to name but a few. As a result of these varied
professional experiences, the question of who Prebisch ‘was’ cannot be simply
reduced to any single answer. This forces us to think of Prebisch differently from
his typical presentation in GPE, which is that of solely a development economist.
This representation is too narrow. Only by treating his multiple roles and influence
as a collective whole does it become possible to identify and situate Prebisch’s
diverse contributions.

Constructing the global political economy: Prebisch seen through the

prism of ideas, agency and institutions
Prebisch stands out because he straddled the roles of theorist and practitioner,
often simultaneously. As such, he was an individual who directly contributed to
constructing the global political economy we inhabit today. The use of the term
‘constructing the global economy’ here has a double meaning. This first use of the
term is a deliberate reference to Constructivism, acknowledging the importance
of ideas and inter-subjectivity in shaping beliefs, expectations and a shared under-
standing of the material world ‘out there’. Many of Prebisch’s ideas are associated
with his time working for the UN, and one of the UN’s major contributions has
been the generation of ideas (Jolly et al. 2009). I have already discussed above how
Prebisch’s structuralist approach changed the way in which the world economy
was understood. However, from a GPE perspective, what makes Prebisch’s ideas
particularly significant is that they influenced the real-world policies and prac-
tices of states, and in the process of doing so altered the structures of production
and trade. For example, his prescriptions for state-led industrialization resulted
in policy change and economic restructuring across Latin America (Hirschmann
1958; Cardoso 1977; Pérez-Caldentey and Vernengo 2007), East Asia (Amsden
2004; Wade 1990) and the African continent (Adebajo 2013). Likewise, his for-
mulation of the concept of non-reciprocity influenced the norms and rules of the
multilateral trading system (see Ho, and Hannah and Scott, this volume), leading
to material changes in world trade flows. In other words, Prebisch’s ideas not
 Introduction 5
only transformed understandings of how the world economy worked, but also
ultimately changed how the global political economy actually worked in practice.
The second use of the term ‘constructing the global political economy’ is in the
literal sense – the act of building or designing. Prebisch was not only a leader of
organizations such as ECLAC and UNCTAD but the driving force in articulating
the need for these institutions, convincing states to support their establishment,
working to define their institutional goals and missions and fostering activist
international bureaucracies to redistribute the world economy’s benefits to the
global South. The fact that ECLAC and UNCTAD came into being despite major
Western resistance, and secured ambitious mandates, is a testament to Prebisch’s
ability to successfully build institutions and navigate and surmount the politics of
the UN machinery, Cold War rivalries and a fragmented Third World.

Ideas, agency and institutions

Prebisch’s contributions span ideas, agency and institutions. An analytical ‘prism’
that considers the roles of ideas, agency and institutions as cross-cutting themes
permits us to better flesh out Raúl Prebisch’s significance for GPE. Just as a glass
prism disperses light to reveal its constituent spectral colours, the analysis of ideas,
agency and institutions is a means to bring into focus different core elements. This
approach fits well with contemporary GPE scholarship, which employs a diverse
conceptual toolset that permits us to study ideas, agents and institutions, either in
isolation, as relational and/or as constitutive of one another.
Prebisch was a highly productive and important generator of ideas. He pro-
duced both academic ideas that explained features of the world economy – such
as the concepts of core–periphery and the declining terms of trade for commodity
exporters – and ideas that were directed towards changing international norms,
law and practices. In the case of non-reciprocity, this was an idea that Prebisch
significantly advanced as a concept and worked to translate into a norm of the
multilateral trading system. States were slowly socialized over time to accept non-­
reciprocity as appropriate behaviour in international economic relations, through
a process that Prebisch orchestrated while at ECLAC and UNCTAD and that
eventually, after fractious political contests between developing and developed
countries, assumed the form of specific principles and rules in the GATT (and
today in the World Trade Organization, or WTO). The norms of non-reciprocity
and special and differential treatment are now deeply ingrained in the everyday
practice and study of international economic relations. These ideas remain sticky
today; indeed, recent attempts to reverse the norm of non-reciprocity in interna-
tional trade and investment agreements have resulted in renewed North–South
conflict (Chang 2006; Gallagher 2011).
Prebisch’s ideas have also become part of everyday, taken-for-granted
­knowledge. This is evident, for example, in the framing of debates about economic
globalization. Oft-heard critiques of the built-in unfairness of the world economy
or the inordinate power that TNCs exert over developing countries – these con-
cepts have their origins in Prebisch’s pioneering work. Indeed, Prebisch’s ideas,
6  Matias E. Margulis
though rarely acknowledged, continue to shape anti-systematic critiques and ani-
mate transnational advocacy seeking to tame economic globalization (see Broad
and Heckscher, this volume).
As well as being a generator of ideas, Prebisch was an agent of change in the global
political economy. He was a leader of developing countries who had the ability to
persuade key actors (such as heads of state, foreign ministers and the UN leadership)
to support his vision and plans for global economic governance. P ­ rebisch exercised
a strong form of agency and enjoyed both expert a­ uthority – developing-country
governments acknowledged him as a key thinker who understood and tried to solve
their economic problems – and moral authority – because as a UN leader he was a
vocal critic of the unfairness and hypocrisy in North–South economic relations.
Prebisch’s leadership of international institutions stands out because it was highly
activist and sought to change the status quo. He challenged the commonly held
view of the time that the UN should be neutral in order to be an honest broker. In
the context of stark economic and political asymmetries among developed and
developing countries, he concluded that passive neutrality was nothing less than
hubris that worked towards entrenching existing power relations. It is precisely
Prebisch’s style of Southern-led, activist leadership in global economic gover-
nance that Western states subsequently made it a priority to suppress. They have
done so actively since the late 1970s by limiting the appointment of UN senior
officials to those with Western-friendly views and resisting pressure to open up
Bretton Woods leadership to non-Western candidates (see Wade, this volume;
Weiss 1985; Bello 2000).
Prebisch contributed to creating international institutions that actively sought
to remake the global political economy. If the International Monetary Fund
(IMF), World Bank and WTO are, in Ngaire Woods’ (2006) formulation, ‘glo-
balizers’ seeking to free markets, then ECLAC and UNCTAD have served as
­counter-weights seeking to civilize economic globalization. While ECLAC and
UNCTAD have undergone many internal and external changes since Prebisch’s
time, these institutions remain outposts for the production of alternative ideas to
neoliberal orthodoxy. Even decades later these institutions continue to regularly
offer heterodox prescriptions on economic policy and governance. This is visible,
for example, in ongoing contests over the future of special and differential treat-
ment in the multilateral trading system, where UNCTAD continues to press the
need for developing countries to retain policy space in order to achieve economic
development. Developing countries have successfully employed the concept of
policy space at the WTO negotiations in order to maintain existing trade flexibili-
ties and also negotiate for new ones.

GPE today: ‘peripheralizing’ Prebisch?

A claim of this book is that GPE has peripheralized Prebisch. While he is not
entirely ignored, the field does not treat Prebisch’s ideas as having made a signif-
icant contribution or as central to the study of the global political economy. This
is evident in examination of how Prebisch has been presented in the teaching of
 Introduction 7
the field, and in the field’s own narratives about its historical development and
contemporary status.
One way in which the peripheralization of Prebisch takes place is through how
the field is presented in GPE textbooks. Textbooks matter because they offer the
neophyte a stylized treatment of the history of the field and the state of the so-called
big debates. I analysed the main GPE textbooks on the market for undergraduate
and graduate teaching.6 Of the nine textbooks, six discuss Prebisch, suggesting a
majority view that Prebisch is part of the study of GPE. The most typical repre-
sentation of Prebisch is as a key Latin American thinker who was the precursor
to, or in some accounts part of, the Dependency School and other related critical
approaches. While it is correct that Prebisch’s concepts of core–periphery and
development–underdevelopment were extended and adapted by subsequent gen-
erations of scholars, in fact he stands apart from this group because his approach
was not Marxist or anti-capitalist, but always rooted in economic liberalism.
Also problematic in GPE textbooks is a misrepresentation of Prebisch’s ideas
and their relevance to major debates in the field. Despite the ubiquitous associ-
ation of Prebisch with ISI, often forgotten in the retelling is that he held strong
reservations about this policy and was often its harshest critic. Prebisch advocated
ISI as a pragmatic response to the specific historical realities faced by developing
countries in the post-war order. He correctly identified the fact that the North’s
selective liberalization and continued use of tariffs and other trade barriers limited
the opportunities for export-led industrialization by the South. Prebisch himself
indicated that ISI was a suboptimal option, which would ideally be implemented
on a temporary basis to enable developing countries to jump up the development
ladder by fostering infant industries and enabling them to compete internationally
(see Ho, this volume; see also Sprout 1992). Presenting Prebisch as a proponent of
autarky, as is typically done, is therefore erroneous, because what he in fact advo-
cated was a developmental state that would plan and lead industrial development
towards the goal of export competiveness.
In addition to incorrectly portraying Prebisch’s views on the role of the state in
industrial policy, GPE tends to trivialize his ideas. There is a general tone of dis-
missiveness towards ISI in GPE textbooks, which typically portray this period of
state-led economic policy experimentalism as a failure. However, this account is
highly problematic, given disagreement over how to measure the success or fail-
ure of ISI (Amsden 1989; Bruton 1998; Gereffi and Wyman 1990; Wade 1990).
Contrary to the predominant narrative of failure, ISI policies in Latin America
ushered in decades of growth, promoted industrial catch-up and improved the
general standard of living (Birdsall et al. 2010). In East Asia, ISI was founda-
tional to the gradual transition to export-led growth and the rise of the newly
industrialized countries such as Taiwan and South Korea (Amsden 2004). While
ISI policies went out of favour in the late 1970s and 1980s, and even Prebisch
himself was highly critical of governments that did not transition from ISI to
exports, to suggest that ISI was a failure is disingenuous. The ISI era remains
one of the few periods in which large numbers of developing countries were able
to successfully narrow the economic gap with the West. This demonstrates how
8  Matias E. Margulis
rare and difficult catch-up is. Nor should it be forgotten that most countries that
abandoned ISI ended up performing worse under neoliberal policies (UNCTAD
1997; UNCTAD 2012).
Another danger in presenting ISI as a failure is that GPE uncritically reproduces
a neoliberal discourse designed to delegitimize structuralist scholars such as Pre-
bisch and undermine the state-led development paradigm. Neoliberal accounts
attribute the economic decline of Southern economies primarily to ISI; however,
they do so by understating the significance of external factors, such as the energy
price shocks and petro-dollar fuelled debt crisis, in the deterioration of develop-
ing countries’ macroeconomic conditions. In other words, it was the combina-
tion of both internal and external conditions, not just ISI, that caused developing
countries to abandon state-led development in exchange for structural adjustment.
The neoliberal revolution was not just about dismantling the welfare state in the
North, but was a global project seeking to discipline and unmake the developmen-
tal states of the global South (Bair 2009). More than any other figure, Prebisch
was repeatedly vilified by neoliberal scholars and governments throughout the
1980s and 1990s (Pollock 1998; Dosman 2008). In short, standard accounts of ISI
in GPE textbooks too readily treat an ideological narrative as ‘fact’.
Looking beyond teaching GPE, there are several other ways in which Prebisch
has been peripheralized. Prebisch does not fit easily with recent work seeking
to narrate a common intellectual history of the field. Kicked off by Benjamin
Cohen’s (2008) pioneering work on the transatlantic divide between American
and British GPE, a major debate ensued over who constitute the key thinkers
in the field, and the epistemological, ontological and methodological differences
between transatlantic traditions as well as those of other schools (Phillips and
Weaver 2010).
With respect to ‘who counts’ as a key thinker in GPE, Prebisch has never been
considered in this category. Yet the fact is that Prebisch was an original and influ-
ential theorist of the global political economy. Prebisch developed an analytical
framework to understand the global economy as a single unit embedded with deep
asymmetries; thus, he offered insights into the structural asymmetries faced by
all developing countries. He also wrote extensively on unequal gains from inter-
national trade, argued for the developmental state, diagnosed the unfairness built
into multilateral trade rules, analysed the implications of global economic crises
for developing countries and launched research agendas on the power of TNCs
(including how to regulate them) and the role of technology transfer in fostering
development. Because the field has tended to view Prebisch as just a development
economist, it has overlooked many of his later works in which an intellectual affin-
ity with GPE is more readily visible. In later works such as 1981’s Capitalismo
Periférico, Prebisch incorporated an analysis of US hegemony, social classes and
financial deregulation to explain structural outcomes in the world economy (see
Rivarola Puntigliano, this volume; also Sprout 1992). Prebisch’s consideration of
such political factors shows that his own work addressed themes that we would
today recognize as engaging in similar terrain to that of Realist and neo-Grams-
cian traditions in GPE. Prebisch should be considered a key GPE thinker because
 Introduction 9
he contributed foundational ideas that have shaped how the field understands the
world economy and because his intellectual trajectory evolved to encompass a
truly GPE perspective incorporating the interrelationship of economics and
politics.
GPE has not counted Prebisch as one of its own. Part of the reason for this may
stem from Eurocentric tendencies in the field; GPE has difficulty looking beyond
the West for its intellectual origins (Hobson 2013). As a Southern and critical
scholar, it is not surprising that Prebisch has not been considered to be among the
field’s core thinkers, given that GPE has a history of relegating Southern, critical
scholarship to the margins of the field (Murphy 2009). Criteria commonly used
to determine who counts in the area of GPE include publishing English-language
books and articles and holding a tenured post in the universities of the North. This
excludes thinkers such as Prebisch who do not fit the mould of the conventional
scholar; he spent most of his career outside academia and spoke to a large and
diverse audience. Prebisch’s exclusion as a key GPE thinker signals the contin-
ued challenges involved in fostering a more global and representative field (see
Phillips 2005).
Prebisch is also peripheralized by GPE’s ongoing efforts to subdivide and
compartmentalize the field into discrete nationally/regionally based traditions.
Whereas the initial ‘schools debate’ was myopically focused on the transatlan-
tic divide between British and American schools of GPE, subsequent work has
sought to pluralize GPE by incorporating a wider range of traditions such as
Canadian, Chinese, Latin American and African GPE (see Blyth 2009; Chin et al.
2013; Cohen 2014). While such efforts to move beyond transatlanticism should be
commended, there is something artificial about lumping diverse thinkers together
based on geography. In Prebisch’s case, there has been a recent tendency to place
him in a ‘Latin American school’ of GPE, which, I argue, overemphasizes Pre-
bisch’s early writings on structuralism and his work at ECLAC (but considers
less his more universalistic ideas and work at UNCTAD) (Love 2005; Cohen
2014). Such an interpretation is conflating two different things: GPE should be
careful to differentiate between structuralism as an analytical framework – which
continues to offer insights for understanding asymmetric relationships among
states in the global political economy – and the historically specific epistemic
community that was housed within ECLAC and provided economic policy pre-
scriptions for Latin America.
GPE’s selective account of its own origins also works in subtle ways to periph-
eralize Prebisch. The conventional story told about the origins of GPE is that it
emerged in the late 1970s/early 1980s because of a dissatisfaction with Interna-
tional Relations’ (IR) inability to explain the economic dimensions of world pol-
itics. In reality, what spurred the development of GPE was not so much a ‘gap’ in
the IR literature but instead a reaction to unprecedented changes taking place in the
politics of the world economy at the time – the energy crises and Southern asser-
tiveness in the form of the NIEO. In other words, GPE’s appearance as an intellec-
tual project had a lot to do with scholars seeking to come to grips with the world
Prebisch had constructed (see Cox 1979; Ruggie 1982; Murphy 1983; Sikkink
10  Matias E. Margulis
1988). To illustrate this point let us consider some of the key first-generation GPE
thinkers and books. Stephen Krasner’s (1985) influential realist contribution, Struc-
tural Conflict: The Third World Against Global Liberalism, centred on the great
North–South encounter around the politics of the NIEO. Krasner acknowledged
the extraordinary and pivotal role of Prebisch in the global South’s critique of the
Pax Americana and, in particular, UNCTAD’s role in fostering a coherent South-
ern discourse challenging the hegemony of the dominant liberal worldview of the
time. Prebisch similarly occupied a prominent place in Robert Cox and Harold
Jacobson’s (1973) Anatomy of Influence, in which they analysed his role in trans-
forming UNCTAD into a pressure group for developing countries to contest the
international economic policy preferences of the North. Let us not forget that the
global South’s challenge to Western control of global economic governance
through UNCTAD and the NIEO was one of the most significant turning points in
the global political economy. It was this historically specific juncture that gave rise
to the central problematique of the nascent field of GPE, whose point of departure
became the discord and conflict animated by the NIEO. Today the passage of time,
and the NIEO’s eventual collapse, makes it difficult to fully appreciate the impor-
tance of these events. But they provided the context that shaped the intellectual
puzzles and research agendas which in turn forged the field of GPE. This is evi-
dent not only in the works mentioned above but also in other prominent examples
such as Robert Keohane’s After Hegemony and Susan Strange’s work on structural
power. Contemporary GPE has not sufficiently appreciated the link between Pre-
bisch’s contributions to constructing the global political economy and the emer-
gence of GPE as an academic field of study. Prebisch’s shadow looms large over
GPE’s origins and its subsequent development, and this should be recognized.

Extending GPE’s analytical scope

A consequence of GPE’s peripheralization of Prebisch is that many of his insights
have receded from the collective memory of the field. In practical terms, this
means that GPE pays far less attention to topics and problems that Prebisch iden-
tified as central to understanding the workings of the global political economy.
Yet it is not the case that these topics and problems have gone away. In fact, quite
the opposite is true, with the key issues that animated Prebisch’s work once again
highly significant in the global political economy. Below, I discuss two prominent
examples: the recent commodities supercycle and the re-emergence of alternative,
Southern-led global economic governance.

The commodities supercycle and global economic restructuring

GPE can take several cues from Prebisch’s macro-historical approach to the study
of world production and trade in order to improve and refine the field’s capac-
ity for understanding structural changes in the world economy. U ­ nderstanding
structural change is an area of contemporary GPE scholarship that Robert
­
­Keohane (2009) has identified as a major weakness. Keohane’s observation rings
 Introduction 11
especially true in the case of the twenty-first-century commodity supercycle. Pre-
bisch was keenly interested in supercycles, which are highly significant for the
study of GPE because they portend structural changes in production, trade and the
global distribution of wealth and power. Earlier supercycles, such as the 1935–60
supercycle of the war/post-war economy and the 1970s supercycle associated
with food and energy price crises, each significantly reshaped the structure of
the world economy, and subsequently its politics. Prebisch studied supercycles
because he was interested in how longer-term changes in commodity prices redis-
tributed economic and political power among states. He was also interested in the
role of global economic governance institutions in shaping the rules that structure
commodity trade at the global level.
The recent supercycle, which began in 2003 and still lingered in 2016, is char-
acterized by major price increases in energy, metals and agricultural commodities
(Erten and Ocampo 2013). The supercycle went through a boom (during 2003–7,
with commodity prices at historical peaks), a bust (in 2008, coinciding with the
global financial crisis) and then a period of recovery, with prices for commod-
ities below the peak but remaining above pre-2005 levels (see Figure 0.1). The
commodities supercycle is widely recognized as a significant event in the world
economy and is associated with the return of the primary sector as, once again, a
major driver of national economic growth. The causes of the supercycle have been
heavily debated, with the key drivers identified being China’s urbanization and
industrialization and the sharp rise of financial speculative activity in commodi-
ties markets. Predicting the bust of the supercycle is a major concern within finan-
cial circles, with the financial press frequently, and often incorrectly, pronouncing
its end. For economists, the supercycle has revived interest in PST, with several

250

200

150

100

50

0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

Figure 0.1 All Commodity Price Index, 2005=100, includes both fuel and non-fuel price indices.
Source: IMF Commodity Price Data.
12  Matias E. Margulis
recent studies confirming the continued deterioration of the terms of trade for
tropical commodity exporters (UNCTAD 2014). It has been argued that the recent
supercycle is different, because of the stickiness of prices above their pre-crisis
levels (Canuto 2014) and a broad consensus that a ‘new normal’ of structurally
higher commodity prices will be a feature of the world economy for the foresee-
able future. Despite major policy, academic and popular interest in the super­
cycle globally, GPE has barely registered its existence, let alone made significant
intellectual interventions.7 GPE’s relative silence on such a major event in the
world economy is troubling. It confirms Clapp and Helleiner’s (2010) observation
that the field today exhibits a diminished capacity to study commodity-related
developments. This is in sharp contrast to GPE in its earlier days, when scholars
followed commodity issues with interest.
The recent supercycle is notable for having made reprimarization an attrac-
tive national economic strategy in both the global North and South (Veltmeyer
2013; Kröger 2015; Grinspun and Mills 2015). Since the start of the supercycle,
high commodity prices have incentivized a diverse group of states to shift their
economic priorities towards scaling up investments in resource production and
extraction. This has not only altered domestic political economies but has also
had global ramifications, with states such as Brazil and Russia translating resource
wealth into international political influence (Wilson 2015; Hopewell 2016). Rep-
rimarization has also been integrated into the global development agenda by the
Group of Eight (G8), World Bank and UN system, which now increasingly work
with the private sector, encouraging developing countries to refocus on primary
exports. This is most highly visible in agriculture, which for decades was regarded
as the ‘backwards sector’, but where recent high food prices have made steering
investment and biotechnology into developing countries an international policy
priority in the name of economic development and food security (World Bank
2008). Drawing on Prebisch’s insights, this raises major questions about how the
(re)turn to reprimarization will shape the global political economy going forward:
will an eventual bust trap commodity exporters into new relationships of depen-
dency, or, if global resource scarcity intensifies, will this enhance their structural
power and ability to claim benefits from the global political economy (see Pérez
Caldenty and Vernango; Kaplinsky and Farooki, this volume)?
A second element in regard to which GPE would be strengthened by paying
greater attention to the supercycle is the changing relationship between commod-
ities and financial markets. It is well documented that the supercycle’s 2006–8
boom immediately followed a sharp spike of financial investment in commodity
futures. A major debate on the financialization of commodities has ensued among
economists, especially regarding whether speculative financial investment was
the most significant cause driving food prices to record-level highs (see Mayer
2012; Cheng and Xiong 2014; Henderson et al. 2015; Ederer et al. 2016). A trickle
of GPE-oriented analysis has engaged with this debate, largely in support of the
financialization-of-commodities thesis but also shedding light on other crucial
dynamics, such as how the global financial crisis eroded developing countries’
access to credit to finance food imports and the increased presence and power of
 Introduction  13
financial actors in commodity futures trading and global supply chains (Ghosh
2010; Clapp 2014).
The linkage between commodities and finance has wider implications for how we
understand the present supercycle and the politics of its governance. Prebisch argued
that a supercycle’s boom and bust, and hence the economic prospects for commod-
ity exporters, were largely determined by the business cycle of the core economies.
In other words, real demand was viewed as the most important factor influencing
commodity prices and trade. However, the recent supercycle has demonstrated that
financial activity now plays a significant role in mediating commodity prices. This
calls for GPE to update and refine its understanding of the dynamics of supercycles
in order to better incorporate the role of financial markets and political actors in
determining the direction, intensity and duration of price swings.
These new dynamics also raise important questions for the prospects of gov-
erning commodities. Throughout the 1950s to 1970s, the main demand for inter-
national commodities governance came from producing countries concerned by
low prices and desiring supply-management schemes, such as the international
commodity agreements negotiated at UNCTAD and championed by Prebisch.
Since 2008, the issue of price volatility and high prices, especially for agricultural
commodities, has been a preeminent policy issue in global regulatory debates
(FAO et al. 2011). However, the linkages between finance and commodities make
regulation ever more difficult. As commodity markets become increasingly com-
plex and unpredictable, in large part due to the entry of new financial actors but
also as a result of increasing consolidation and integration across the sector, calls
for the reintroduction of global supply management of physical stocks appear less
likely to be sufficient. Achieving financial reform that would minimize the volatil-
ity of commodity prices is also not a straightforward matter, given the inordinate
power of financial actors and their track record in blocking reregulation since the
global financial crisis. There is also unwillingness to regulate the financial indus-
try on the part of key states such as the US and UK, especially in areas such as
agriculture, where speculative activity results in profits at home but negative con-
sequences are largely borne by distant food-insecure populations in developing
countries. All this points to the need for GPE to develop a better understanding of
a post-crises global political economy due to an intertwining of finance and com-
modities that is rescaling relations of power and dependency among commodity
exporting states and financial markets. The issue of commodities should have a
greater place in GPE scholarship than it has done in recent years, and Prebisch’s
analysis provides a first port of call for scholars seeking to understand contempo-
rary shifts in production and power.

Southern-led global economic governance

The second area of research in which GPE would benefit from greater engage-
ment with Prebisch’s ideas, work and institutional legacies is the return of the
‘Third World’ and accompanying new contests for control of global economic
­governance. GPE leads on research into emerging powers’ incorporation into
14  Matias E. Margulis
global economic governance, such as the displacement of the G8 by the Group
of Twenty (G20); the emergence of Brazil, India and China as a new power bloc
at the WTO; and increased voting shares for emerging economies at the World
Bank and IMF (Wade 2011; Kahler 2013; Gray and Murphy 2013). Other devel-
opments indicative of power shifts are the creation of new Southern-led financial
institutions such as the New Development Bank (formerly known as the ‘BRICS
Bank’), the BRICS Contingent Reserve Arrangement (CRA) and the Asian Infra-
structure Investment Bank (AIIB) as alternatives to the Bretton Woods system
(Chin 2014; Bond 2016).
There are important parallels between the current rise of emerging powers and
previous efforts by developing countries to challenge the status quo in global
economic governance. Whereas the new Southern-led institutions are not entirely
analogous to the past (for example, the New Development Bank is not universal-
istic or under the umbrella of the UN system), we can learn from Prebisch’s lead-
ership of alternative, Southern-led institutions. Consider that popular discourse
paints these new institutions as direct challengers to the Bretton Woods status
quo led by the North. The case of UNCTAD is instructive. Despite the highly
charged North–South political rhetoric on trade issues in the 1960s and 1970s,
and efforts to position UNCTAD as an alternative to the GATT, Prebisch did
not regard or manage the UNCTAD–GATT relationship as solely one of rivalry,
but rather also as one of complementarity. UNCTAD permitted space for dis-
cussion and negotiation on issues that were not possible at the GATT due to the
asymmetry of bargaining power. Making the GATT work better for developing
countries was one of Prebisch’s key objectives, and to this end he engaged in a
successful strategy of transferring norms and rules generated within UNCTAD
out into the GATT. This should alert GPE that what might appear as so-called
rivalry among global economic governance institutions requires further unpack-
ing. This is not to argue that South–North rivalry is not important, but, taking
cues from the complexity of the UNCTAD–GATT relationship, it is suggested
that a more open perspective should be taken that looks for relational dynamics
such as inter-institutional transfers of ideas, norms and cooperation, as well as
conflict among institutions, as part of a new South–North politics of co-steering
the world economy.

Description of chapters
This volume is organized into three thematic sections that highlight the multi-
ple contributions of Prebisch’s ideas, actions and institutional legacies to our
understanding and study of the global political economy. Each section includes
a set of chapters organized along the lines of three overarching themes: a critical
reinterpretation of Prebisch’s ideas and agency; Prebisch’s institutional legacy
and its continued relevance for understanding the workings of power in global
economic governance; and extending Prebisch’s analytical framework, as well as
assessing its limits, to understanding contemporary developments in the global
political economy.
 Introduction 15
Prior to providing a detailed description of the chapters below, it is important to
flag certain characteristics of this collection. The book’s contributors come from
a range of disciplinary backgrounds: political scientists, IR scholars, sociologists,
economists and historians are all represented here. There was a conscious deci-
sion to ensure that Prebischstas (that is, Latin American scholars whose research
orientation is heavily shaped by Prebisch’s economic theories) were represented
in the collection but did not dominate. No single disciplinary approach or per-
spective is predominant in the collection, in order to foster new ways of looking
at Raúl Prebisch’s contributions and provoke debate about the state of GPE. This
pluralist approach is evidenced in the diversity of both the perspectives and the
methodological approaches used to capture the richness and complexity of Pre-
bisch’s ideas, agency and institutional legacies.

Prebisch as architect and theorist of the global political economy

The chapters in the first thematic section extend our understanding of two of
Prebisch’s best-known roles: as a theorist of the global political economy and
an actor in global economic governance. A common feature of the chapters in
this section is that they shed light on several of Prebisch’s contributions that are
less well known but of central importance to our understanding of the global
political economy.
P. Sai-wing Ho’s chapter challenges the mainstream narrative of Prebisch as
an ideologue of ISI. Ho argues that the vilification of ISI and Prebisch that took
hold in the 1970s and continues today is problematic because it equates Pre-
bisch with the policies and experiences of countries over which he had no direct
control – something akin to faulting Karl Marx for the economic decline of the
Soviet Union. Such vilification has also left in its wake an inaccurate account of
Prebisch’s own ideas on the role of ISI in economic development. As Ho demon-
strates, based on a deep reading of Prebisch’s writings, ISI was proposed as a
pragmatic but short-term strategy to scale up the availability of capital and tech-
nological innovation, which was to be followed by a gradual, sequential insertion
of developing countries into the international trading system. Ho argues that this
important dimension of Prebisch’s views on ISI – that it was an intermediary
phase to be followed by exports and international competition – challenges the
neoliberal depiction of his ideas as promoting delinking from the international
economy. In fact, Prebisch himself was a major critic of developing countries that
used ISI to protect inefficient industries instead of fostering international compet-
itiveness, and repeatedly warned about the ‘fossilization of the state’ during his
time at ELCAC and UNCTAD. The chapter challenges popular misconceptions of
Prebisch’s ideas and his views on ISI, which were far more critical than one would
expect from the so-called ‘champion’ of ISI.
In his chapter, Andrés Rivarola Puntigliano examines a less well understood
aspect of Prebisch’s core–periphery schema. What Rivarola Puntigliano shows
is that Prebisch’s conceptualization of core–periphery changed markedly over
time, from an original focus on economic variables to later including political,
16  Matias E. Margulis
social and even cultural dynamics. Whereas GPE as a discipline claims its ori-
gins in dissatisfaction with the lack of consideration of economic variables in
political analysis, Prebisch’s intellectual dissatisfaction came from the lack of
attention to political variables in economic analysis. This ‘liberation from eco-
nomics’ was influenced by his lived experiences at ECLAC and UNCTAD. Over
time, P
­ rebisch placed greater importance on political and other forms of structural
power – in particular, the ways in which the US used a combination of coercion
and persuasion through foreign aid, military assistance and control of interna-
tional organizations to shape the rules of the world economy and constrain eco-
nomic development in the global South.
José Briceño Ruiz considers Prebisch’s contribution to regionalism. He
demonstrates how Prebisch launched ECLAC’s work on a coordinated and col-
lective approach to regional economic integration. The chapter thus squarely
places Prebisch’s ideas and institutional legacies as an important, yet acknowl-
edged, contribution to the debates about regionalism. As Briceño Ruiz points out,
Latin America has a long history of regional economic integration experiments
that predates the creation of the European Community. However, the 1950s and
1960s were an important period that saw the negotiation of the Central American
Common Market, the Latin American Free Trade Association and the Andean
Pact. ECLAC played a major role in fostering such regionalism. It articulated
a vision for a Latin American common market that emphasized regional devel-
opment and social equity, and provided the technical and analytical support for
states in their negotiation of regional agreements. Briceño Ruiz observes that
the ascendance of the Washington Consensus in the 1980s and the globalizing
of Latin American economies disrupted the regional project’s thrust, prompting
ECLAC to apply the idea of ‘open regionalism’ for a Latin America operating in
a more globalized economy.
The final chapter in the section, by Eric Helleiner, provides an alternative
account of the creation of the Bretton Woods institutions: the International Bank
for Reconstruction and Development (that is, the World Bank) and the IMF.
Whereas the tendency for GPE scholars has been to understand this crucial post-
war institutional development as an exclusively American and British affair, Hel-
leiner demonstrates that Latin America was a principal audience for the US’s plan
for the post-war financial order. Indeed, the very design of the Bank and Fund
was partially an extension of existing inter-American practices to the global level.
Although Prebisch was not present at the Bretton Woods negotiations, he was
directly involved in preparing the groundwork for the post-war financial order.
Prebisch’s cooperation with the US Treasury and the money-doctoring work he
undertook on its behalf helped prepare Latin America’s integration into the post-
war financial order. This account of Prebisch as working in support of the Bretton
Woods institutions is surprising, because he is largely known for being their critic.
Helleiner’s chapter shows that this criticism was not immediate, nor was it based
on a straight rejection of the goals of Bretton Woods. Rather, Prebisch’s criticism
was born out of the failure of the World Bank and IMF to deliver on their devel-
opment objectives in the ensuing years.
 Introduction 17
Power and resistance in the global political economy
The second section considers the role of Prebisch’s ideas and institutional legacies
in contemporary global economic governance. Ultimately, Prebisch’s attempts to
understand power asymmetries in the world economy had a social purpose: to
challenge such imbalances in order to improve the material standard of living for
people across the global South. The chapters in this section consider how Pre-
bisch’s legacies remain alive today by analysing ongoing contestation in global
economic governance.
In their chapter, Robin Broad and Zahara Heckscher situate Prebisch’s con-
tribution to the study of GPE by embedding him in a historical study of transna-
tional advocacy. They consider three historic waves of economic integration that
provoked different forms of cross-border resistance and corresponding theoretical
frames employed by anti/alter-globalization movements. Broad and Heckscher
argue that Prebisch’s influence on the contestation of economic globalization is
particularly important to understanding the rise of transnational advocacy in the
1970s against the global reach of TNCs and the policies of the World Bank and
IMF. UNCTAD’s early work on TNCs laid the foundations for the critique of
unfair business practices and the idea of subjecting them to global regulation.
These ideas have continued to animate the politics of alter-globalization over time,
ranging from global civil society’s successful resistance against the proposed 1997
Multilateral Agreement on Investment to the 2000 UN Global Compact. While
Broad and Heckscher argue that Prebisch’s ideas may be understood as part of a
longer historical pattern of social critique of capitalism, they also identify specific
contexts in which Prebisch’s legacy remains strong. In particular, they note the
importance of Prebisch’s structuralist approach in shaping the views of contem-
porary and prominent Southern leaders in the alter/anti-globalization movement.
In their chapter, Erin Hannah and James Scott argue that UNCTAD’s decline
may be overstated. They offer an empirical analysis that demonstrates the orga-
nization’s continued generation of development-oriented ideas and policies,
showing how many of these have been transferred from UNCTAD to the GATT/
WTO. As Hannah and Scott remind us, the flow-through of ideas began when
Prebisch was at UNCTAD. They show that this legacy continues by tracing how
UNCTAD-developed concepts such as policy space and the formulation of new
developing-country categories such as Least Developed Countries, Small Island
Developing States and Small and Vulnerable Economies were incorporated into
the WTO Doha Round as the basis for negotiating special and differential treat-
ment and additional trade flexibilities. UNCTAD-generated ideas matter, since
several negotiation victories by developing countries during the Doha Round have
been based on demands for policy space. Despite these successes, Hannah and
Scott point out the difficulties associated with putting UNCTAD’s ideas into prac-
tice. This includes institutional challenges, such as implementation of special and
differential treatment that often falls short of developing countries’ expectations,
and the proliferation of regional and bilateral trade agreements that is eroding
developing countries’ leverage and collective bargaining power. Hannah and Scott
18  Matias E. Margulis
conclude that the mounting development challenges facing the global South will
increase the demands on UNCTAD to keep generating alternative ideas.
Robert Wade’s chapter argues that the growing economic might of the emerging
powers has not resulted in a power shift, by pointing out that the global political econ-
omy continues to be dominated by the US in terms of rule-making and its continued
structural power in finance, trade and technological innovation. These conditions
make it difficult for the re-emergence of activist Southern leadership associated with
Prebisch. Wade offers two instructive case studies to illustrate continued Northern
resistance in this regard. The first examines recent events at UNCTAD, including
the US and EU’s blocking of a developing-country proposal for UNCTAD to be
mandated to address the root causes of the 2008 global financial crisis. The sec-
ond reveals the politics of leadership at the World Bank. Although it is traditionally
headed by a US citizen, there were expectations among the G20 that the leadership
position would be open to an international pool of candidates during the 2012 pres-
idential search. Wade explains why two highly qualified and prominent Southern
candidates – Ngozi Okonjo-Iweala (a former World Bank managing director and
Nigerian finance minister) and José Antonio Ocampo (a former UN undersecretary
general and, like Prebisch, a former head of ECLAC) – were defeated by the rela-
tively unknown and inexperienced US candidate, Dr Jim Yong Kim. Wade argues
that the ability of the US to retain the leadership, despite a lack of unanimous sup-
port for Kim on the part of the Bank’s Executive Board, illustrated its willingness to
use unilateral power to control leadership in global economic governance.

Diagnosing structural change in the global political economy

How relevant is the Prebisch–Singer terms of trade thesis today, and should states
favour industrialization or primary exports? The debate on the matter remains far
from closed. If anything, developments in the last decade have challenged many
of the fundamental assumptions that inform national economic strategies. The
chapters in this section offer competing readings of the commodities supercycle
and debate its consequences.
Kristen Hopewell’s chapter considers Brazil’s recent economic transformation,
which has been a product of agricultural exports. Hopewell traces this develop-
ment as a fortuitous outcome of earlier ISI strategies. In the 1970s, the Brazilian
government made substantial investments in research and development to mod-
ernize its agricultural sector. Hopewell shows that, whereas the original objective
of this policy was to reduce food prices in order to create enabling conditions for
state-led industrialization, ISI policies met with mixed success but the agricultural
transformation was extraordinary. Hopewell argues that the Brazilian case is signif-
icant as it defies both the liberal theory of comparative advantage – because it was
state-led innovation that reshaped Brazil’s comparative advantage in a­ griculture –
and Prebisch’s expectation that agricultural commodities are a developmental
dead-end. Hopewell shows that the key piece of this puzzle is the important role
of domestic technological innovation in agriculture, yet this too departs from the
well-known East Asian experience, where domestic technological innovation was
 Introduction 19
in the industrial sector. One the one hand, Brazil’s economic fortunes remain tied
to world commodity markets, and its economy has been buoyed by the recent
commodities supercycle. On the other, Brazil has developed an internationally
competitive agricultural sector that is increasingly exporting its technological
know-how in commercial and aid deals abroad. In this way, Brazil has generated
the domestic knowledge capacity which Prebisch argued was instrumental for
development, yet it remains highly vulnerable to external shocks in commodi-
ties markets, which Prebisch identified as the essential weakness of commodity-­
dependent development. Hopewell is cautious on the question of whether Brazil’s
path is replicable, given its unique conditions, or even desirable, given the consid-
erable ecological costs and continuing commodity dependence.
In their chapter, Esteban Pérez Caldentey and Matías Vernengo revisit the
Latin American and Caribbean region’s recent economic boom to show what this
reveals about development trajectories. Whereas the 1980s was a ‘lost decade’ and
the 1990s associated with weak economic growth, the region experienced its high-
est average per capita growth rates in history during the 2000s. Pérez Caldentey
and Vernengo unpack the statistical data to show that the Latin American boom
(and subsequent slowdown) was principally driven by the supercycle. Their anal-
ysis reveals a decade-long process of reprimarization, which, although resulting
in a positive terms-of-trade balance for the region, has produced a new dynamic
of economic dependence on China and greater vulnerability to price volatility
via the financialization of commodities. More strikingly, Pérez Caldentey and
Vernengo observe a bifurcation of development strategies within the region, with
South American countries reprimarizing and Central America adopting a de facto
strategy of exporting people – migrants and undocumented workers. The onset of
the Great Recession, while putting an end to the Latin American boom, did not,
however, produce an equivalent shift in development strategies. Pérez Caldentey
and Vernengo conclude that Latin American economies’ reliance on exporting
commodities and people is not sustainable in the long run and demonstrates that
the region has yet to overcome the very same problems identified by Prebisch
more than half a century ago.
Raphael Kaplinsky and Masuma Farooki revisit the PST. They argue that
­Prebisch’s insights were largely correct and remain relevant. However, they point
to the emergence of China as the world’s largest economy as a game-changer, with
its industrialization and urbanization driving the demand for commodities glob-
ally. Another significant departure from the past is that global value chains and
transnational production have practical implications for how the terms of trade
might be applied as an analytical concept in the twenty-first century: the frag-
mented nature of transnational production today renders the comparison between
core exports of manufactured goods and periphery commodity exports incomplete
for understanding trade and its consequences. Kaplinsky and Farooki show that
this matters greatly for GPE analysis, since states now specialize in specific value-
added activities along the global chain rather than just in specific industrial or
primary sectors. Kaplinsky and Farooki argue that updating our understanding of
the PST in light of structural shifts in the nature of production and trade may also
20  Matias E. Margulis
require rethinking the idea of commodities as a developmental dead-end. They
point to new data showing that resource-dependent developing countries have
grown more than other developing countries in recent years. In the context of
increasing global demand for commodities and the shrinking of development pol-
icy space for industrialization, they suggest that commodities as a development
strategy may not be the worst among the limited available options. Kaplinsky and
Farooki remind us of the need to take seriously a global political economy that is in
a major period of structural transition, where some features of the world Prebisch
knew remain, but many other features and dynamics of global production and
labour depart in significant ways.

Acknowledgements
I thank Kristen Hopewell, Paul Cairney, Andrea Baumeister, Tim Peace and
Hannes Stephan for comments on an earlier draft of this chapter.

Notes
1 It is called the Prebisch–Singer thesis because both Prebisch and Hans Singer are cred-
ited with coming to similar conclusions at the same time (see Toye and Toye 2003).
2 This section builds on Dosman (2008), Kay (2006) and Toye and Toye (2003; 2004).
3 For an overview, along with a comment by Jagdish Baghwati, see Raúl Prebisch
(1984), ‘Five stages in my thinking on development’, available at www.rrojasdatabank.
info/pioneers7.pdf (accessed 1 August 2016).
4 ECLAC, or CEPAL (its acronym in Spanish for Comisión Económica para América
Latina y el Caribe), originally only covered the Latin American region. The institu-
tion’s mandate was expanded to cover the Caribbean (the ‘C’ in ECLAC) in 1984.
5 Beyond economics, structuralism was a building block for other critical social-science
approaches to studying the world economy, such as dependency theory and world sys-
tems theory.
6 Thomas Oatley, International Political Economy, 5th edition (London and New York:
Routledge, 2016); John Ravenill (ed.), Global Political Economy, 4th edition (Oxford:
Oxford University Press, 2014); David N. Balaam and Bradford Dillman, I­ ntroduction
to International Political Economy, 6th edition (New York: Pearson Press, 2014);
Benjamin J. Cohen, Advanced Introduction to International Political Economy
­
­(Cheltenham: Edward Elgar, 2014); André Broome, Issues and Actors in the Global
Political Economy (Basingstoke: Palgrave Macmillan, 2014); Theodore H. Cohn,
Global Political Economy, 6th edition (London: Longman, 2013); Robert O’Brien
and Marc Williams, Global Political Economy: Evolution and Dynamics, 4th edition
­(Basingstoke: Palgrave Macmillan, 2013); Richard Stubbs and Geoffrey R.D. Under-
hill, Political Economy and the Changing Global Order, 3rd edition (Toronto: Oxford
University Press, 2006).
7 One exception is re-emerging interest in the global political economy of energy.

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http://taylorandfrancis.com
Part I

Prebisch as architect
and theorist of the global
political economy
http://taylorandfrancis.com
1 Development through tighter
economic integration
How might Prebisch size up some
trends and issues thus far into the
twenty-first century?
P. Sai-wing Ho

The idea of speeding up development through tighter international economic inte-

gration is one that is essentially as old as Economics is as a discipline. Over the
course of the discipline’s history, that idea has been sliced and diced by proponents
and opponents alike, from many different angles. Prebisch entered the debate in the
English-speaking world in the late 1940s. It was the provocative opening sentence
in what Hirschman (1968) dubbed Prebisch’s ‘Manifesto’ – ‘In Latin America,
reality is undermining the out-dated schema of the international division of
labour’ (Prebisch 1950a: 1) – that started to earn Prebisch ire from mainstream,
neoclassical economists. In debate about big ideas, some opponents typically
zero in on certain elements in the arguments of the party under attack, to the
neglect of other elements, and thus effectively distort and misrepresent that
party’s original reasoning. This is certainly true in Prebisch’s case. Instead of
distilling from a rich and larger body of his work a more complete picture of
his arguments, mainstream economists’ attention has almost entirely focused
on the statement that appears several pages into the Manifesto, that ‘the price
relation turned steadily against primary production from the 1870’s until the
Second World War’ (Prebisch 1950: 8).1 As is well known, this statement, and
the post-war terms-of-trade movements that it is said to have predicted, were
subsequently called the Prebisch–Singer Thesis (PST).2 Mainstream economists
then boiled Prebisch’s policy recommendations down to nothing but import sub-
stitution industrialization (ISI), that is, the employment of protectionist trade
measures to induce a diversification away from primary to industrial production,
largely to serve the domestic market.
Beginning in the 1970s, the economics mainstream staged a neoclassical resur-
gence (Myint 1987). Oftentimes operating under the banner of export promotion
(EP), which entails relatively liberalized trade policies under which practising coun-
tries would trade more with each other, became a key component of neoliberalism or
the Washington Consensus and that would take the debate to a new phase, frequently
called the globalization debate, that has extended into the present millennium.
Close to three decades since his death, just how might Prebisch size up this
latest phase of the ongoing debate, especially with reference to certain trends and
issues thus far into the twenty-first century? To attempt to address this, perhaps
28  P. Sai-wing Ho
it is only reasonable to start with the very basic, yet obvious, question of what
his utmost concerns were regarding the underdeveloped countries and what his
recommendations for them were, and then to consider their present relevance.
Clearly, if one subscribes to his portrayal by his neoclassical critics, then one
would simply expect him to adhere to the PST and continue to champion ISI.
This chapter argues that Prebisch’s concerns about developing countries were
much broader, and his recommendations for them far more nuanced, than the
mainstream representation. These concerns raise some substantive analytical and
policy questions, and put the contents of his work in ready position to link up with
some important strands of current research and policy discussions.
This chapter is organized as follows. Based on a re-interpretation of his work,
the next section outlines Prebisch’s conceptualization of the development process.
It explicitly spells out how that is based on a departure from three major assump-
tions that are otherwise regarded as standard in mainstream trade theories. The
second section relates his departure from these assumptions to his support of ISI,
which is interwoven with EP, and where both would be accompanied by efforts to
enhance indigenous ‘technological densities’. The third section describes his cam-
paign for a tiered system of differential treatments in favour of underdeveloped
countries in the multilateral trading system that supposedly would facilitate their
pursuit of policies that are implied in the third section. It is shown that Prebisch
argued that, for underdeveloped countries that had not acquired sufficient techno-
logical densities to establish their own capital-goods sector, capital accumulation
in the course of development translated into a need to import such goods. That
is why he attached much importance to their capacity to import and why he put
heavy emphasis on avoiding or limiting the ‘persistent tendency toward disequi-
librium’ in the primary exporting countries’ balance of payments. While the com-
modity terms of trade (CTT) for these countries is part of the equation, it is far
from its entirety, and in that sense the mainstream focus on the PST is obfuscating
Prebisch’s broader concerns. These clarifications are laid out in the fourth section.
By way of selectively focusing on certain developments and changes in the global
economy that have occurred since his death, the final section considers how Pre-
bisch might have sized them up, based on the elements of his work highlighted
earlier in the chapter.

Development challenges facing the underdeveloped countries

In Problems of Economic Growth, Prebisch (1950b: 16) loosely characterizes
underdeveloped countries as those with a large proportion of the gainfully employed
population working ‘under conditions of a shortage of capital, low productivity
levels in primary production and other activities in which labour costs are low’.
For mainstream trade theorists, nothing is wrong with this picture if one maintains
that these countries are simply specializing in accordance with their comparative
advantage. Prebisch challenged this conclusion and declared it outdated.
But as mainstream economists have succeeded in only focusing attention on
the PST, their reactions naturally fall into one of the following two categories.
 Development through economic integration 29
Empirically, many have questioned whether the CTT has indeed deteriorated against
the primary exporting countries over time, although due to space limitations this
chapter will stay out of this ‘statistical debate’ (see also Kaplinsky and Farooki, this
volume).3 Analytically, there have been attempts to interpret Prebisch’s analysis as
nothing more than an argument for ISI or some sort of trade protection (Bhagwati
1984: 202, note 11). This kind of interpretation trivializes Prebisch’s conceptual-
ization of the process of development. There is a lot in Prebisch’s challenge that
mainstream theorists have glossed over. In particular, their attack can be regarded as
based upon his departure from three assumptions that underlie mainstream theories,
as follows:

1 Where those theories typically make no distinction between different prod-

ucts with regard to their income elasticity of demand and/or the different
prospects for technological development that arise from them, Prebisch did.
2 Where those theories assume perfect domestic mobility of factor(s) of
production between sectors, and thus full employment pre- and post-trade,
Prebisch did not.
3 Where, in the Heckscher–Ohlin model, technology is assumed to be identical
across countries, Prebisch recognized the presence of a persistent, and even
widening, technological gap between the centre and peripheral countries –
though to him this gap is by no means as immutable as in the textbook Ricardian
model, because technology can be acquired by the underdeveloped countries.

Given Prebisch’s recognition of the substantive developmental implications that

depend on what a country produces and exports (departure relating to assump-
tion 1), but also given that many developing countries of his time were relatively
dependent on primary exports, he emphasized that by broadly achieving technical
progress and productivity improvements to pursue development, the average per
capita income in those countries would increase. However, one must carefully
distinguish whether he meant progress and improvements in the primary or man-
ufacturing sectors, or both. When Prebisch employed the terms in a broad sense,
development would entail diversification away from primary production.
But diversification is far from an automatic process, because factors of produc-
tion are not perfectly mobile between sectors (departure from assumption 2). In
particular, starting out with specialization in primary production, these c­ ountries
would have to go through a tremendous amount of technological learning – that
is, assimilation of modern techniques – before they could enjoy sustained prog-
ress and improvements in the industrial sector (departure from assumption
3). To that characterization of underdeveloped countries quoted above, Prebisch
thus added that the prevailing pattern of underdevelopment would remain until
‘modern technique’ could be extended to modify the nature of occupations and
decrease the disparities of productivity and income between the underdeveloped
and developed countries, arguing that ‘[o]nce this stage of development is reached
and modern technique is assimilated in the various branches of economic activ-
ity, development may acquire the intensive characteristics of the great industrial
30  P. Sai-wing Ho
countries’ (Prebisch 1950b: 16, italics added). It is noteworthy that in his summary
of his stages of thinking about development, he recalls that ‘In formulating my
point of view I mentioned from the beginning the role of technological progress.
In particular, my interest was attracted by the question of the international dissem-
ination of technology and the distribution of its fruits’ (Prebisch 1984: 176, italics
added).4
But industrialization should not be pursued to the neglect of the primary sector.
For Prebisch, investment should also be undertaken in the latter to reap produc-
tivity improvements and technical progress. But to the extent that such are indeed
reaped, they would surely add to unemployment (departure from assumption 2
again). In that case, if the development process lacks ‘dynamism’ and the indus-
trial sector (and various accompanying service activities) cannot grow fast enough
to absorb a good number of such unemployed, then there would be some serious
uneven distributional outcomes. In short, investments should be undertaken in both
sectors, but in manners that would hopefully enhance ‘technological densities’
so as to raise productivity but reduce unemployment.

Pursue ISI-cum-EP, but enhance ‘technological density’

Advocating ISI with increasing caution
ISI was already being implemented in Latin America when Prebisch started to
provide theoretical justifications for it in the late 1940s. Many in the economics
mainstream are not aware that he was quite critical of the manner in which it was
carried out and the problems that it had engendered. For those who have paid atten-
tion, it would seem that his criticism began in the late 1950s. However, a careful
re-­examination of his work indicates that he was alert to some of these problems
much earlier. For instance, in Problems of Economic Growth he draws attention to
‘cases in which exaggerated emphasis has been placed on certain domestic activi-
ties, whilst disregarding the possible margin of profitable development in exports’
(Prebisch 1950b: 21; also 1950a: 53; 1951: 84).5 The increasing seriousness of these
problems through the 1950s enabled Prebisch to better understand their nature, to
sharpen his critique, and to come up with recommendations on how industrializa-
tion should proceed beyond the initial phase. Heading into the 1960s and early
1970s he repeatedly issued warnings that the initial stage of easy and simple ISI had
reached its limits in those countries where industrialization had progressed most
(Prebisch 1963: 69; 1968: 8; 1971: 46). However, the move to the next stage was by
no means spontaneous. This is when imports of intermediate products and capital
goods should begin to be substituted. That necessitates heavier investments and the
use of technologies that are more complex. Prebisch (1959b: 143) fully understood
that the further ISI should proceed, ‘the greater will be the attendant difficulties,
if the process continues to develop within the twenty watertight compartments
represented by the individual [Latin American] country markets’. Besides, these
countries had compressed their import requirements to a series of goods absolutely
essential for the maintenance and growth of their economy and had lost the mar-
gin for further reduction in imports which they had when they imported consumer
 Development through economic integration  31
goods. Consequently, they had paradoxically become more ‘externally vulnerable’
(1959a: 268).
Prebisch realized that a policy was needed ‘to encourage these changes in com-
position in order to accelerate the rate of economic growth, so that imports are
adapted to the need for greater technical progress in primary production and for
more intense industrial development’ (1959a: 265). And that prompted him to put
more emphasis on EP than before.6

Supporting EP, though not abandoning ISI

There are strong early indications that Prebisch was quite aware of the importance of
expanding exports to accelerate peripheral development (1950a: 2, 46). But it was not
until the late 1950s that he started to more explicitly advocate manufactured exports.7
Thus, referring to the external disequilibrium problem (see the fourth section of this
chapter), he considers in his 1959 American Economic Review article a situation in
which both the centre and periphery in a two-region model are growing at the same
rate, but the latter has a higher income elasticity of demand for the former’s products
than vice versa. He concludes that in the periphery, ‘either the rate of increase of
demand for imports would have to fall … by means of import substitution, or indus-
trial exports would have to be added to the primary ones, or a combination of the two’
(1959a: 254, italics added). He continued with this promotion effort in his capacity as
the Secretary-General for the United Nations Conference on Trade and Development
(UNCTAD). After leaving UNCTAD and refocusing his attention on Latin America,
he returned to the limitations of ISI in Change and Development (1971: 193–4):
‘[A] new type of development in Latin America’, he declares, ‘cannot be based solely
on import substitution, but must entail a major effort to promote exports to the rest of
the world and, in particular, intraregional exports’ (ibid.: 48, also pp. 18, 173).8
Prebisch had entertained the idea of promoting intraregional trade within Latin
America since the early 1950s, if not before (see for instance Prebisch 1951: 84;
Briceño Ruiz, this volume). But in the late 1950s, with his deeper appreciation of
ISI’s problems and the need for the promotion of industrial exports, this began to
crystallize into something more concrete. Thus, referring to the ‘costliness of the
substitution process’, he argued that

[t]he only basic solution … is to break up the out-dated mould [where

inter-Latin American trade was very slight] … by means of the gradual and
progressive establishment of the common market and the consequent diversi-
fication of imports and exports.
(1959b: 144)

In advocating a Latin American Common Market, or South–South trade in gen-

eral, Prebisch understood that such efforts ‘can help considerably to achieve more
efficient production by expanding markets, encouraging specialization and facili-
tating competition’, and ‘[t]he resulting reduction in industrial costs will have an
important bearing … in the [world] export market’ (1961: 627; also 1959a: 268).
32  P. Sai-wing Ho
However, at no point did Prebisch imply that EP should replace ISI. He thus puts
it very tersely in New Trade Policy that ‘[t]he stress … laid on industrial exports
does not mean that import substitution policy should be abandoned. On the con-
trary, it should be maintained’ (1964: 25). For ‘[t]here is no conflict between import
substitution and EP. Industries that begin by catering to the domestic market may,
as they gain experience and efficiency, branch out into export markets’ (ibid.: 76).
The fact is that the development of the domestic market and the promotion
of exports are not two alternative or mutually exclusive propositions. The two
processes must take place simultaneously and in a co-ordinated manner (ibid.:
115). What is important is that ISI should be implemented ‘within groupings of
countries’ (ibid.: 25, 123) that should ‘be resolutely founded on regional and sub-
regional integration of basic industries’ when it comes to capital and intermediate
goods (1971, 106).

Increasing ‘technological densities’ in underdeveloped countries

The term ‘technological density’ is not one that Prebisch employed very often in
his work, at least not explicitly. Nevertheless, when one takes heed of how he por-
trayed it on the occasions when he did use it, one realizes that the concept actually
permeates many important areas of his work and has quite an important role to play.
He was deeply concerned with the uneven development that, to him, was
intimately related to uneven technological progress between the centre and the
periphery. He notes ‘the uneven form in which technical progress has spread into
the world economy’, which, he laments, has brought ‘very great disparities in
technological densities. That is to say, the amount of technological knowledge as
well as the real aptitude for using it in production’ (1959a: 261).
But Prebisch was actually aware of the significance of this technological con-
sideration much earlier. In his ‘Manifesto’ he thus suggests that ‘The raising of
the standard of living of the masses ultimately depends on the existence of a con-
siderable amount of capital per man employed in industry, transport and primary
production, and on the ability to use it well’ (1950a: 5, italics added). Then in the
Economic Survey of LA he elaborates:

The assimilation of modern productive technique with its increasing complex-

ity was not spontaneous but deliberate, and required considerable effort and
­persistence. … [T]he differences in the standard of living between the devel-
oped and the developing countries … depend … to a great extent on the effec-
tive capacity to assimilate technique, build up the necessary savings and make
the best use of both.

‘The development of this capacity’, he concludes, ‘will therefore be a predominat-

ing factor in the economic evolution of the countries which are now in the growing
stage’ (1951: 73, italics added).
He also emphasized that technological density must have a certain indigenous
base in the periphery. ‘Economic development’, as he characterized it at one point,
 Development through economic integration  33
‘is basically a process of training and perfecting national aptitudes in respect to
technique and production’ (Prebisch 1962: 36, italics added). While he believed
there were ‘forms of advanced technology’ that were within the reach of the under-
developed countries, there were others that were beyond that reach. Aside from the
relative lack of capital, ‘the main limiting factor is each country’s technological
density in the sense of available techniques and skills’. He went on to add:

Capital goods can be imported into the developing countries, but not tech-
nological density which has to evolve gradually. Only isolated special skills
or techniques can be imported. A clear distinction must, therefore, be drawn
between capital goods and technological density.
(Prebisch 1964: 59, italics added)

But apart from the general education and technical training of the masses, what
else might facilitate this acquisition of ‘national aptitudes’?
Not surprisingly, Prebisch believed that ISI would play a contributory role.
However, ‘[p]rotection carried to excess affords no encouragement to train effi-
cient workers and make good use of their services. Production equipment is often
misguidedly used’. Private enterprise ‘must … be indefatigable in its endeavours
to increase yields and reduce costs’, and this is where ‘nothing can replace the
spur of competition’ (1963: 47).
EP is one way to spur competition. However, he made it very clear that export
expansion by the periphery ‘is not just a matter of filling the void left by declining
industries’ in the advanced countries. Nor should the promotion be just a mat-
ter of steering existing industries outwards (1964: 60). Rather, industrial exports,
‘besides their primary aim, must be an effective instrument for promoting techno-
logical progress’. That is, they must be a means of changing the forms of produc-
tion ‘where developing countries merely export simple manufactures’ (ibid.: 59).
The periphery should also explore subcontracting opportunities involving ‘the
possibilities of manufacturing certain types of intermediate goods and compo-
nents in the developing countries for use in the industries of developed countries’
(1964: 76). One advantage was that no elaborate marketing or merchandising
efforts would be required of the peripheral producers, as such export sales would
be closely integrated with the production processes in the developed countries.
Nevertheless, he was also alert to the possibilities of ‘excessive dependence on
external factors or an unduly specialized industrial structure’ that could result
from this type of industrial development (ibid.).
Another way of spurring competition is to pit transnational corporations (TNCs)
against indigenous enterprises through the attraction of foreign direct investment
(FDI). While the periphery could additionally count on such foreign capital to aug-
ment investments, Prebisch was quite conscious of many of the pitfalls involved
in too much of such reliance. He thus repeatedly emphasized the important role to
be played by indigenous enterprises and strongly cautioned that ‘[h]ealthy compe-
tition must be based on equality of conditions; otherwise it leads to the destruction
or subordination of the weaker part’ (Prebisch 1961: 631; 1962: 37; 1963: 55).
34  P. Sai-wing Ho
Thus, while ‘not advocating the exclusion of private foreign enterprise from Latin
America’ and maintaining that ‘it should fulfil a most useful function’, he insisted
that ‘a concentrated and unflagging effort should be made to improve, strengthen
and expand Latin American enterprise … by means of far-reaching technical
and financial co-operation programmes on an international basis’ (1958: 50; also
1959a: 269; 1961: 624).
Prebisch was thus interested in supporting indigenous enterprises, entrepre-
neurs, managers and technicians as strong participants in the industrialization
process. Included in what he referred to as ‘technical co-operation programmes’
are various forms of technical assistance (1954: Part I, Ch. III), the ‘training of
local staff at all technical levels’ and the ‘training and strengthening of domestic
enterprise’ (1962: 53, 54), ‘co-operative activities of a strictly technical nature’ or
licensing arrangements (ibid., 56), and joint-enterprise efforts (1950b: 13; 1968:
57). He deemed that ‘[a] selective policy is a necessity’ in attracting TNCs, in
that no such effort would be necessary in sectors where production techniques are
already familiar to peripheral entrepreneurs, but would be desirable for those sec-
tors where such techniques ‘are not accessible for the time being or where foreign
experience might be of great value’ (1971: 239).
More generally, Prebisch proposed some investment measures to direct the
behaviour of TNCs based on balance-of-payments considerations: restricting their
profit remittances (1954: 38), reducing imports (1950a: 42), or promoting exports
(1964: 77–8). Regarding anti-competitive concerns, he suggested ‘ensuring that
the business methods of large corporations should be subject to adequate stan-
dards of control’ (1954: 39).
If these programmes and measures were to work out as desired, then not only
would the periphery better succeed in acquiring technology from the centres, but
it would also be in a position to participate in the ‘creation of technology’ so
that it could ‘make up its technical deficiency in the vast process of transfer of
world technology’ (1971: 207, 239). And ‘as the technological density of each
developing country increases and as its ability to compete abroad improves, new
lines of manufactured exports will come to the fore encouraged by the dynamism
of demand’ (1964: 60). ‘It must not be forgotten’, Prebisch reminded the reader,
‘that the objective is to lessen the technological disparity between the develop-
ing countries and the industrial centres, even though this cannot be done rap-
idly given the latter’s pace of advance’ (ibid.: italics added). In declaring so, he
revealed his strong belief that technological prowess in producing manufactured
products is not naturally given, but can be acquired (departure from assumption
3 enumerated above).

Campaigning for policy space for pursuit of development

programmes
But does the ‘policy space’ that is defined by various agreements reached during
different rounds of multilateral trade negotiations under the auspices of the Gen-
eral Agreement on Tariffs and Trade (GATT) or the World Trade Organization
 Development through economic integration  35
(WTO) allow those policies to be employed by the underdeveloped countries?
Put differently, would the advanced countries accede to conferring Special
and Differential Treatment (SDT) to the underdeveloped countries under these
agreements?
It should come as no surprise that someone who labelled the post-war schema
of international division of labour as ‘outdated’ would take issue with some of the
notions behind the GATT. Given his preoccupation with the problem of external
disequilibrium (see below), Prebisch understandably targeted his criticism at the
‘abstract notion of economic homogeneity’ because it ‘conceals the great struc-
tural differences between industrial centres and peripheral countries’ (1964: 6).
With that concealment the ‘principle of conventional reciprocity’ gained legiti-
macy, and according to it, both the centre and periphery should make equivalent
trade concessions regarding their respective imports from each other. Prebisch
was deeply convinced that such concessions ‘would intensify the trend towards
trade imbalance inherent in the disparity of international demand, instead of help-
ing to correct it’ (ibid.: 6, 29, 30). He concluded that

the fundamental mistake was made [in the Havana Charter] of thinking that
the peripheral countries could participate as equals in the policy of world-
wide trade liberalization without passing through a long transitional phase
during which the congenital weakness of their economies would be remedied.
(1968: 50)

Those countries simply ‘cannot offer immediate reciprocal benefits in exchange

for the concessions they expect from the industrial centres’ (ibid.: 72).
Prebisch thus subscribed to the principle of ‘non-reciprocity’ (with reference
to what he deemed ‘conventional reciprocity’) as a differential treatment for the
periphery.9 It was in the expansion of industrial exports by the periphery that Pre-
bisch felt very strongly that the centres should do their part to facilitate trade.10 He
laments in his New Trade Policy that although the tariff reductions agreed among
the industrial countries in the 1960s were extended under the most-favoured-­
nation clause to the peripheral countries, they ‘had no significant effect on them,
since the goods to which they applied were usually those of interest to the former
countries and not to the latter’. In the meantime, there was a lack of determina-
tion to reduce ‘differential tariffs’ which ‘seriously hamper the processing of raw
materials in the developing countries’ (1964: 23; also 1963: 73). He advocated the
general ‘preferential treatment for exports of developing countries’. In New Trade
Policy he explains:

The case is … a logical extension of the infant industry argument … In order

to be efficient, those industries must have access to wider markets; otherwise
they may not be able to break out of the vicious circle of low output and high
costs. Such markets must be sought in the developed countries as well as in
other developing countries.
(Prebisch 1964: 65–6)
36  P. Sai-wing Ho
He expects this to be only a ‘temporary measure’ because when the industries of
underdeveloped countries were able to enjoy wider market access, that ‘would
enable them to lower their costs and thus compete on world markets without the
need for continuing preferences’ (ibid.: 65; also 1968: 24).11
Prebisch did not favour a system of preferences that was based on products,
insisting that ‘a better and simpler approach would be for preferential treatment to
be granted in principle to all imports from the developing countries’ (1964: 69; see
also Hannah and Scott, this volume). He also proposed distinguishing between the
peripheral countries themselves, suggesting in Global Strategy that

Since the more developed peripheral countries are pressing for the markets
of the industrial centres to be opened up to their manufactures and semi-­
manufactures, and rightly so. It follows that they, in their turn, should follow
suit, open their own doors to the manufactures and semi-manufactures of the
less developed peripheral countries and introduce a preferential system in
their favour, to the extent that the latter do not benefit from the concessions
granted by the industrial centres.
(Prebisch 1968: 29)

While this would amount to giving ‘different degrees or kinds of preference to

countries according to their per capita income or stage of development’, he was
cognizant that ‘the scope for a gradation of preferences may not be very great’.
Besides, ‘the greater the administrative complications, the smaller the chances that
anyone at all will benefit, since the scheme may prove unworkable’ (1964: 72, 73).
Issues such as the use of investment measures and the protection of intellec-
tual property rights were only introduced into the agenda of the Uruguay Round
in 1986, the year that Prebisch passed away. Given the discussion in the pre-
vious section (especially in the last subsection therein) and given his rejection
of the ‘conventional’ principle of reciprocity, it is not unreasonable to suggest
that Prebisch would have disapproved of many aspects of the Agreements on
Trade-Related Investment Measurements and Trade-Related Aspects of Intellec-
tual Property Rights that were reached in that round.

Persistent external disequilibrium limiting capacity to import

The discussion thus far implies that Prebisch would be understandably con-
cerned with whether the underdeveloped countries could afford to pay for capital-­
equipment imports, the royalties for using foreign patented technologies or the
fees for hiring foreign technicians/consultants to assist and advise on the building
up of indigenous technological densities. Would they have the capacity to import
and pay for these? This is where Prebisch became deeply worried about the prob-
lem of persistent external disequilibrium in many underdeveloped countries. It
is in this broader context that the PST emerged as a part, but only a part, of the
consideration. In fact, it is this ‘disequilibrium’ that destroys the basic premise
 Development through economic integration  37
underlying – and thus renders ‘outdated’ – the schema of the international division
of labour (1950a: 1).
The ‘fundamental economic problem’, as Prebisch contends in the Economic
Survey of LA, is that as Latin American countries increased their real per capita
income by virtue of increases in productivity, ‘the capacity to import does not
grow in proportion to the necessity to import’ (1951: 11, italics added). When
the need to import to meet the demands of development – for example, ‘greater
imports of capital goods in order to increase productivity’ – is not met, there will
be ‘consequent effects upon the domestic economy’ (ibid.: 10, 9).
Under slightly different labels over time, this ‘disequilibrium between imports
and exports’ (ibid.: 10) was also raised as a deep concern in many of Prebisch’s
other works because it constrains growth and development (1950b: 28, 20; 1954:
63).12 Right before he assumed his role, and during his term as the Secretary-­
General of UNCTAD, he continued to draw attention to the challenges posed by
the ‘latent tendency towards disequilibrium’, the ‘external bottleneck in economic
development’ (1963: 7, 68), the ‘persistent tendency towards external imbalance
associated with the development process’ (1964: 3), and the ‘trade gap’ (1968: 3).
How would the possible decline in the CTT enter into this disequilibrium pic-
ture? It is clearly enunciated in Economic Survey of LA that it is part of the picture,
but Prebisch can arguably be regarded as putting more emphasis on the ‘capac-
ity to import’, which ‘depends fundamentally upon the volume of a country’s
exports and the price relationship between its exports and imports’ (1951: 15,
italics added; also 1963: 8; 1964: 4; 1968: 15).13 Obviously, that capacity to import
could decrease even ‘on the hypothesis of terms-of-trade stability’, only that ‘[if]
there happened to be a deterioration, the disequilibrium would be much greater’
(1968: 15). That is, during any period the capacity to import could decrease more
than the volume of exports if the trend of the CTT is unfavourable (1951: 15, 18).
This interpretation of Prebisch in no way downplays the significance of the
statistical debate concerning the PST. Quite the contrary, it argues that he regarded
the persistent disequilibrium problem as a serious one even if the CTT were to
remain stable. When the CTT declines it becomes, a fortiori, more serious. In that
connection, a deterioration of the CTT is seen as ‘aggravating the external bottle-
neck and exerting a marked depressive influence on domestic capacity for capital
formation, to the detriment of development itself’ (1963: 8).
Prebisch certainly regarded many primary commodities as exhibiting a low price
elasticity of demand (1950b: 36). But more important than that is the disparity in
the income elasticity of demand between industrial (manufactured) and primary
products (1950b: 30; 1954: 63; 1959a: 252; 1962: 27; 1963: 7; 1971: 194; 1984:
177–8),14 which, while contributing to the tendency of the CTT for such products to
decline, also accounted for the persistent disequilibrium in the exporting countries’
balance of payments.15 Prebisch also alluded to the increasing, or the maintenance
of, trade protection of primary commodities produced in the centres during various
periods (1950a: 22; 1959a: 266; 1968: 3). That had frequently and unfortunately
accentuated the disparities in these income elasticities (1959a: 252, 264; 1964: 30).16
38  P. Sai-wing Ho
However, all of these factors that account for the deterioration of the CTT and
persistence of external disequilibrium were, to him, revealing the more fundamen-
tal problem of a lack of ‘dynamism’ in industrial development in the peripheral
economies in response to changing conditions in world markets. This disparity
between exports and imports is structural in nature and is basically due to the lag
in industrialization. Hence, industrialization was looked upon as providing the
‘solution for the problem of insufficient dynamism’ (1971: 234). This it would
accomplish partly by playing ‘the dynamic role of absorbing directly the redundant
labour force’ (1950b: 43) and ‘obtaining a share of the benefits of technical prog-
ress and of progressively raising the standard of living of the masses’ (1950a: 2).
Industrialization ‘is the only way to correct the effects on peripheral growth of
disparities in foreign trade elasticity’ (1959a: 253). With that, the discussion has
come full circle back to industrialization.

Sizing up trends and issues thus far into the twenty-first century:
some ‘Prebischian’ thoughts
As is well known, the ‘success’ of the East Asian Tigers that became apparent
since the 1970s was one of the principal triggers of the ISI-versus-EP debate. But
while their performances, and later those of their neighbouring countries in south-
east Asia, deserve positive attention, it is less clear that an unambiguous policy
lesson can be inferred. Indeed, in the past two decades or so a number of studies
have been produced that question whether countries that can be regarded to have
switched to EP have indeed performed better than when they implemented ISI in
the 1950s and 1960s, or if trade liberalization per se is really unequivocally bene-
ficial to underdeveloped countries, as the neoliberals have preached (Chang 2006;
Lall and Latsch 1999; Ocampo and Taylor 1998; Rodrik 2001; Shafaeddin 2005).
Thus, the debate is far from over, and the challenge against the EP camp is very
much part of the attack on the Washington Consensus. Like Prebisch, the authors
of the above studies do not regard ISI per se as a panacea for underdevelopment.
Rather, while not denying its limitations, they recognize the important role that it
can play when suitably combined with the encouragement of industrial exports.
But this second-guessing of EP has another substantive dimension that ties in
with Prebisch’s emphasis on enhancing underdeveloped countries’ technologi-
cal densities. More and more these countries have come to realize the pitfalls
of over-reliance on the importation of parts, components and various interme-
diate inputs as their pursuit of EP has often turned them into export platforms
that largely perform the assembly of imported parts and components into finished
products or yet other components to be exported. Similarly, in the past few decades
many subcontracting opportunities to produce and export intermediate goods and
components (which Prebisch suggested in the 1960s, as indicated in the third sec-
tion above) have indeed been exploited, and this has spurred a rapidly burgeon-
ing literature on global commodity/value chains (Gereffi 2014; Ravenhill 2014).
Whether underdeveloped countries simply assemble final products for exports or
simply latch on to the relatively low-tech nodes of those chains, he would argue
 Development through economic integration  39
that, either way, they still have a long way to go in terms of cultivating their
technological densities. Either form of EP makes at best limited contributions to
indigenous development. Interestingly, Prebisch’s considerations in this regard
appear to parallel Lall’s emphasis on cultivating ‘technological capabilities’ (Lall
1992; 1993; 2005) as well as, in a more indirect way, the emerging literature on
the ‘product space’ (Hausmann et al. 2014).
The rise of China, an ‘emerging’ centre, would have presented Prebisch with
much material to maintain the current relevance of many aspects of his work. It
offers yet another opportunity for the economics mainstream to pit ISI (which was
arguably implemented in extreme forms under the central-planning years of that
country) against EP (which went into relatively full bloom after China joined the
WTO in 2001). However, given that there still exist so many regulation, control,
and trade restrictions, it would be a huge stretch to argue that it has abandoned ISI.
Besides, the current slowdown in its growth is a stark reminder of the danger of
an overdependence on EP; the problem with its dependence on exports to the old
centres to drive its growth was fully exposed when the Great Recession hit their
economies beginning in late 2007. China has to become more inward-oriented. In
weaving ISI with EP, its leaders are fully aware of the immense significance of
building indigenous technological densities.
While this ‘emerging centre’ was enjoying a break-neck pace of growth in the
first several years of the present millennium, many primary exporting countries
enjoyed what has been dubbed a ‘commodity supercycle’ (see Pérez Caldentey
and Vernengo, this volume). For a while it seemed as if the PST would be proven
so wrong that the ‘statistical debate’ could be brought to an end. Then the Great
Recession hit and China’s appetite for commodities of all kinds shrank tremen-
dously. That has wreaked havoc for those countries that heavily rely on exporting
such products to feed their growth – not just the underdeveloped countries, but
also countries such as Australia and Canada. Some of the major reasons for diver-
sification in economic structure have remained the same since Prebisch’s time,
although today the advice might be offered under the slogan ‘What you export
matters’ (Hausmann et al. 2007).
The Great Recession and, ten years before its onset, the financial crises that
started in many parts of Asia but spread to Russia and some countries in Latin
America, can ultimately be traced to a series of financial deregulation and liberal-
ization that were very much parts of the Washington Consensus. During most of
the three-and-a-half decades in which Prebisch was involved in the development
debate in the English-speaking world, his focus was mostly on international eco-
nomic integration through trade and FDI. Financial liberalization as an additional
dimension of integration was not much of a contested issue and only gradually
became one in the later years of his life, when it went on to become an additional
key component of neoliberalism. Even then, he did not appear to have published
anything with a central focus on that issue. But keeping the discussion in the pre-
ceding section in mind, given that such liberalization could drastically destabilize
developing countries’ balance of payments, and given that the capital which such
liberalization has typically attracted to those countries is of a speculative nature
40  P. Sai-wing Ho
that has little, if anything, to do with capital-equipment accumulation and the
enhancement of technological densities, it is safe to suggest that he would be very
leery of blindly following the push towards such liberalization.
While exactly what he would advocate to fend off that push is not clear, the
fourth section of this chapter indicates that he had quite strong opinions on the
subject of reciprocity when it came to multilateral trade negotiations during his
time. Alas, perhaps feeling increasingly threatened by the Asian Tigers and Cubs’
rapid progress, by the time of the Uruguay Round the developed countries were
much less inclined to continue offering SDT of the traditional kind (that is, relat-
ing to merchandise trade) to the underdeveloped countries. In fact, they added
‘new’ items to the agenda that extended the negotiations to limiting the use of
investment measures, protecting intellectual property rights, and liberalizing trade
in services. The pressure was put on many underdeveloped countries to ‘graduate’
from the traditional forms of SDT, though some grace periods were allowed for.
Given the relatively slow pace of development in most countries in Africa, South
Asia, and Latin America, which continued after his death, it is almost certain that
Prebisch would have fought to maintain the traditional SDT in some ways, and
would have added to the critique of the continuation of tariff escalation. But at
the same time, considering that several peripheral countries have developed much
faster – again mainly referring to those in East and Southeast Asia – he would
probably have continued to explore arrangements in which ‘different degrees or
kinds of preference [are given] to countries according to their per capita income or
stage of development’. In this connection he would detect a resemblance, in spirit
though not in detail, in the Doha Round market access proposal made by Stiglitz
and Charlton (2005: 94–103). Otherwise, outside of merchandise trade, he would
have issued many warnings on the negotiations in the new areas raised in the
Uruguay Round. Into the present millennium, the WTO Doha Round is not going
anywhere, and a major unresolved North–South issue is the so-called ‘­agriculture–
industry swap’, by which the developed countries would basically lower their
agricultural tariffs and subsidies in return for the underdeveloped countries lower-
ing their industrial protection under the so-called non-agricultural market access
(NAMA) negotiations. As Chang (2011: 51) tersely puts it, ‘the principle behind
the agenda … [is] that the developed countries should specialize in industry and
developing countries should specialize in agriculture’. It is too obvious what
­Prebisch would have remarked.
Instead of simply relying on the mainstream portrayal of Prebisch’s ideas,
this chapter has sought to clarify some of the key elements in his analysis by re-­
examining a larger body of his work. As is always the case, such clarification exer-
cises can also reveal gaps and holes in the reasoning of the party concerned. For
instance, Prebisch’s notion of ‘technological density’ could benefit from devel-
opment and refinement. Similarly, the simple recommendation to weave ISI with
EP still leaves a lot of details to be spelled out, both abstractly and particularly in
the context of specific countries at a point in time. Fortunately, as the discussion
earlier in this concluding section indicates, his ideas quite readily find connections
with some important strands of research on current development issues. Perhaps
 Development through economic integration 41
the ‘outdated’ schema that he criticized will ultimately, but hopefully without too
much delay, be replaced by a body of new research that serves the cause of devel-
opment more constructively.

Acknowledgements
An earlier version of this chapters’ contents chapter was presented at a session
on 24 July 2014 at the FLACSO-ISA International Conference in Buenos Aires,
Argentina. In revising it the author has benefited from the helpful comments of
Matias E. Margulis, Kristen Hopewell, Eric Helleiner, and Andrés Rivarola Punti-
gliano. However, the usual disclaimer applies.

Notes
1 His more important works cited below are given abbreviated titles – (1950a) Economic
Development of LA; (1950b) Problems of Economic Growth; (1951) Economic Survey
of LA; (1954) International Co-operation; (1959a) AER article; (1963) Dynamic Devel-
opment Policy; (1964) New Trade Policy; (1968) Global Strategy; (1971) Change and
Development.
2 Toye and Toye (2003: 439) contend that the PST originated from a work by Singer.
3 For recent work that continues this debate, see Cuddington et al. (2007) and the refer-
ences therein. For some critical responses to the mainstream challenges, see Sapsford
and Chen (1998: Part I).
4 Prebisch actually started emphasizing technical progress and productivity improve-
ments in his ‘Manifesto’. See Ho (2010: 222–3).
5 Dell (1986: 9–10) notes that even when Prebisch was arguing for ISI in his earliest writings,
‘he repeatedly stressed the dangers of costly mistakes in the application of such policies’.
He ‘did not need the big studies of such economists as Bhagwati, Krueger and Little to
convince him – he had been fully aware of the pitfalls long before these studies appeared’.
6 Balassa (1980: 7) is oblivious to all these cautions and misrepresents Prebisch’s ideas,
prompting the latter to retort. See Prebisch (1988: 36).
7 For an earlier instance in which Prebisch considered the benefits of promoting manufactured
exports, see his reference to Japan’s experience in the Economic Survey of LA (1951: 77).
8 Prebisch’s early efforts in advocating EP have escaped the attention of most main-
stream economists, excepting Bhagwati (1983: 46–7) and Finger (1991: 205). But con-
trary to Bhagwati’s description, Prebisch’s support of EP was not confined to regional
trade liberalization. He also did not regard EP as superior to IS.
9 Given their need for imports for development, the more the peripheral countries could
export to the centre should the latter unilaterally offer trade concessions, the more the
former would also import from it. Prebisch called this ‘implicit’ or ‘real’ reciprocity
(1954: 69; 1959a: 264).
10 Should that happen, Prebisch believed that it would facilitate tariff reduction by the
peripheral countries (1963: 72; 1964: 32).
11 Prebisch’s proposal earned a critical reaction from Johnson (1967: 31, note 26).
12 See Thirlwall (1983), similarly drawing attention to this emphasis in Prebisch’s works.
13 Chapter 2 of this work is titled ‘Weakening of Latin America’s capacity to import
during the past twenty-five years’.
14 See Prebisch (1964: 49) for a distinction between agricultural and mineral products. For
a crude distinction between demand growth for different manufactures, see Prebisch
(1984: 4). There he observes that the periphery’s exports ‘generally correspond to types
of manufactures where the growth of demand was relatively slow’.
42  P. Sai-wing Ho
15 With reference to Prebisch (1950a; 1959a), Flanders (1964: 322) concludes that in a
two-country framework, a deterioration in the CTT for the primary producing coun-
try ‘stems from the assumption of different income elasticities of demand’ and ‘[t]he
­problem … is essentially a balance-of-payments problem’.
16 There is discussion in the Economic Development of LA of how the different extents
to which labour markets were unionized in the centre versus the periphery would
explain the movement of the CTT to the favour of the former (1950a: 13–14; also
1963: 82–3).

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2 Thinking big from the
periphery
Raúl Prebisch and the
world system
Andrés Rivarola Puntigliano

Immanuel Wallerstein (1991 [1974]: 215) said that universalism is ‘a gift of the
powerful to the weak’. If universalism is seen as the projection of norms, prin-
ciples and values that acquire the status of a globally accepted standard, it is not
by chance that such standards often emerge from powerful countries or regions –
what Raúl Prebisch called the ‘centre’ of the world system.1 The centre is predomi-
nant through the legitimacy, diffusion and influence of its ideas, norms and values.
Domination can be seen in the ways in which the states and peoples of the ‘periph-
ery’ accept such norms, ideas and values as universal. Prebisch, who is best known
for his analysis of material (that is, economic) forms of power, would likely have
agreed with the critique of the ideational power associated with claims of univer-
salism. However, he would likely have raised an important caveat in describing the
centre and periphery as rigid and static categories. He would likely have pointed
out that many of the ‘universal’ norms, values and ideas – i­ ncluding theories about
the international order – of the centre may have origins in the periphery or have
emerged during periods of time when the current centre was peripheral.
The aim of this chapter is to outline Prebisch’s contributions to the analysis
of the world system. Most research on the topic has emphasized the economic
dimension of Prebisch’s ideas. But, as I argue here, Prebisch’s understanding of
the world system was much more expansive and included elements closely related
to the Realist perspective in International Relations (IR) and Global Political
Economy (GPE). I refer here to the idea of the world system based on state power
and hierarchies among states based on relative asymmetries of power. Prebisch’s
ideas resonate strongly with Realism’s rejection of the claim of equality among
states, since states have different abilities to mobilize and direct resources in pur-
suit of their interests (Dune and Schmidt 2011: 92). I also show that there is a geo-
political side to Prebisch’s thinking about the world system. By geopolitics I refer
to the territorial (or spatial) dimension in the analysis of expressions of power (see
de Meira Mattos 1975). An example of this is that Prebisch’s use of the framework
of centre–periphery had a territorial dimension. For Prebisch, these were not just
categories but also had a spatial dimension for understanding how, for example,
when states are organized as regions or groups, this alters the perception of the scale
of the units that make up the world system. Paying closer attention to Prebisch’s
46  Andrés Rivarola Puntigliano
ideas about hierarchies of power and the geopolitics of the world system reveals
affinities to ideas and approaches in IR and GPE (and beyond Development Eco-
nomics, with which Prebisch is most closely associated). However, the aim of this
chapter should not be mistaken as presenting Prebisch as part of a ‘mausoleum of
ideas’.2 Instead, the chapter asserts the contemporary relevance of his contribution
to ongoing research on the world system(s). The chapter is organized as follows.
I begin with a brief overview of Prebisch’s analysis of the world system. I then
turn to analysis of the economic, political and geopolitical interconnections in
Prebisch’s world systemic outlook. The final section considers Prebisch’s ideas
and their linkages to other scholarly perspectives in which the centre/periphery
dichotomy has been applied to social theory and the international.

Towards a ‘theoretical liberation’

In the early years of Prebisch’s professional life (that is, the 1920s–1930s), he was
not particularly interested in the international system or the global structures that
­Argentina had to confront to promote its economic development. In fact, in those
days, he was not even interested in Latin America! The young Prebisch was an
orthodox liberal and to him it was self-evident that Argentina should continue its
growth path by following economic policies emphasizing reduced state interfer-
ence in markets, free trade and export of primary goods in which the country had a
comparative advantage. Prebisch also showed little enthusiasm for Marxism, class
analysis and perspectives focused on the asymmetries in the world system (Dos-
man 2008: 40). Recall that the 1920s and 1930s were a fertile period of new ideas
about the global political economy, and, in particular, a period of major criticism
of the liberal international order. Key thinkers included the Romanian economist
Mihail Manoilescu, who developed the concept of ‘unequal exchange’, advo-
cating corporatism, protective tariffs and industrialization as a defence against
declining terms of trade (Love 2001). There was also Lenin’s (1996 [1917]) study
of imperialism, which advanced an understanding of the interlinked economic
(capitalism) and political (imperialism) dimensions of the world system. Within
these developments one can also trace the emergence of the idea of geopolitics
and advocacy of industrial policy for peripheral economies.3
Prebisch’s perspective began to change in the shadow of the Great Depression.
Key events that triggered this change were his participation as an Argentine del-
egate to the League of Nations in 1933, for preparatory discussions for an inter-
national conference on monetary policy. It was in this inter-governmental context
that Prebisch first started to see the systemic unimportance of Argentina and other
peripheral countries in the wider game played by the big economic powers. Dosman
(2008: 81) recounts this event, noting that Prebisch found the League and smaller
countries such as Argentina counted for little among world powers. The currency
of international trade was power, and the ‘market’ concealed the power relation-
ships that stratified the global system into a centre of dominant subjects with a
broad band of heterogeneous peripheral objects. For all the size and comparative
splendour of Buenos Aires, Argentina was as politely ignored in Geneva as Canada
 Thinking big from the periphery 47
and Australia were, and Prebisch felt that he had been invited to work in Geneva
as a mere symbolic overture to placate these far-flung regions.
Although Prebisch had not shown (at least, not openly) much sympathy for
critical perspectives of that time, things changed in the early 1940s when he left
the Argentine Central Bank and returned to lecture in Economics at the University
of Buenos Aires. This is the period in which Prebisch underwent his so-called
theoretical liberation and the start of what he called ‘a long period of heresies’
(Prebisch 1984: 175; see also Mallorquín 2006). It was around this time that he
began taking work as a consultant for different governments – much of which
was money-doctoring related (see Helleiner, this volume) – and began to con-
ceptualize the economic challenges of Latin America as more generalized and
part of a larger structure. One of the more important consultancy experiences in
the formation of Prebisch’s centre–periphery framework came in 1946 during a
mission in Mexico. It was at a meeting in the capital on the ‘Problems of Central
Banking of the ­American Continent’ that Prebisch first advanced the idea of a
world economic system that identified the US as the cyclical centre and Latin
America as the periphery (Love 2001: 54).4It was also at this meeting that, fasci-
nated by Mexico’s historical and cultural wealth, Prebisch became aware of Latin
America as an interconnected political, economic and social region (Dosman and
Pollock 1993: 28).
By the 1940s Prebisch had unequivocally rejected the liberal doctrine of com-
parative advantage. It can be observed that Prebisch’s economic ideas ended up
much closer to those of Manoilescu rather than those of John Maynard Keynes (of
which Prebisch was a major admirer), as he emphasized that industrialization was
the answer to promote development in the periphery. This presupposed a deliberate
policy on the part of the State, which, in his view, could not rely only on inter-
national markets and free trade. Following a self-described period of ‘theoretical
gestation’, Prebisch openly advocated for import substitution industrialization (ISI)
in order to strengthen the domestic structure of peripheral economies. His ideational
transformation was best captured in his 1950 report, as head of the UN Economic
Commission for Latin America and the Caribbean (ECLAC), that laid out a full artic-
ulation of his centre–periphery analysis of the world system and the case for Latin
American governments to pursue ISI (Prebisch 1950; see also Ho, this volume).
Prebisch’s 1950 report would be later described by Albert Hirschman (1968) as the
Latin American ‘Manifesto’.

Making sense of the world system

Prebisch’s 1950 report provided a diagnosis and prescription for the develop-
ment problems of Latin American countries. He presented a new economic
analysis specific to the problems of peripheral countries and ISI as an alterna-
tive to neoclassical economic policy prescriptions, both of which would attract
worldwide attention (Amsden 2004). Most relevant to this chapter is that the
report provided a new way to explain the economic situation of Latin Ameri-
can countries from a world-system perspective. In doing so, Prebisch advanced
48  Andrés Rivarola Puntigliano
knowledge of Latin America’s relation to the world, but also understanding of
how the world system was structured. A principal reason for the wide attention
and interest paid to the Manifesto is that the conceptual framework of centre and
periphery resonated with, and animated, diverse intellectual traditions across
the global South and North.
Prebisch’s ideas found a receptive audience in Latin America, even among state
elites. The Latin American context was unique in that most states had been inde-
pendent since the early nineteenth century and had been experimenting with ISI
for several decades, whereas large parts of the world were still under colonial rule
and economic domination. In addition, the UN, which Latin American countries
strongly supported, played a key role in the production and diffusion of new ideas,
with the creation of ECLAC, initially led by Prebisch, a major conduit for diffusing
ideas (Toye and Toye 2004). The position of ECLAC Executive Secretary provided
Prebisch with international legitimacy and authority, and he used this position to
become a leading voice of the new world peripheries. Beyond ECLAC’s nesting in
the UN system, Prebisch recruited some of the region’s top economic minds. This
group of assembled experts mirrored the shifting economic-policy landscape in Latin
American countries, where scholars and politicians increasingly stressed the urgent
need to abandon free trade-oriented ideas and assign a more active role to the state
(Briceño Ruiz, Rivarola Puntigliano and Casas Gragea 2012). The international con-
text, especially the post-war global economy of embedded liberalism, also prompted
rethinking of economic development-oriented strategies in the global South. Para-
phrasing Joseph Love, it could be said that Prebisch and his ECLAC colleagues
during this period walked along the heterodox ‘doctrinal terra incognita’ of concep-
tualizing the world system from a peripheral perspective and formulating economic
policy for an unknown future (Love 2001: 47).
It is not surprising that Prebisch’s ideas and policy proposals for Latin Amer-
ica were difficult to accept for neoclassical economists and policymakers in the
­centre. Prebisch argued that the gap between the centre and periphery was a struc-
tural feature of the world system and that it was increasing over time. He held that
change was possible, but a point of departure in order to do so was to acknowl-
edge the existence of a single world economic system under a hegemonic relation-
ship between centre and periphery.5 Prebisch is often described as Latin America’s
Keynes because of his advocacy for a strong role for the state in the post-war
world economy. However, this is not an apt comparison: Prebisch himself dis-
missed it, viewing that ‘Keynes, despite his elegance, did not break sufficiently
from the premises of neoclassical work’ (Dosman 2008: 218).
One of the notable idiosyncrasies of Prebisch’s world-system thinking is his
straddling of critical and liberal perspectives. One easily finds in Prebisch’s ideas
about the structure of the world system a strong resemblance to Lenin/Hobson on
imperialism or Manoilescu on industrialization. Indeed, Prebisch’s analysis held
that there was an unequal exchange between centre and periphery, which benefited
the former and trapped Latin America in commodity production (Love 2001: 46).
Prebisch was also critical of neoclassical economic theory and its assumptions
 Thinking big from the periphery 49
about the distribution of the benefits of technological progress. Prebisch was of
the view that the

enormous benefits that derive from increased productivity have not reached the
periphery in a measure comparable to that obtained by the peoples of the great
industrial countries. Hence, the outstanding differences between the standards
of living of the masses of the former and the latter and the manifest discrepan-
cies between their respective abilities to accumulate capital, since the margin of
­saving depends primarily on increased productivity. Thus there exists an obvious
disequilibrium, a fact which, whatever its explanation or justification, destroys
the basic premise underlying the schema of the international division of labour.
(1950: 1)

Such disequilibrium, Prebisch argued, was not only related to the crisis of the
1930s and the decline of commodity prices. Even when the gold standard was in
operation, Latin American countries had great difficulty in meeting their balance
of payments and ensuring stable monetary systems, which made them subject
to frequent condemnation from abroad. Prebisch (1950: 8) argued that even in
the best-case scenarios, in which increased productivity of the centre economies
could stimulate the demand for primary products, this did little to undo the main
problem of unequal exchange and increasing asymmetries.
One way out of the trap of unequal exchange was to avoid the periphery’s exposure
to the cyclical fluctuations in the centre. Prebisch (1950: 7) advocated anti-cyclical
polices based on development programmes for industrialization that had three ele-
ments: 1) increased diffusion of productivity-increasing technology; 2) domestic
capital formation; 3) increasing real income. However, although Prebisch’s so-called
inward-looking model focused on industrialization, he was against the abandonment
of primary exports. An important reason for this was that commodity exports pro-
vided the foreign exchange with which to buy the imported technology necessary
for development. Managing this relationship is, of course, difficult to execute, and
Prebisch (1950: 2) made the case for strategic economic planning in order for the
state to decide ‘how to extract, from continually growing foreign trade, the elements
that will promote economic development’. Prebisch (1950: 6) saw such strategic
planning as a necessary stage because he believed that the disequilibrium between
periphery and centre, if corrected gradually by first raising the productivity of agricul-
ture through technical progress at the same time as real wages were raised by indus-
trialization and adequate social legislation, would permit catch-up and convergence.
Prebisch’s inward-looking model is important for its economic content. Another
important and underappreciated reason for the appeal of the 1950 Manifesto is
that it deeply resonated with Latin American ideals of autonomy and nationhood.
These political elements cannot be easily disconnected from the centre–­periphery
economic framework. The analysis of Latin America’s relation and place in the
world was also dependent on the construction of a regional identity. ECLAC and
other UN-based and regional inter-governmental bodies played a key role by
50  Andrés Rivarola Puntigliano
providing to peripheral regions a platform for an identity and collective voice
(Rivarola Puntigliano and Appelqvist 2011). Identity is a pivotal component of the
concept of ‘Latin America’. The idea of a regional identity was frequently invoked
by Prebisch: as he famously put it, ‘the study of Latin America’s economic life is
primarily the concern of its own economists’ (1950: 7). This statement should not
be read as nativist. Instead, it expressed dissatisfaction with the (hegemonic) ideas
and prescriptions from the core at the time, which lacked direct familiarity with
the political economy of the region or were motivated by concerns of its citizens.
Prebisch articulated the need for a regional vision and collective project to break
the cycle of peripheral underdevelopment. This, he argued, made it necessary to
question the ‘false sense of universality’ of the centres, and ‘an intelligent knowl-
edge of the ideas of others must not be confused with that mental subjection to
them from which we are slowly learning to free ourselves’ (Prebisch 1950: 7).
In other words, Prebisch opened a door to thinking beyond economics, joining
international political economy with ‘national’ (in this case regional) identities
and international power politics. This was an intellectual project that he continued
to explore during the final part of his life.

Centre, periphery and international relations of power

The post-1950 period saw Prebisch continue to refine his analysis of the world
system as a single economic unit and the centre–periphery framework (see Rodrí-
guez 2006). By the late 1950s Prebisch had started to express a more optimistic
view of the world system. He argued that the world system was in a transitional
stage, with the centre–periphery division being gradually weakened. One reason
for this view was his observation of the spread of technological progress in sectors
other than primary commodities in peripheral countries. A consequence of this
technological diffusion was increased industrialization (which Prebisch consid-
ered essential to gradual improvements in per capita income). Yet, as Prebisch
observed, while industrialization of the centres was not a matter of political
dispute, the industrialization of the periphery still seemed to be a controversial
subject among certain factions of national elites in the region, and also interna-
tionally among neoclassical economists. He remarked that ‘there are those who
consider industrialization to be a harmful diversion of productive resources from
primary activities’(1959: 251). One can detect here the articulation of a politi-
cal dimension of the centre–periphery approach, reflecting competing ideological
perspectives and interests. By this time, after a decade of work within regional and
international inter-­governmental bodies, Prebisch would have been more attuned
to the reality of power in international (and national) economic relations.
By the mid-1970s, Prebisch’s world-system approach had been further refined
over the course of several published works. It was in this later stage that Prebisch
argued that the phenomenon of development could not be explained only by ana-
lysing economic variables, but instead demanded a global theory that integrated
different dimensions of the global capitalist system (Prebisch 1981: 30). Unfor-
tunately, Prebisch did not himself elaborate such a global theory; however, he
 Thinking big from the periphery 51
pointed the way forward by embedding his analysis of the system as a whole from
the perspective of the periphery.
Prebisch’s world-system model can be summarized as follows. At the top, he
identified a ‘dynamic centre’ that, due to its greater economic magnitude and tech-
nological progress, had ‘a greater influence on the rate of growth (as well as on the
short-run fluctuations) of the other centres and of the periphery of world economy’
(Prebisch 1959: 267). It is around this dynamic centre that relations of depen-
dency are established with the periphery (Prebisch 1981: 30). In the world system,
one of the main interests of the centre states, often led by the ‘dynamic centre’,
is to maintain control over the diffusion of technology. It is of note that Prebisch
did not see the centre as a monolithic unit. He also identified ‘secondary centres’,
and these could even have similar problems to those of the peripheral countries
(Prebisch 1959: 260). Even if Prebisch lacked precise definitions for each of these
categories, they represent a complex rather than binary outline of the hierarchical
structures of the world economic system. Furthermore, to understand Prebisch’s
schema, one has to keep in mind that the units of the system cannot be analysed
as separate parts, since all are related. Prebisch articulated this relational-power
dimension of the world system with the following example:

[P]rotection at the centre gives additional force to the peripheral tendency

towards deterioration in the terms of trade. If there is free play of market forces
at the centre, some marginal primary activities there might disappear because
of competition from increased peripheral exports at lower prices. But if these
marginal activities are protected at the centre, the possibility of increasing
exports in the periphery will be less, and consequently a greater part of the
surplus manpower will have to seek employment in industrial activities.
(Prebisch 1959: 263)

The relational dimension of power in the world system implies that such cat-
egories are not static; states can shift from centre to periphery (or vice versa).
However, Prebisch, I contend, was Realist in outlook when it came to the exercise
of power in the world system, as he saw that control of technology and military
superiority went hand-in-hand. This power was also expressed in efforts to con-
trol the rules of the game in international trade. As Prebisch (1981: 200) observed,
‘more than once … the big countries violate certain principles. When it suits
them, they just change them for other, and violations to principles always happen
to come from the periphery!’ Similarly, Prebisch (1981: 240) observed the hypoc-
risy of the centre, noting that ‘while the centres constantly accommodate their
trade to their benefit, they do not substantially liberalize their exchange with the
periphery nor show interest in supporting measures to promote exchange within
the periphery’.
Prebisch’s observation of the world system’s hypocrisy resonates with long-
standing Realist and Critical approaches to GPE, especially in terms of the way in
which hegemony enables powerful states to set the rules of the game. Equally, Pre-
bisch’s analysis resonates with Lenin’s approach to imperialism and capitalism.
52  Andrés Rivarola Puntigliano
During his final period of work as editor of the CEPAL Review (ECLAC’s
academic journal), Prebisch expanded on a central component of his model, the
concept of surplus, which was related to the gains that resulted from increases in
productivity. For Prebisch, one of the central laws of the capitalist system was the
need for a continuous increase in the surplus, which itself requires the creation and
utilization of productivity-enhancing technology (see Ho, this volume). Evidenc-
ing a Marxist influence, Prebisch too understood the surplus as a ‘conspicuous
expression’ of the uneven way in which the results of increased productivity were
distributed across the world system. Prebisch understood the origins of the centre
as interlinked with the creation and control (that is, the restriction of access) of
productive technology. This led to the accumulation of capital that was re-invested
in the maintenance of this technological advantage, which he identified as the
‘structural privilege’ of the centre (Prebisch 1981: 88–91). In turn, a key dynamic
in the world system was the political struggle for control of this technologically
enabled surplus. The idea of inter-state struggle for control of technology and
structural privileges resonates with streams of Realist IR and GPE that concern
themselves with the question of how states maintain hegemony. Prebisch also put
such ideas into practice. As head of UNCTAD, he spearheaded several initiatives
to enable technology transfer from North to South for development.
Prebisch clearly adopted a critical perspective as time passed by; he argued
that the international economic order was unfair and required a redistribution of
economic and political power towards the periphery. But he was careful to avoid
reification of the centre–periphery. Unlike the Dependency School, Prebisch did
not attribute to the centre sole responsibility for the asymmetries in the world sys-
tem. Instead, he found mutual responsibility among centre and periphery states for
the maintenance of relations of dependency. One such mechanism that illustrated
this shared responsibility was that periphery countries reinforced their underde-
veloped position through what he identified as ‘imitative capitalism’, whereby
the consumption patterns of the centre were adopted in the periphery. Instead of
using its limited surplus to promote domestic technological advantage, it moved
towards ‘conspicuous consumption’ on the part of society’s upper strata. A con-
sequence was the distortion of development-oriented strategies from the periph-
ery, contributing to the continuity of the centre’s hegemony, consolidating the
centripetal tendencies of the capitalist economy and the underdevelopment of the
majority of the population at the periphery.
Despite the major hurdles facing the periphery in its quest for development,
and the rigged rules of the international economic order, Prebisch never adopted
an anti-systemic position. There is no doubt that Marx had a great influence in
Prebisch’s work, but in contrast to Andre Gunder Frank and other Dependency
scholars, Prebisch did not intend to present an alternative to the market economy.
On the contrary, he was in many ways pro-liberal and against totalitarian states.
What he rejected in economic liberalism was its failure to address the fact the sys-
tems had a tendency towards inequality – something that in the end, in his view,
also negatively affected democracy. One of the strengths of Prebisch’s later work
was its ability to go beyond economics, by identifying the inequalities inherent in
 Thinking big from the periphery  53
this system concerning social groups, countries or groups of countries (regions).
A further shift to a deeper engagement with social justice was seen in Prebisch’s
later work on the world system when he advocated for a ‘distributive ethic’ – even
quoting Pope John Paul II in that there ‘is a social mortgage on all private prop-
erty’ (my italics) (Prebisch 1981: 99, 290, 334).
Prebisch (1981: 210) remain convinced of the possibility to transform this order
from within to make it more compatible with equity, development and the consol-
idation of democracy. Unlike the Dependency School, Prebisch did not seek exit
from relations with the centre but the refashioning of the periphery’s economic
and political relationship to the centre, to the advantage of the former. The eco-
nomic dimension implied restructuring the domestic and international economy
with state-led ISI and utilizing the domestic surplus to acquire new technology
for industrial upgrading (Prebisch 1981: 208). The political dimension involved
convincing peripheral states, which, under conditions of asymmetric power rela-
tions and competing North–South economic interests, required collective action
to counterbalance the centre and overcome their own fragmentation.6 These polit-
ical ideas came to their fullest expression in the call for a New International Eco-
nomic Order (NIEO) in the 1970s, for which Prebisch had laid the groundwork as
UNCTAD Secretary-General.
The transformation of Prebisch’s analysis of the world system shows that he
was inspired by both liberal and Marxian perspectives, yet he found both unsatis-
factory as convincing diagnoses/prescriptions for Latin America in the twentieth
century, and for the periphery as a whole. The affinity to Marxism can be found
in his search for structural diagnoses of the challenges to economic development.
However, Prebisch distanced himself from Marxist (or Leninist) strategies for
development. Ultimately, his rejection of free trade and comparative advantage
was not a rejection of liberalism on the whole. Rather, it was a result of his argu-
ment that neoclassical economic norms, including cultural and power structures,
were blind to the reality of the periphery. This standpoint is where I see Prebisch as
falling much closer to Critical perspectives of the world system discussed above;
one could claim that he followed in the tradition of Eastern European and German
nationalist thinkers such as Friedrich List. Whereas Prebisch’s ideas have been
treated in isolation here, it important to acknowledge that his intellectual develop-
ment took place in interaction with a wider group of Latin American intellectuals
and policymakers that worked at the intersection of the economy, international
power politics and regional integration (see Rivarola Puntigliano 2013).

Regional economic integration as a geopolitical response

Prebisch was concerned that the fragmentation of the periphery was a serious
obstacle to development-oriented policies’ success in the context of an asymmet-
ric international economic order. Therefore, he repeatedly advocated for the pro-
motion of integration and reciprocal trade among peripheral countries to counter
fragmentation (Prebisch 1981: 206, 239). Whereas Prebisch made a strong eco-
nomic case for regional economic integration (see Briceño Ruiz, this volume), it
54  Andrés Rivarola Puntigliano
too can be read as a geopolitical response to underdevelopment in the periphery. I
argue that the linkage between regional economic integration and geopolitics is the
importance attributed to the territorial dimension. One can read the expansion of
economic space as enabling greater autonomy among the countries of the periph-
ery to optimize their potential. According to Prebisch (1981: 203), the goal of the
centre powers is to constrain the peripheral countries ‘to make decisions that they
otherwise would not take’. Therefore, another geopolitical dimension of regional
economic integration is that collective action acts as a buffer to the coercive (that
is, unilateralism) and/or persuasive (that is, commercial concessions and aid prom-
ises) tactics used by the centre in achieving its economic and political interests.
Prebisch’s advocacy for regional economic integration and other forms of
South–South cooperation reveals what may be read as a Realist outlook on
the world system. Prebisch becomes a geopolitical thinker in the sense that he
attributed importance to size (the spatial dimension). Indeed, size was a theme in
his thinking about the world system and its relation to development. For exam-
ple, Prebisch (1981: 205) argued that territorially larger states had more room to
manoeuvre in the world system, noting that

the countries with large dimensions and markets, or with abundant natural
resources that are of scarcity in the world, are in a better position to circum-
scribe the penetration of the centres to certain areas of activity and negotiate
the conditions under which this is made.

However, he differed from Realist thinkers because he approached geopolitics

from the vantage point of the periphery, and as a means through which the periph-
ery could overcome its relations of dependency. This is, in my view, the leitmotif
behind Prebisch’s proposals for customs unions, common markets and regional
integration. Calls for regional economic integration were echoed by Samir Amin,
who argued the periphery would be better served by regionalism in the post-Cold
War context instead of order imposed by the International Monetary Fund (IMF)
and world financial markets. Amin was encouraged by the consolidation of the
European integration project, which he saw as a model confederal structure that
could be able to impose a labour–capital compromise (Amin 2000).
Prebisch had promoted the need for a common Latin American market in the
1950s, in order for the region to compete with the United States and Western
Europe, but also (and with foresight) with the ‘new global giants, China and India’
(Dosman 2008: 344). There are many examples of Prebisch’s interventions to
promote South–South economic cooperation. There are well-known cases such
as ECLAC’s work in supporting the negotiation of a Central America customs
union in the 1950s and his work as head of UNCTAD (see Hannah and Scott,
this volume). Less well known and studied is the failed negotiation to create a
customs union between Brazil and Argentina in 1941 (Sanjuán 1998; Prebisch
1986). What stands out about Prebisch’s proposals regarding customs unions or
common markets is that they differed with the more liberal stance of free-trade
treaties promoted by the US and its business community (Grunwald et al. 1972).
 Thinking big from the periphery 55
Prebisch was cautious of free-trade agreements because many lacked sufficient
safeguards to promote industrialization and economic development in the periph-
ery, and instead were designed to lock in relations of dependency. For these rea-
sons, Prebisch refused to accept the nomination to be the first Executive Secretary
of the Latin American Free Trade Association, in 1961.
Prebisch’s advocacy for integration contributed to the construction of the idea
of a Latin American economic union in order to promote industrialization and
challenge the domination of centre states. His centre–periphery approach tran-
scended economics in the Latin American context by converging into a ‘geopol-
itics of integration’ (Rivarola Puntigliano 2011). The geopolitics of integration
refers to the idea of convergence towards a ‘regional’ foreign and economic policy
and institutions for policy-making. This revolves around the concept of ‘auton-
omy’, which for Prebisch, as well as for many Latin American scholars and pol-
icymakers, applied at the regional level and not just the national one (Prebisch
1986; Briceño Ruiz and Simonnoff 2014).

Centre and periphery: beyond Prebisch

The centre–periphery concept is not only associated with Prebisch’s ideas – it
is also the building block of alternative approaches to structuralism associated
with the Dependency School, where scholars such as Fernando Henrique Car-
dozo, Enzo Faletto, Andre Gunder Frank, Immanuel Wallerstein and Samir Amin
loom large. Looking beyond difference, I see a common element between these
scholars and Prebisch’s own work in the view that that the current international
order is a part of, and conditioned by, a world capitalist system. Prebisch would
likely have agreed with the statement by Wallerstein (2011 [1974]: 15) that the
system is a world-level economy ‘because the basic linkage between the parts of
the system is economic, although this was reinforced to some extent by cultural
links and eventually … by political arrangements and even confederal structures’.
Because of his approach that interconnected systemic and economic thinking, it
is no surprise that Prebisch is regularly grouped with Dependency School schol-
ars (and even the Italian sociologist Giovanni Arrighi) as a Marxist international
political economist (Ravenhill 2011: 42–3). Prebisch has also been placed under
other labels, such as that of development economist, structuralist or even part of
the Dependency School. As this chapter has pointed out, Prebisch’s ideas strad-
dled multiple perspectives, and one has to take such labels with a grain of salt.
Another way to relate Prebisch’s ideas to other intellectual trends is in relation
to other ‘beyond economics’ approaches. Asymmetries of power may produce
inequalities. However, power need not only consist of economic forces (that is,
capital). There are other forms of political power, such as state action through
enforcement of international rules, coercion/persuasion and/or (formal and infor-
mal modes of) imperialism. That being said, Prebisch’s time at ECLAC did not
result in economic theories that accounted for ‘social process [and] did not call
attention to imperialistic relationships among countries’ (Arndt 1985: 157). Instead,
one can look to work by other scholars seeking to refine the centre–periphery
56  Andrés Rivarola Puntigliano
approach and the systemic outlook which is relevant to understanding the larger
intellectual relevance of Prebisch’s ideas. In the case of social processes, there
is the sociologist Edward Shils, whose work on understanding the relationship
among centre and peripheral societies, especially how these social relationships
were structured, identified three ways in which the periphery’s attraction to the
centre occurs: integration, conflict and the formation of ‘counter centres’. For
Shils, conflict is an expression of the periphery’s resistance to assimilation by the
centre. The ‘counter centres’ represent the periphery’s permanent desire to pene-
trate the sphere of authority dominated by the centre. Like Prebisch, Shils (1975)
rejected a rigid view of centre–periphery, noting that power is not always unidi-
rectional and only flowing from centre to periphery. Shils’ work did not explicitly
analyse capitalism as a key dynamic of the world system. Instead, his analysis
focused on the relationship among power, culture and social groups. In this way,
Shils’ work has affinities with the cultural analysis associated with Samir Amin’s
approach to the world system.7 The French geographer Jean Gottman extended
centre–periphery analysis with the study of spatial variations in politics,8 argu-
ing that the centre and periphery were ‘convenient notions to use in formulating
policy, outlining plans, and reordering theoretically spatial and political patterns’
(1980: 17). Similarly to Shils, Gottman took the existence of centres and periph-
eries to be a natural part of every human society. Alan Henrikson’s historical study
on the internal centre–periphery structure in the United States is another contribu-
tion; it extends a geopolitical and Realist interpretation of Prebisch’s framework.
Hans J. Morgenthau is among the Realist IR thinkers who dealt most directly with
the geopolitical dimensions of power relations at the international system. Morgen-
thau’s balance-of-power theory has a strong spatial dimension, observing that

as the balance of power – with its main weight now in three different continents –
becomes world-wide, the dichotomy between the circle of the great pow-
ers and its centre, on the one hand, and its periphery and the empty spaces
beyond, on the other, must of necessity disappear.
(1985: 370)

For Morgenthau, the idea of balance of power and the analysis of the international
political system acquired firmer clearer theoretical ground, which was expanded
in the later Neorealist work of Kenneth N. Waltz. It is perhaps in Waltz’s work that
the most robust theoretical analysis of the world system’s political dimensions
of the world system is expressed (however, Waltz did not integrate a comple-
mentary analysis of the international economic order). Waltz offered a systemic
analysis with a clear definition of the international system, its structures and the
units of analysis in which the power to influence is located. Similar to Prebisch,
Waltz conceived international politics as driven by inequalities among the states
that populated the system: as ‘long as the major states are the major actors, the
structure of international politics is defined in terms of them’ (1979: 94). For
Waltz, as long as the system was not centralized under the authority of a sin-
gle, supranational unit, it remained anarchic, but not without its own hierarchies.
 Thinking big from the periphery 57
Such hierarchies, Waltz posited, were conditioned by states’ power to impose their
conditions. As such, Waltz’s model of international political order and Prebisch’s
model of international economic order mirror one another significantly. Whereas
both developed their ideas during the same historical period, they differed in their
views on the desirability of the existing international economic order and pursued
different political projects.

Conclusions
The chapter has analysed Prebisch’s contribution to analysis of the world system
by focusing on the dimensions of centre and periphery. It has been argued here that
Prebisch transcends analysis of the world economic system, as a closer reading of
his ideas and work at ECLAC and UNCTAD suggests that he went beyond eco-
nomics to offer a diagnosis of the international economic and political order. This
resonates strongly with the streams of IR and GPE scholarship. In particular, one
finds an affinity to Realist geopolitics in Prebisch’s outlook. Returning to Prebisch’s
use of the centre–periphery dichotomy, whereas he was not the first to use this
dichotomy, he pioneered its application to the world system as a unit of analysis.
This dichotomy served to illustrate the unequal nature of the world economic sys-
tem but also how states acted in order to uphold or to narrow the gap between the
countries of centre and periphery. One of the particularities of Prebisch’s approach
is that it focused on the periphery, thus making it more holistic than perspectives
only concerned with the powerful (Kay 1989: 27). It is holistic, in my view, because
Prebisch’s analysis recognized the possibility of states moving between centre and
periphery positions, rather than treating the distribution of economic power in the
system as fixed. As Prebisch (1981: 87) himself pointed out, ‘those who reached
superior strata became inserted among those privileged by the system and sought
to obstruct, in one way or another, the emergence of other’. But how to achieve
this mobility was the problematique, given the reality that the periphery confronted
multiple economic, political and cultural obstructions both externally and from
within. This remains a contemporary question because even the recent changes in
the distribution of economic power in the early twenty-first century have not yet
translated into changes to the international political order (see Wade, this volume).
This chapter also contends that Prebisch’s analysis of ‘economic development’
may be regarded as a contribution to IR theory. Prebisch was not only interested in
understanding the process of economic growth, but many of his ideas were geared
towards explaining the structure and working mechanisms of the international
economic and political order. Along these lines, I support the assertion made by
others that the centre–periphery dichotomy used by Prebisch can be seen as an
alternative framing for analysing imperialist relations within the international eco-
nomic system (Bresser-Pereira 2006). Given that Prebisch’s analysis of the inter-
national order overlaps with multiple disciplinary and ideological perspectives,
there are a multitude of ways to interpret Prebisch’s use of the centre–periphery
framework. In this chapter, a main objective has been to illustrate the affinities
with Realism and the study of geopolitics. An illustration of this is the presentation
58  Andrés Rivarola Puntigliano
of Prebisch’s call for regional economic integration and South–South economic
cooperation not just as an economic paradigm, but as a ‘geopolitics of integration’
of periphery states to overcome their subordinate position in the system through
collective political and economic coordination. Regardless of one’s disciplinary
and ideological commitments, the emphasis here has been on Raúl Prebisch as
someone who sought to understand the international political and economic order.
In Prebisch’s case, one must always keep in mind that ‘development’ was for him
not just an economic phenomenon but also a social, cultural and political one. Pre-
bisch attempted, although not always successfully, to integrate all these elements
into a complex analytical framework and practice. A lesson we can all draw from
Prebisch as scholars is the importance of thinking big (especially relevant in a
historical moment when the emphasis is on narrow academic specialization) and
being prepared to challenge accepted truths. At the same time, it is important we do
not forget that the prevailing scholarly theories continue to emerge from the cen-
tre, and as Prebisch (1986: 195) reminds us, we should remain critical when such
theories are characterized by ‘universalist pretensions that ignore the periphery’.

Notes
1 Prebisch used the world centro in Spanish. In some texts in English, the word used is
‘centre’; in others, it is ‘core’.
2 I am here paraphrasing Laurence Whitehead in his view of Latin America as a ‘mauso-
leum of modernities’. See Laurence Whitehead, Latin America: A New Interpretation,
New York: Palgrave Macmillan, 2006, p. 24.
3 See Kjellén (1916), Carlson (2001), Perälä (2001) and Rivarola Puntigliano (2014).
4 Joseph L. Love, ‘Raúl Prebisch and the origin of the doctrine of unequal exchange’, p. 54.
5 This concept is never really defined in his work.
6 The issue of economic and political fragmentation was identified as a major cause for
underdevelopment in Latin America. See Herrera (1967: 21–2).
7 The work of Samir Amin contains one of the most refined elaborations of Prebisch’s
views of the world system. Similarly to Prebisch, Amin focused on the asymmetric
coexistence between ‘tributary’ (periphery) and ‘capitalist’ (centre) societies. Amin’s
(2000: 52–3) work was, however, more concerned with the cultural dimension, and his
critique of capitalism needed to transcend modernity by putting ‘forward alternative
rules for social organization, along with alternative values … a different system of
rationality’.
8 Gottman mentions Shils but not Prebisch. One can only speculate on why this is so, but
it could be motivated by the difficulty experienced by scholars from the periphery in
reaching broader intellectual audiences in centre countries.

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3 Raúl Prebisch and the
theory of regional economic
integration
José Briceño Ruiz

The idea of a Latin American common market emerged in the 1950s, when eco-
nomic integration was perceived as a component of an overall strategy to promote
development in the region. Raúl Prebisch was a central figure in this debate, who,
as Executive Secretary of the Economic Commission for Latin America and the
Caribbean (ECLAC), contributed to specifying the link between regional integra-
tion and economic development.
This chapter analyses Prebisch’s ideas on regional integration and the approach
developed by ECLAC to promote the transformation of the region. This chapter
demonstrates that Prebisch was an unorthodox thinker of, and advocate for, regional
economic integration. His vision of regionalism differed substantially from the
approaches proposed by mainstream economic theory at the time, in particular Jacob
Viner’s customs-union theory. I will show that Prebisch’s ideas on regional economic
integration evolved significantly from his early years as ECLAC’s Executive Secre-
tary to his last works in the 1980s. Prebisch’s intellectual contributions to regional
economic integration are reviewed and their relevance to the present are discussed.

Raúl Prebisch and the theory of development and underdevelopment

Prebisch’s view of regional economic integration is closely related to his struc-
turalist approach to development and underdevelopment, the earliest expression
of which is found in The Economic Development of Latin America and its Prin-
cipal Problems, published in 1950 as an ECLAC report. Prebisch and ECLAC’s
approach to regional economic integration was rooted in overcoming Latin Amer-
ican underdevelopment by replacing the outward-oriented development model
with one of inward-oriented growth, the cornerstone of which should be the
promotion of import substitution industrialization (ISI). Prebisch argued that the
development of an internationally competitive national industrial sector would
enable autonomous development, less subject to external vulnerability. By the
time that Prebisch and ECLAC articulated their ISI strategy, many countries in the
region had been experimenting with ISI in response to the Great Depression and
the Second World War. However, this incipient ISI, which was inward-looking,
was critiqued by Prebisch for failing to improve competitiveness and achieve the
benefits of technical progress (see ECLAC 1950a).
62  José Briceño Ruiz
Prebisch acknowledged that the conditions of the global political economy
in the 1950s were not conducive to ISI. The industrial restructuring of the core
economies in the aftermath of the war made it difficult for peripheral countries
to export manufactured goods to the core (Prebisch 1983: 346). However, the
choice of an ISI strategy did not mean the only option was autarky. Prebisch pro-
posed the need for developing countries to reduce the excessive tariff protection
granted to domestic manufacturing in a gradual manner, in order to reorient ISI pol-
icies to changing global market conditions. Prebisch proposed the idea of a careful
and selective tariff trade policy to increase the resilience of manufacturing, stating:

industrialization needs a dynamic policy of protection, which should be con-

tinually adapted so as to introduce new changes in import composition as the
economy develops and disparities in the income elasticity of demand play
their role. Trade treaties should not try to crystallize existing situations but
should be flexible enough to promote these changes in import composition in
an orderly, selective, and rational way.
(Prebisch 1959a: 269)

Contrary to the dominant criticism of ISI in the 1990s, Prebisch and ECLAC
had already articulated their concerns about the inefficiency of ISI as early as the
1950s (see Ho, this volume). For Prebisch, the idea of a strategic tariff policy was
essential to promote efficient national sectors for eventual liberalization.
As Secretary-General of the United Nations Conference on Trade and Develop-
ment Program (UNCTAD), Prebisch also articulated the idea of a strategic tariff
policy for gradual liberalization post-ISI, to apply to all developing countries.
In his first report to UNCTAD, entitled New Trade Policy for Development, he
argued that it

is clear that the promotion of industrial exports from the developing countries
is not just a matter of steering existing industries outwards. Undoubtedly,
those industries which in the course of time could become competitive on the
international market should be assisted.
(Prebisch 1964: 60)

One of Prebisch’s principal reasons for promoting ISI was to address a growing
trade gap between the centre and periphery. His concept of a trade gap, although
vague, corresponded to observations of the deterioration of the terms of trade
faced by developing countries. Prebisch described the trade gap as a process that
took place because

primary commodity exports are, with a few exceptions, expanding relatively

slowly, demand for imports of manufactured goods is tending to grow rapidly,
at a pace that increases with the rate of development. The resulting imbalance
creates a serious external bottleneck which makes [ISI] development difficult.
(Prebisch 1964: 3)
 Prebisch and regional economic integration  63
One of the solutions Prebisch proposed to address the trade gap was the creation
of the generalized system of preferences, which would provide developing coun-
tries with preferential trade access to Northern markets; he argued that this would
spur economic integration of national economies, which he envisaged as part of
a new international trade strategy. In addition, Prebisch argued that developing
countries would need to work as regional groupings ‘in order to plan and develop
their industries in wider markets’ and that a more favourable international frame-
work, which included technical and financial support for trade, would be required
(Prebisch 1964: 108).

The Latin American common market and development

A major contribution by Prebisch and ECLAC was the theorizing of the link
between industrialization, a high-skilled and knowledge-driven economy and
regional economic integration. Indeed, Prebisch proposed regional economic
integration in Latin America as a pathway for development as early as the late
1940s. Krishnan-Kutty (1999: 49) has argued that the ‘idea of the formation of
Latin American common market emerged even before the idea of the European
common market’, making Prebisch and ECLAC early advocates for the creation
of larger, multi-state economic units. This also challenges claims that efforts to
establish a Latin American regional market were a direct response to the creation
of the European Economic Community (EEC) in 1958 – Prebisch and ECLAC’s
call for regional integration was made a decade earlier. Indeed, by 1949, Latin
American governments had given ECLAC a mandate to develop proposals for
regional integration, reading as follows:

Taking into account that the limited size of the domestic markets is one of
the greatest obstacles in the way of industrial development of Latin Ameri-
can countries. Recommends to the Latin American governments, that, when
taking measures specified in the point III [of the Working Programme], they
take into account the possibilities of expanding demand to reciprocal trade,
in order to achieve a better integration of their economies and higher level of
productivity and real income.
(ECLAC 1950b: 14, original italics)

At the sub-regional level, ECLAC played a leading role in the promotion of eco-
nomic integration in Central America in the early 1950s, with many of its ideas
finding expression in the content of the 1958 Multilateral Treaty on Free Trade
and Central American Economic Integration and the Agreement on the Regime
for Central American Integration Industries.
The regional economic integration envisaged by Prebisch and ECLAC was
unique in that they sought to create conditions amenable to ‘import substitution on
a regional or, at least, a sub-regional basis, instead of a purely national one’ (Alex-
ander 1990: 19–20). Aggarwal et al. (2004: 23) point out that Raúl Prebisch’s
work promoted the creation of protected regional markets in order to nurture local
64  José Briceño Ruiz
industrialization through economies of scale and reduce dependency on imports
from the United States and Europe.
Regional integration was also closely related to the project of productive
transformation of Latin American economies. Prebisch and ECLAC’s vision
of economic integration proposed the creation of a common market to promote
a regional process of industrialization. A key condition to achieve this was the
establishment of a common industrial development policy, with free trade within
the common market accompanied by a process of gradual and selective tariff pro-
tection vis-à-vis external competition. This, of course, was a deviation from neo-
classical economic theory that prescribed free trade or, as second best, proposed
unilateral tariff reductions instead of a customs union (Guerra Borges 2012: 115).
Regional economic integration was envisaged by Prebisch to restore and pro-
mote economic growth, create new trade flows and expand domestic markets by
promoting industrialization. Pursuing regional economic integration was attrac-
tive to Latin American governments to the extent that they could be convinced
that the benefits would be greater than those from unilateral tariff liberalization.
Indeed, a major reason for any government to accept the partial surrender of sover-
eignty required by regional-level economic planning was the perceived advantage
of economies of scale and the prospect of a larger economic territory, spurring
the creation of new industries enhanced by vertical integration and technological
diffusion (Salgado 1979).
Prebisch also proposed a common market as a brake on the tendency within
the region to pursue an inwardly focused ISI that created a situation in which
industrialization was compartmentalized and intra-regional trade was minimal.
He observed that ‘in a regime of separate compartments high-cost production
is frequently incurred due to the insufficiency of the national market’ (Pre-
bisch 1954: 378–9). Prebisch concluded that as long as industrialization moved
‘towards products that can only be economically produced on a large scale, and
this exceeds the size of national markets, the need to develop reciprocal trade
among Latin American asserts itself’ (Prebisch 1954: 378). ECLAC and Prebisch
observed that ISI had not prompted industrial exports to the rest of the world,
and had caused domestic bottlenecks equivalent to severe import restrictions and
reduced ‘the atmosphere of competition’ deemed necessary for a productive trans-
formation of the economies in the region (ECLAC 1959: 8). Prebisch saw these
dynamics as impediments to the long-term goal of fostering competitiveness in
industrial production, as well as the possibility of promoting industrial exports at
both the regional and global levels. ECLAC would come to argue that the devel-
opment of industrial trade depended upon two factors: ‘on the one hand, Latin
America's capacity to export, and, on the other, the willingness of the large centres
[that is, the advanced industrial economies] to facilitate the corresponding imports
by means of suitable tariff treatment’ (ECLAC 1959: 8).
Prebisch’s best-known articulation of regional economic integration is in Latin
American Common Market, published by ECLAC in 1959.1 Regional economic
integration, for Prebisch, was part of a strategy to overcome the main weakness
of the compartmentalized Latin American industrialization process, in which he
 Prebisch and regional economic integration  65
observed that ‘each country attempts to do the same as the rest, without special-
ization or reciprocal trade’ (ECLAC 1959: 18). He saw this autonomous, unco-
ordinated strategy as inimical to deepening industrialization and the production
of intermediate and capital-intensive goods, which was pivotal for competitive-
ness and access to larger markets to achieve economies of scale. This is what
Salazar-Xirinachs (1993: 25) calls the efficiency argument in Prebisch’s work,
stating that ‘an efficient process of industrialization would depend on the con-
tinuing and systematic expansion of the market’. Without regional economic inte-
gration and coordination, ECLAC surmised that each country would be subject
to a negative feedback loop in which the necessity for import substitution would
intensify, and at increasingly high costs (ECLAC 1959: 7). It can be suggested
that in Prebisch’s case, regional economic integration was primarily a project to
promote industrialization rather than a mechanism to promote regional free trade.
Regional economic integration was a mechanism to increase the competitiveness
of Latin American industrial production but also a pragmatic solution to counter
the excessive protectionist bias of industrial development policies in the region
that so concerned Prebisch and ECLAC.
In the years after the publication of Latin American Common Market, Prebisch
continued to express concern about what he viewed as the excessively protection-
ist form of ISI taking place in the region. In his 1963 book Towards a Dynamic
Development Policy for Latin America, he argued that ‘an industrial structure
virtually isolated from the outside world … grew up in our countries’ (Prebisch
1963: 71). Frequent trade restrictions in the form of tariffs, he observed, were
‘undoubtedly – on an average – the highest in the world’ (Prebisch 1963: 71).
Indeed, Prebisch argued that protection was ‘not applied with moderation’, nor
was economic policy ‘laid down rationally and with the foresight which is essen-
tial for the alleviation, if not the prevention, of balance-of-payments crises’ (Pre-
bisch 1963: 71). In a later paper, Prebisch summarized Latin American industries’
lack of competitiveness as having three causes: 1) there was excessive inward
orientation of most industrial projects; 2) industrial-policy planning lacked any
basis in economic rationality; 3) the form of industrialization practised did not
help to overcome external vulnerability (ECLAC 1973: 19).
Prebisch repeatedly returned to the idea of regional economic integration to
resolve the problem of irrational tariff protection and Latin American industrial
production’s low competitiveness. The mechanisms proposed to achieve this
were international agreements to promote what he saw as productive integration
that would encourage competition and reduce costs, with the view of expanding
intra-regional industrial exports. He saw this as the necessary, but an intermediary,
step towards an externally oriented economy, stating: ‘the gradual development of
a flow of industrial exports to the rest of the world might be one of the objectives
of Latin American trade policy’ (ECLAC 1959: 9). It is important to note that Pre-
bisch and ECLAC never rejected the insertion of Latin American countries into
the global economy. Rather, the idea of a Latin American common market was
conceived as a mechanism to foster the free trade of goods produced in the nascent
regional industries as well as a territorial space in which the new industries could
66  José Briceño Ruiz
become competitive over time and, once mature, were expected to compete in
global markets.2 Prebisch continued to promote the idea of regional economic
integration for the remainder of his professional life. In a series of lectures just
prior to the 1980s debt crisis, Prebisch highlighted the need to further promote eco-
nomic integration at the service of the productive transformation, suggesting that
Latin American countries should take seriously the idea of reciprocal exchange.
This implied the creation of trade arrangements securing a guaranteed share of
access to regional partners’ national markets (Prebisch 1982: 97). In a mid-decade
lecture, Prebisch (1985: 52) slightly modified his ideas, noting that integration
should focus on fostering the most dynamic industries and not just manufacturing
in general, suggesting a strategic approach of picking regional champions.

Prebisch versus the neoclassical theory of economic integration

Prebisch’s ideas, and proposals, for regional economic integration stand out
because they challenged the prevailing economic orthodoxy of the time on
regional economic integration. In the 1950s, while Prebisch proposed the creation
of a common market in Latin America as a mechanism for the productive trans-
formation of the region, economists in developed countries were establishing a
theory of regional integration and debating its potential impact on global welfare.
The neoclassical theory of economic integration is synonymous with that
of customs-union theory developed by the US economist Jacob Viner (1950),
which distinguished between trade creation and diversion. According to Viner
(1950), trade creation occurs in a customs union when inefficient and protected
domestic production is displaced by imports from a more competitive trading
partner; trade diversion occurs when imports from the efficient, or cheaper,
world-market producers are replaced by imports from higher-cost or less effi-
cient producers within the customs union. Viner argued that customs unions do
not always enhance global welfare and that the level of benefits depended on
the balance between trade creation and trade diversion. Another contributor to
customs-union theory was Harry Johnson (1965), who argued that the decision
to establish a customs union could instead be explained by states’ interest in
promoting public goods. Johnson assumed a ‘collective preference’ for indus-
trial production, implying that consumers are willing to expand industrial pro-
duction (and industrial employment) beyond what it would be under free trade.
Read this way, the creation of a customs union is conceived as a mechanism to
stimulate investment and promote competition in the industrial sector as well
as a way of capturing economies of scale. Axline (1981: 174) claims that the
customs-union theory developed at the time was derived from neoclassical eco-
nomic ideas ‘based on increases in efficiency derived from freeing trade’ and
placed emphasis on the gains from trade as a key determinant for evaluating the
benefits of a customs union.
Raúl Prebisch’s approach to regional economic integration challenged the dom-
inant Vinerian dichotomy of trade creation and trade diversion. Prebisch, unknow-
ingly, preceded the later debate on the Vinerian theory of economic integration’s
 Prebisch and regional economic integration  67
relevance to integration among developing countries (see Andic et al. 1971;
Balassa and Toutjesdijk 1975; Axline 1977; Robson 1993). Prebisch’s goal of
regional economic-integration schemes had little to do with the static effects on
welfare at the core of the Vinerian logic of trade creation and trade diversion
and more to do with the advantages of ISI industrialization’s coordination on a
regional basis, instead of Latin American states’ narrow focus on national markets
at the time. Coordination and subsequent integration would be functional for the
goal of industrialization strategy and the promotion of a regional productive trans-
formation, rather than world-economic welfare.
Prebisch’s promotion of a Latin regional market, through ECLAC’s knowledge-
production activities and policy-advisory services, can be viewed as a rejection
of and an alternative to Viner’s model of economic regionalism. Andrew Axline
explains Prebisch’s rejection of Viner as follows:

[T]rade diversion, which was seen as an undesirable result according to

traditional customs-union theory, became the embodiment of import sub-
stitution at regional level, with the added inducement to investment of the
larger regional market and a common external tariff ... [W]ith the shift of
economic growth as the definition of development to a broader perspective
of industrialization with its attendant emphases on employment and distribu-
tion of wealth, economic integration took on a new role among developing
countries.
(1994: 184)

Prebisch’s and ECLAC’s main contribution to ideas about regional economic inte-
gration was linking it as a driver of economic development. This increased the
appeal to developing countries of pursuing regional integration. Indeed, Prebisch’s
leadership is recognized: the ‘impetus for the adaptation of regional integration as
a development strategy came … from the ECLA doctrine of import substituting
industrialization’ (Axline 1981: 174). Prebisch rejected the neoclassical economic
dictum of calculating the benefits of regional integration according to freer trade
(Amado and Mollo 2004: 144). Instead, he developed an alternative model in
order to promote economic development in the periphery and in response to the
tensions and unbalances that had emerged from the Latin American experience of
implementing the ISI strategy (Guillen Romo 2001: 19).
This rejection is not surprising, given that Viner and Prebisch publicly dis-
agreed on how best to understand the process of economic development. Viner,
who was among the leading international economists of the 1950s, was one of
ECLAC’s most vociferous critics, describing its policy recommendations as a set
of ‘malignant fantasies, distorted historical conjecture and simplistic hypotheses’
(Viner, quoted in Dosman 2001: 99). This debate was pivotal to what Prebisch
saw as the wider ‘war of ideas’ between the North and South; he recognized
the importance of Latin American countries (and, later, developing countries)
producing indigenous economic knowledge in order to regain their ‘intellectual
autonomy and shake off the dead hand of US and European theorists like Viner’
68  José Briceño Ruiz
(Dosman 2008: 282; see also Rivarola Puntigliano, this volume). These i­ deational
struggles were important experiences that informed Prebisch’s proposal to
develop an indigenous theory of development, based on the region’s historical
experience, which challenged the premises of neoclassical economic theory –
this later became the standard approach to policy development at ECLAC, and
later at UNCTAD under his leadership.

Implementation, criticism and validity of Prebisch’s ideas on

regional integration
Prebisch and ECLAC’s ideas on regional economic integration influenced several
intergovernmental initiatives to establish regional integration in Latin America in
the 1960s. The key examples are the Central American Common Market (CACM),
the Latin American Free Trade Association (LAFTA) and the Andean Pact. The
CACM was created in 1960 by the Treaty of Managua, aimed at establishing a
free-trade area between Costa Rica, Nicaragua, Honduras, El Salvador and Gua-
temala. LAFTA was also established in 1960 (for which ECLAC provided policy
research and analysis to support the negotiations) and included the South Amer-
ican countries and Mexico. The Andean Pact, completed in 1969, was a regional
integration initiative by medium-sized South American countries (Chile, Peru,
Colombia, Venezuela, Ecuador and Bolivia) in response to what they perceived as
some of the shortcomings of LAFTA.
The literature often refers to the CACM, LAFTA and the Andean Pact as the
first generation of Latin American regional economic integration. This is to distin-
guish them from the later schemes developed in the 1990s, such as the Southern
Common Market (Mercosur) or the Group of Three (that is, second-generation
agreements). However, I reject this dichotomy because it ignores several attempts
at regional economic integration and cooperation that took place even before
LAFTA. A historically grounded analysis shows that Latin American regional ini-
tiatives go as far back as the nineteenth century; indeed, the region has developed
its ownacquis (accumulated legislation, acts) that has made regional integration
a long-standing element of policy debate and academic research (see Rivarola
Puntigliano and Briceño Ruiz 2013).
The conventional wisdom is that the first-generation agreements did not, once
established, follow the model of regional integration in the service of regional
industrialization and productive transformation (Salgado 1979; Guerra Borges
1991, 2012; Salazar-Xirinachs 1993). Despite ECLAC’s contribution in support
of the negotiation and implementation of these different initiatives, the first wave
of regional integration in Latin America did not result in the deepened integra-
tion that was expected (Moncayo et al. 2011: 365). Multiple factors explain this
failure, among them the structural heterogeneity of Latin American economies,
which made integration among highly diverse economies difficult in practice,
and political elites’ lack of commitment to regional integration. It may also be
argued that an important reason for the failure of first-generation agreements was
the specific manner in which ISI was pursued at the national level, which was,
 Prebisch and regional economic integration  69
in fact, the opposite of the approach recommended by Prebisch and ECLAC. As
Moncayo et al. (2011: 365) point out:

some of the most serious limitations of this strategy in Latin America were:
the existence of tariff patterns that provided exaggerated protection to con-
sumer goods at the cost of the internal production of machinery and other
equipment; lack of interest in export development; excessive intrusion by
multinational companies; and absence of endogenous technical progress.

Latin governments, while relying on ECLAC for technical and policy advice
in the negotiation of regional agreements, did not, in the final reading, cooper-
ate sufficiently to achieve regional industrial integration. Instead, governments
continued to act self-interestedly and put national interests over regional ones.
Whereas in ECLAC’s proposals, ‘industrialization and regional integration went
hand-in-hand’ and regional integration was presented as a ‘fundamental condition
for industrialization, economic growth, and export diversification’, Latin Amer-
ican governments turned out to be ‘more inclined to promote national industries
than to accomplish a truly Latin American Common Market’ (Moncayo et al.
2011: 367).

The rise of neoliberalism and ‘open regionalism’ as a response

When interest in regional economic integration in Latin America was revived in
the 1980s, the international political and economic context had radically changed.
After the outbreak of the debt crisis in 1982 and the following lost decade of Latin
American development, Prebisch and ECLAC’s ideas were attacked by the rise of
neoliberal economics and the Washington Consensus. Although Prebisch himself
had long criticized irrational tariff protection in the region and highlighted the
importance of promoting exports, the ideological turn in development thinking
targeted Prebisch and ECLAC as scapegoats and faulted them with Latin Ameri-
ca’s economic problems and the stagnation of first-generation regional integration.
It was during this period of neoliberal economic globalization that new strategies
for regional integration and development emerged. One key difference from prior
thinking was that regional economic integration came to be regarded as a precur-
sory stage to inserting Latin American economies into the global markets. In this
context, global free trade, rather than regional industrial development, became the
overriding policy goal.
In an effort to adapt its ideas and remain relevant in a changing international
economic, political and ideological context, ECLAC articulated a ‘new’ approach
to regional economic integration for Latin America – open regionalism (ECLAC
1990, 1994). Open regionalism is not an ECLAC creation but rather the adapta-
tion of an idea developed in the Asia Pacific region. The idea of open regionalism
was originally proposed by Japan in 1955 in the context of the Colombo Plan.
The idea was further taken up in the 1960s, but became most prominent in the
late 1980s and early 1990s as the rationale for deepening trade relations within
70  José Briceño Ruiz
the Asia Pacific area (see Terada 1998; Garnaut 1994). In the Asia Pacific context,
open regionalism had a precise meaning, understood as ‘regional economic inte-
gration without discrimination against economies outside the region’ (Garnaut,
1994: 273). Kanishka Jayasuriya (2003: 340–1) argues that open regionalism

is basically a strategy of unilateral trade liberalization with the extension

of its benefits to non-APEC [Asia Pacific Economic Cooperation] member
countries on the basis of the General Agreement on Tariffs and Trade (GATT)
principle of Most Favored Nation (MFN) status (viz that concessions offered
by one country to any other GATT member should be offered to all).

By emphasizing non-discrimination outside the region, open regionalism is con-

sistent with a neoliberal view of regional integration, and, in particular, matched
recommendations advanced by the Bretton Woods organization in the 1990s for
a ‘new economic regionalism’. Open regionalism and new economic regionalism
share the premise that the policy goal was national insertion into the global econ-
omy, the key mechanism being universal tariff reductions regardless of the par-
ticipating states’ different levels of development. This approach implied a rupture
with the traditional ECLAC view on regional integration, where policies such as
regional industrial development, gradual trade liberalization and special treatment
or compensation for less developed countries were assumed to be part of the full
package. Therefore, open regionalism/new economic regionalism were defined
in relation to the multilateral agenda rather than regional objectives (De la Reza
2014: 192).
The reasons why ECLAC chose to adopt the open-regionalism approach in
the 1990s are complex and driven by numerous factors. An important contextual
factor was the paradigmatic crisis that ECLAC experienced in the 1980s during
the ascendance of neoliberalism. The failure of the inward-oriented development
strategy made ECLAC a major target and especially vulnerable to ideological and
political attacks, especially by Northern governments and the international finan-
cial institutions. Under immense political pressure, ECLAC sought to remake
itself under a new label of neo-structuralism that sought to establish a synthesis of
national productive transformation, free trade and social equity. Even if Prebisch’s
idea of productive transformation remained, the proposed mechanism for achiev-
ing this changed. A greater emphasis was placed on inserting Latin America into
the global economy. Whereas the goal of industrialization remained, this was no
longer to be driven by state-led policies, but rather through liberalization. A key
figure in this paradigmatic shift was Fernando Fajnzylber (1990: 26), who argued
that what was required was a sustainable pattern based on ‘sound participation
in the world economy’ with improved distribution of income distribution. These
ideas significantly informed ECLAC’s 1990 report, Changing Production Pat-
terns and Social Equity, a document that could be described as the neo-structural-
ist ‘Manifesto’. The emergence of ECLAC’s neo-structuralism response cannot be
understood without considering the regional context of the 1980s and 1990s. The
Latin American debt crisis that began in 1982 with the Mexican default, followed
 Prebisch and regional economic integration 71
by the lost decade of development and the adoption of the Washington Consensus
in 1990, all worked to position trade liberalization as the principal economic strat-
egy for most of the countries in the region. During this period, Feng and Genna
(2003) showed that the countries of the region moved towards ‘domestic institu-
tional homogeneity’, adopting nearly identical economic policies when it came to
monetary policy, fiscal policy, business regulation and trade openness. This shift
in economic policy would sow the seeds for the incremental development of new
regional-integration initiatives closely aligned with the new neoliberal orthodoxy.
The aftermath of the lost decade not only saw Latin American governments
accept the Washington Consensus; in addition, the ‘new economic regionalism’
emerged as a new economic paradigm that legitimated free trade-driven regional
economic integration. This paradigm was evident in new initiatives such as the
North American Free Trade Agreement (NAFTA) among the US, Canada and
Mexico and the Southern Common Market (Mercosur) among Brazil, ­Argentina,
Uruguay, Paraguay and Venezuela. Facing this new reality, ECLAC had to recon-
sider its position on the role that free trade should have in the promotion of regional
integration. This meant that earlier efforts – such as the Andean Pact of the 1970s,
which sought to harness integration to foster regional industrialization or to control
foreign investment by TNCs – were not acceptable in the context of the new global
political economy. At the level of staff and leadership, it was difficult for ECLAC
as an institution to – basically overnight – subscribe to a free-trade discourse after
decades of being a critical voice regarding the unregulated dismantling of tariff
barriers and untrammelled opening of capital accounts (Rosenthal 2004: 212).
This identity crisis was resolved by ECLAC’s adoption of the concept of open
regionalism, but reframing it to be consistent with the goals of productive trans-
formation and equity. By retaining the emphasis on productive transformation,
which is one of Prebisch’s pivotal ideational legacies, open regionalism could be
presented to external audiences as a continuation of ECLAC’s commitment to
linking economic integration and the strategy of economic development. In effect,
this saw ECLAC drop ISI for a new emphasis on export-led industrialization. As
Leiva argues (2008: 90), in ECLA’s view,

productivity-led export growth and open regionalism would improve the

external insertion of Latin American countries and foster the emergence of a
productive structure capable of generating productive employment, reducing
structural heterogeneity, improving income distribution, and reducing pov-
erty levels.

Thus, open regionalism (just like structural adjustment itself) was linked to the inter-
national economic structure and the increasing globalization of trade and finance.
According to Leiva (2008: 90), neo-structuralism established a dual economic
process that Latin America pursued during the era of globalization: a ‘low’ road
based on the specialization in natural resource-intensive and cheap labour exports
that condemns the region to the least dynamic niches of world trade, or a ‘high’
road based on technological innovation, productivity gains and higher v­ alue-added
72  José Briceño Ruiz
exports (see Perez-Caldentey and Vernengo, this volume). Open regionalism was a
key element in the high-road strategy. As Leiva (2008: 91) has argued,

This dichotomous low road–high road conception has enabled Latin Amer-
ican neostructuralism to ‘steal neoliberalism’s thunder’ by promising the
attainment of rapid economic growth, the region’s insertion in global eco-
nomic flows and at the same time delivering equity, democracy, and partici-
patory forms governance (italics added).

A remaining problem is that open regionalism was, in practical terms, assimi-

lated by governments to neoliberal economic integration and grafted onto the new
economic regionalism. In fact, most of the regional initiatives put in place were
modified to correspond with the structural-adjustment programmes that Latin
American governments had been implementing since the late 1980s. Following
the recommendations of the Bretton Woods organizations, integration was trans-
formed into a mechanism to ‘regionalize’ structural adjustment (Ortiz Rosales
1989: 33). For example, Leiva (2008: 101) argues that open regionalism is con-
sistent with WTO rules and the NAFTA approach to economic integration as a
pathway for the regional development of Latin America. However, incompati-
bilities do exist because in a framework of open regionalism, it is difficult (or
impossible) to implement an activist industrial, technology and trade policy, or to
adopt regulation that is not consistent with the GATT/WTO agreements. It might
be argued that even if neo-structuralism attempted to close the circle between
ECLAC’s ‘new’ open regionalism and its (and Prebisch’s) earlier ideas on eco-
nomic integration for productive transformation, the assimilation of economic
integration via insertion into the global markets was given much greater emphasis
than other objectives such as industrial upgrading and social equity. In short, with
neo-structuralism, Viner’s ideas came back and Prebisch’s were disregarded.
Mercosur is a good example through which to evaluate the role played by
Prebisch’s ideas in the development of Latin American open regionalism. Schol-
ars agree on the significance to Mercosur’s later success of the 1986 Program
of Cooperation and Integration (known in Spanish as PICE) between Brazil and
Argentina. PICE was a bilateral sector-based approach to regional integration,
which had several Prebischian elements. For example, trade liberalization was
gradual and selective rather than instant and across the board. Industrial comple-
mentarity was pursued in key sectors, such as automobiles (Protocole 21 in 1988),
and in other areas such as financial cooperation or energy (see Lavagna 1992).
However, the situation began to change in 1988, when the PICE was renegotiated
as the Argentine–Brazilian Integration Treaty, with the aim of creating a bilateral
common market in a period of ten years. The 1990 Act of Buenos Aires further
accelerated the schedule to establish the common market within five years. When
these negotiations took place throughout 1990, Uruguay and Paraguay requested
to join the framework in order to avoid being left out, given the closer economic
relations between Argentina and Brazil. This led to the Treaty of Asunción signed
by all four countries, and thus Mercosur was created.
 Prebisch and regional economic integration  73
As negotiations for regional integration advanced, key elements of Prebischian
strategy (such as gradualism and flexibility) came to be discarded. For example, the
Buenos Aires Act established the commitment to subscribing to an ‘Agreement on
Economic Complementarity between Argentina and Brazil’, which established the
broad framework for a common market that would be agreed. Recall that the PICE
and Integration Treaty were created in a period (1986–9) in which the Argentine
and Brazilian governments were seeking to implement ‘heterodox programmes’ to
deal with economic crisis, such as the Austral Plan and the Cruzado Plan. The later
Act of Buenos Aires and the Treaty of Asunción were signed by Carlos Menem and
Fernando Collor de Mello, two leaders committed to the new economic regional-
ism and the neoliberal approach recommended by the World Bank. As a conse-
quence, Mercosur was conceived primarily as a mechanism to favour the bloc’s
competitive insertion in the global economy (see Cisneros and Campbell 1996).
Prebisch’s ideas on economic integration were not influential in the design of
Mercosur. Instead, Mercosur resulted in greater homogeneity of economic policies,
mostly based on the ideas of the Washington Consensus, which influenced the cre-
ation of the regional bloc. In other words, even before ECLAC published a major
work on open regionalism (1994), the countries of Mercosur were already following
a model of economic integration with trade liberalization as the centrifugal force,
rather than a politically coordinated industrial regional project. However, Mercosur
did not develop in the manner expected by advocates of either open regionalism or
new economic regionalism. Sectors such as automobiles and sugar were excluded
from the process. In addition, the Mercosur countries were collectively lukewarm
towards the US proposal for a Free Trade Agreement of the ­Americas (FTAA).
Free-trade negotiations with the EU stalled due to differences on key issues such
as agriculture and disciplines on public procurement and intellectual property. For
this reason, Mercosur has been more properly described as an example of strategic
regionalism (see Briceño Ruiz 2006). Whereas ­Mercosur become more cautious
regarding integration with the rest of the world, h­ owever, its track record shows
that regional integration did not significantly change the regional pattern of produc-
tion, nor did it improve equity among and within countries.
At the level of practice, most of the regional schemes created under the logic of
open regionalism were subject to crisis. That has produced a pendulum swing back
towards the link between regional economic integration and productive transfor-
mation, as originally proposed by Prebisch and ECLAC. The end of neoliberal
hegemony in the early 2000s led to a new period in Latin American regionalism
in general, and regional economic integration in particular. Described as ‘post-­
liberal regionalism’ (Sanahuja 2010) or ‘post-hegemonic regionalism’ (Tussie and
Riggirozzi 2012), this new period is characterized by a return of the ‘development
agenda’ in regional economic integration. Indeed, the idea that economic integra-
tion is a mechanism to advance productive transformation has re-emerged in the
post-hegemonic period of Latin American regionalism. An example of this was
the 2008 approval of Mercosur’s Program of Integration of Production. Similarly,
the creation of the Fund for Economic Convergence (FOCEM in Spanish) reflects
the Presbichian concern over the negative distributive effects and asymmetries of
74  José Briceño Ruiz
uncoordinated regional schemes. However, the conditions of the current global
economy differ significantly from those analysed by Prebisch in the 1950s. Some
features remain, such as the permanent North–South divide (despite the rise of
so-called emerging powers such as the BRICS), the reprimarization of Latin
American economies with respect to the production and trade of primary com-
modities and the enduring structural heterogeneity and erratic distribution of tech-
nological progress in the region. The context is different – the creation of regional
and global value chains has dramatically altered the way in which Latin America
is integrated into the global economy. Yet even this new situation of economic
regionalism in Latin America shows that Prebisch, and his idea of economic inte-
gration at the service of productive transformation, are, in some form, back.

Conclusion
Raúl Prebisch developed an original theoretical contribution that conceived of
regional economic integration as not just free trade, but a mechanism to improve
industrial development in Latin America. The idea was translated into economic
policy: the Latin American common market, for example, was viewed by Pre-
bisch and ECLAC as a mechanism to facilitate coordinated regional industrial
integration. As such, regional economic integration can be seen as a natural
extension of the ISI approach advocated by ECLAC and Prebisch ever since the
‘Manifesto’ was published in 1950. Prebisch and ECLAC made the link between
economic integration and development explicit; this is certainly a significantly
different understanding of the purpose and scope of regional integration associ-
ated with mainstream economists such as Jacob Viner. It is well known that the
regional processes most closely associated with Prebisch, such as LAFTA and the
CACM, failed; however, as I have argued in this chapter, there is a major debate
regarding the extent to which these initiatives were accurate or fair representa-
tions of his ideas in practice. Regardless of the relative success or failure of the
first-­generation regional integration initiatives in Latin America, we do know for
certain that Prebisch and ECLAC’s ideas were attacked and delegitimized during
the period in which neoliberal ideology took hold in the 1990s. It was during this
period that Prebisch’s approach began to be described as ‘closed regionalism’ and
arguments were put forward that it should be superseded by a ‘new’ and ‘open’
regionalism. However, as Dosman (2006: 108) argued some years ago, the simple
criticism of Prebisch as an advocate of closed regionalism missed the larger point.
What can be observed in Prebisch’s intellectual trajectory is a permanent con-
cern with productive transformation and industrial upgrading. Yet he always
argued that these objectives should not be achieved at any cost. This is the rea-
son why Prebisch and ECLAC were critical of the irrational tariff protection of
national industrial policies and promoted regional integration as a mechanism to
rationalize tariff policy and buffer the myopic focus of national economic elites.
Moreover, although ISI was crucial to this policy, export promotion was also
seen as a key driver of growth, both at the regional level under the framework
of a common market and at the global level – this latter, however, only once
 Prebisch and regional economic integration 75
national and regional industries had matured. Rather than the ‘closed’ regional-
ism associated with him, what Prebisch sought to foster was an interventionist
and autonomist form of regionalism. It was interventionist because regional inte-
gration could not simply be left to the forces of the market; the state had to play
a leading role. It was autonomist in the sense that it promoted regional auton-
omy, but not autarky, as ultimately improving Latin American countries’ room
for manoeuvre in international economic affairs. The demise of neoliberalism
in Latin America and the crisis of open regionalism have led to new narratives
on regional integration and cooperation but also to the rescue of old narratives,
projects and approaches. In these we can see the enduring legacy of Prebisch’s
ideas on regional integration.

Notes
1 This was complemented by several articles by Prebisch originally published in 1959 in
the Mexican journal Comercio Exterior (Prebisch 1959b; 1959c).
2 Prebisch also considered the domestic political economy and constraints in the devel-
opment of the common market. It is a fair criticism that Prebisch did not sufficiently
explain how the domestic political economy of underdevelopment might mediate
regional integration. By the same token, Prebisch did not explain the extent to which
economic integration might aid in addressing, for example, structural constraints in
the domestic economy that hinder economic development. Notwithstanding this, in a
1962 article he hinted at some of the likely challenges, for example arguing that ‘the
common market could not be developed with vigour if other structural changes do not
occur, among them the modification of land tenure regime, which is one of the funda-
mental obstacles to economic development in Latin America’ (Prebisch 1962: 155).

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4 The Latin American origins of
Bretton Woods
Eric Helleiner

Most analyses of the origins of the Bretton Woods international financial system
focus on the Anglo-American negotiations of 1943–4 that led up to the famous July
1944 conference in Bretton Woods, New Hampshire. This approach was well cap-
tured by the title of Richard Gardner’s 1956 book – Sterling-Dollar Diplomacy in
Current Perspective – that pioneered the scholarly study of the post-war international
financial order’s creation (Gardner 1980 [1956]). It was then reinforced in subsequent
work, including Benn Steil’s recent The Battle of Bretton Woods, which focuses very
heavily on the Anglo-American relationship – particularly that between the lead Brit-
ish and US negotiators, John Maynard Keynes and Harry Dexter White (Steil 2013).
This chapter’s central argument is that this conventional focus overlooks the
significance of inter-American relations for the birth of the Bretton Woods system.
It shows how the US Good Neighbor Policy towards Latin America in the late
1930s and early 1940s helped shaped US planning for Bretton Woods in important
ways well before the Anglo-American negotiations of 1943–4 had begun. Latin
Americans were also an important audience for the initial US drafts of the Bretton
Woods agreements, and they continued to be active participants in the discussions
that generated the 1944 agreements themselves.
The final section of the chapter highlights how Raúl Prebisch was one of the
Latin American figures involved in the creation of the new Bretton Woods system.
His role at this time has received much less attention than his later criticism of that
system, but it is important to recognize that the latter grew in part out of the for-
mer. The dissatisfaction that he and many other Latin Americans later expressed
with the Bretton Woods system cannot be fully understood without recognizing
the expectations generated by their active participation in its creation. This chap-
ter tells the story of that participation.

The Good Neighbor Policy

To understand the significance of inter-American relations to the origins of Bret-
ton Woods, it is necessary first to recognize that many key US officials involved in
Bretton Woods planning had previously developed innovative international finan-
cial initiatives in the US–Latin American context.1 These initiatives were part of
 Latin American origins of Bretton Woods 79
the Roosevelt administration’s Good Neighbor Policy, which Roosevelt saw as
building a new kind of American relationship with the region.
The Good Neighbor Policy initially emphasized American non-intervention in
the region, but by the late 1930s it was increasingly focusing on the more active
goal of supporting Latin American economic development. That support was
designed to contain growing German influence in the region as well as secure
and boost US exports to, and investment in, Latin America. New Dealers also
saw financial assistance to poorer Latin American countries as an initiative that
projected internationally Roosevelt’s domestic commitments to address poverty
and raise standards of living through public action.
The Latin American governments of the late 1930s generally welcomed the
Roosevelt administration’s new support for their development goals. These goals
had become increasingly ambitious in many Latin American countries in the wake
of the Great Depression. The Great Depression’s devastating effects on the region
had encouraged criticism of their economies’ reliance on commodity exports
and liberal economic-policy regimes. Political support grew across Latin Amer-
ica for more interventionist economic policies that focused on state-led import
substitution industrialization (ISI), greater public ownership and improved social
conditions and living standards (see Ho, this volume). If US officials wanted to
back these new Latin American development priorities, many Latin Americans
were willing to accept this support, despite lingering concerns about past US
intervention in the region.
US financial support for Latin American development initially took the form
of bilateral lending, which grew rapidly after 1938. Short-term loans from the
Exchange Stabilization Fund (ESF) were offered for currency stabilization,
while longer-term loans from the Export–Import Bank backed specific Latin
American state-sponsored development projects (including industrial ones).
These loans were highly innovative; the US had never previously used public
funds to explicitly support the development of poorer countries in this way. After
the outbreak of the Second World War in September 1939, the US intensified
its efforts to strengthen inter-American economic cooperation and support Latin
American development, including the expansion of lending programmes and the
endorsement of an Inter-American Coffee Agreement in November 1940. The US
also launched new financial-advisory missions to Latin American countries aimed
at backing domestic monetary reforms that could better promote their respective
development goals.
A striking number of US officials who subsequently participated in the Bret-
ton Woods negotiations had been deeply involved in these Good Neighbor finan-
cial initiatives. Not surprisingly, this experience shaped their thinking about the
design of the post-war world. Harry Dexter White was among them. He was the
US official who had pioneered the ESF’s currency-stabilization loans to Latin
America. He had also been one of the Roosevelt administration’s strongest sup-
porters of long-term development lending to Latin America. White had also led
the highest-profile financial-advisory mission to the region – a mission to Cuba
in 1941–2 that recommended major reforms to its dollarized monetary system,
80  Eric Helleiner
including the creation of a new central bank and national currency. Indeed, it
appears that White developed his ‘first draft’ of the International Bank for Recon-
struction and Development (IBRD) during one of his visits to Cuba (Helleiner
2014: 98).

The Inter-American Bank’s legacy

Particularly important was White’s lead role in negotiating the charter of the new
Inter-American Bank (IAB) in late 1939 and early 1940. Throughout the 1930s,
a number of Latin American governments had pushed for the creation of an IAB,
and the US finally endorsed the idea in September 1939 at an inter-American con-
ference of foreign ministers in Panama. White had then assumed the lead role
of negotiating its charter with Latin American officials, and this charter was
released to the public in April 1940. The IAB was subsequently never ratified by
US Congress, but its charter served as a kind of ‘first draft’ of the Bretton Woods
institutions (quote from Oliver 1975: 99).2
The design of the IAB had been highly innovative in three respects, each of
which foreshadowed features of White’s initial plans for Bretton Woods in early
1942. The first innovation was the IAB’s character as a public intergovernmen-
tal financial institution. The only other international financial institution at the
time was the Bank for International Settlements (BIS), based in Basel. Although
the BIS had been created by the intergovernmental Hague Convention of 1930,
that agreement simply empowered six central banks (from the Belgium, Brit-
ain, France, Germany, Italy and Japan) and one private US banking group to
incorporate the bank in Switzerland and become its founding members, providing
the initial capital. The BIS was not directly accountable to governments.
The IAB was also to be established by an intergovernmental convention, but
the Bank’s draft by-laws described an institution in which national governments
subscribed to its shares, managed its operations and were its members. As one BIS
official privately noted at the time,

what characterizes the [IAB] and distinguishes it clearly from the BIS is that
it is an association of governments. All pretence that monetary and credit-
regulating functions of a state are segregated from its general sovereign rights
and duties and are vested in an independent Bank or banking system seems to
have been entirely dropped for the purposes of the [IAB].
(BIS staff member’s memo in April 1940, quoted in Helleiner 2014: 69)

From the perspective of White and his boss, US Treasury Secretary Morgenthau,
the intergovernmental character of the IAB was a necessary part of the Good
Neighbor Policy and the reforms of the New Deal that had asserted greater public
control over monetary and financial issues both at home and abroad.
For the same reason, it was resisted by New York bankers and some US Federal
Reserve officials during the IAB’s negotiation. But White’s and Morgenthau’s
vision was enshrined in the IAB’s charter, and that established a key precedent for
 Latin American origins of Bretton Woods 81
the Bretton Woods negotiations. When White set out to design the IMF and IBRD
two years later, he followed the intergovernmental model of the IAB, and his
approach was accepted by others within the Roosevelt administration (although it
continued to be opposed by the New York financial community). Indeed, as a sign
of the new intergovernmental order they hoped to create, White and Morgenthau
went further at the Bretton Woods conference itself to support a resolution calling
for the abolition of the BIS ‘at the earliest possible moment’.3
The second innovative feature of the IAB was its mandate to provide public
international loans. The BIS had already pioneered the idea of an international insti-
tution extending short-term currency-stabilization loans to countries, but the IAB
charter took the idea of international lending in a much more ambitious direction.
Not only did IAB loans have a more public intergovernmental character, but the
institution was also empowered to lend both for currency-stabilization purposes and
to promote long-term economic development. In effect, the IAB was designed to
multilateralize in one institution the innovative bilateral intergovernmental lend-
ing roles that had been assumed by the US ESF and Export–Import Bank.
During the IAB negotiations, the institution’s provision of long-term devel-
opment loans had been supported strongly by Latin American officials. Indeed,
both US and Latin American policymakers emphasized that this role was to
be the IAB’s most important one, and they hoped its loans would improve on
the past record of private lending to Latin America. As one US official told a
US Senate committee hearing in May 1941, the IAB’s lending would be very
different from those previous ‘unhappy experiences’ of private lending ‘where
money was squandered or where it was used to build up some kind of rather
tyrannous foreign monopoly which the country resented’ and where the move-
ments of capital were regarded as ‘imperialist’. The goal of the IAB was instead
to generate capital movements ‘following the more careful plans of the various
governments involved with a view to the steady development of the country’
(Helleiner 2014: 66).
Once again, White’s initial plans for Bretton Woods in early 1942 built directly
on these IAB plans. Dividing the IAB’s lending roles into two distinct institu-
tions, White proposed an international Fund to extend short-term public loans for
currency-stabilization purposes and an international Bank to offer long-term loans
to support reconstruction and the development of poorer countries. White’s key
assistant at the time, Edward Bernstein, also noted explicitly that the proposed
Fund drew directly on White’s experience in pioneering the ESF’s loans to Latin
America (Helleiner 2014: 109–10).
Some have suggested that White was largely uninterested in the develop-
ment-lending role of the IBRD. This view is incorrect. Indeed, Roosevelt himself
had prioritized development goals in post-war planning as early as 1941, when he
had outlined the objective of promoting ‘freedom from want’ everywhere in the
world. Building on his Good Neighbor Policy, Roosevelt saw the boosting of liv-
ing standards in poorer regions of the globe as a way to internationalize the New
Deal. From the start, White and other US officials saw the Bretton Woods plans as
supporting this goal (Helleiner 2014: chapter 4).
82  Eric Helleiner
The IAB’s design was innovative in a third and final way that deserves rec-
ognition: its inclusive membership. While the BIS was established initially with
just six central banks and one private US banking group, all 21 republics of
the Americas were to be members of the IAB from the start, and they all had
input into its creation. The fact that an international financial institution char-
acterized by this kind of inclusive multilateralism was first developed in the
inter-American context was no accident. The principle of multilateralism on
the basis of universal participation (on a regional basis) had been pioneered
in the inter-American system in the late nineteenth and early twentieth cen-
turies. This norm – which challenged European conventions of Great Power
diplomacy – was foundational to the first International Conference of American
States in 1888–9 (at which an IAB was in fact first proposed), and emerged as
a means to address Latin American concerns about US domination (Finnemore
and Jurkovich 2014).
By the time of the IAB negotiations, it had become an unquestioned norm
in the inter-American context that every state should have a seat at the table,
and the IAB’s design reflected this idea. In the strategic context of 1939–40,
US officials also hoped the IAB’s model of inclusive multilateralism would
strengthen inter-American solidarity against the Axis powers and help address
any concerns about growing US financial influence in the context of the
US bilateral lending programme. As White put it in November 1939, the IAB’s
multilateral design would ensure that that ‘the charge of dollar diplomacy would
be absent’ (Helleiner 2014: 60).
Although the IAB was never created, its inclusive form of multilateralism
served as a model for the IMF and IBRD. Transferring this norm from the
regional to the global level, White designed those institutions from the start to
include all the United Nations and ‘Associated’ Nations (the latter referred to
countries that had broken diplomatic relations with the Axis powers during the
war but not formally joined the United Nations). All of these countries were
invited not just to become members of the new institutions, but also to par-
ticipate in their creation. The lead British negotiator, John Maynard Keynes,
objected to this inclusive multilateral model, suggesting instead that the US and
Britain should design the post-war international financial order on their own and
then invite other countries to join only after the rules had been set. But White
and other US officials rejected this idea, insisting on extensive consultations
with all the United and Associated Nations throughout 1943–4, culminating in
the 1944 conference to which all those countries were invited (Helleiner 2014:
chapters 4, 8).
Other more detailed aspects of the governance of the IAB also acted as precur-
sors to those of the Bretton Woods institutions, such as the fact that it was to be
governed by a Board of Directors made up of one director for each country, but
with weighed voting according to countries’ respective contributions to the insti-
tutions. Voting on the IAB’s board was also to take place according to a simple
majority-voting rule, but with important decisions requiring a four-fifths majority,
giving the US an effective veto over those issues. The board, which was to meet
 Latin American origins of Bretton Woods  83
four times per year, was also empowered to appoint, and delegate its powers to, an
Executive Committee (Helleiner 2014: chapter 2).

The Latin American audience for White’s initial plans

The US–Latin American relationship was not just important in generating innova-
tive international financial practices that served as a model for the Bretton Woods
institutions; Latin American policymakers were also seen by US officials as a
key audience for their initial drafts of the post-war international financial order.
This was made very clear by Roosevelt when he met Keynes in the summer of
1941 to discuss the latter’s initial post-war plans. According to one British official,
Roosevelt made clear his view that ‘the terms of reference are too exclusively
European. He attaches great importance to the South American countries being
remembered in any world statement’ (Helleiner 2014: 106).
It is also often forgotten that White’s initial post-war plans drafted in Janu-
ary 1942 were initially prepared for presentation to a meeting with Latin Amer-
ican officials rather than one with British policymakers. The meeting was an
inter-American conference of foreign ministers in Rio held on 15–28 January
1942 at which US policymakers hoped to secure closer security cooperation with
the region in exchange for greater US economic support. White’s initial drafts
of his ‘Stabilization Fund’ (the name initially given to the IMF) were explicitly
designed for presentation at this conference, and he hoped the delegates would
pass a resolution calling for a conference to be held to discuss the proposal. In
the end, White was advised to simply discuss his ideas orally with delegates, a
task that he did well enough that the conference approved a resolution calling on
finance ministers (or their representatives) of the American republics to attend a
‘special conference’ to be held ‘for the purpose of considering the establishment
of an international stabilization fund’ (Helleiner 2014: 107).
It was thus Latin Americans rather than the British who first learned of the
US plans for the post-war international financial order. And White and other US
officials clearly saw Latin American governments as key partners in the plans
from the start. A few months after the Rio meeting, White developed extremely
detailed plans for the conference that he hoped would soon be held to discuss his
plans for both a Fund and Bank (in the end, he would need to wait another two
years for this to happen). Of the 42 countries he hoped would attend, 19 were to
be from Latin America, and he planned for Mexican and Brazilian officials to give
keynote speeches alongside officials from the US, Britain, China, the USSR and
the Netherlands (Helleiner 2014: 105–6, 108).
The content of White’s initial 1942 plans was also clearly designed to appeal to
Latin American policymakers by building directly on the US initiatives towards
the region that had been launched since the late 1930s. Indeed, the preamble to
the resolution passed at Rio made this link explicit, noting that the proposed fund
would ‘contribute to the realization of the economic objectives set forth at the
First and Second Meetings of the Ministers of Foreign Ministers of the American
Republics at Panama and Habana’ (Helleiner 2014: 107). The September 1939
84  Eric Helleiner
Panama meeting had been the one which had launched the negotiations to create
the IAB, while the Havana meeting in mid-1940 had generated further US com-
mitments to support Latin America economically (Helleiner 2014).
In his early drafts, White also included a number of provisions that drew on his
Latin American experience. Two have already been mentioned: the IMF’s short-
term lending for currency stabilization and the Bank’s long-term development
lending. White assumed that the latter would be of particular interest to Latin
American countries. In developing plans for his proposed conference in 1942,
White drafted an imaginary keynote speech for the Brazilian finance minister in
which officials trumpeted the Bank’s role in providing ‘a steady flow of capital for
developmental purposes’ that would help Brazil to realize its ‘extensive potential-
ities for industrial development’ (Helleiner 2014: 106).
In discussing the need for the Fund to endorse the use of capital controls,
White’s early plans also highlighted the importance of curtailing capital flight
from poorer countries. That issue had been widely discussed during the IAB
negotiations and White had also encountered it during his financial-advisory mis-
sion to Cuba (which endorsed the use of exchange controls). He also gave both
the Fund and the Bank authority to facilitate the restructuring of international
public and private debts, a provision that Latin American governments had called
for as far back as the early 1930s and that had been discussed during the IAB
negotiations and in other US–Latin American contexts in the late 1930s/early
1940s. Two other provisions grew directly out of White’s previous work with
Latin America: his Bank was initially empowered to support international com-
modity-price stabilization schemes while his Fund was to be open to accepting
infant-industry trade protection in poorer countries for development purposes
(Helleiner 2014: 109–13).
When White’s plans began to be refined in internal US discussions, discussions
of infant-industry protection were eliminated because they related to trade issues
that were to be addressed in a different context than the Bretton Woods negotia-
tions. Commodity price-stabilization schemes and international debt restructuring
were deemed too politically controversial to remain in the plans. But support for
capital controls remained, as did the US commitment to the Fund’s short-term
balance-of-payments loans and the IBRD’s development-lending role. It is worth
noting that US policymakers continued to have Latin America in mind as a key
focus of the latter. When White began to refine the Bank proposal in internal dis-
cussions within the US government in September 1943 (it was not released pub-
licly until November of that year), he and his colleagues made special reference
to ‘our [neighbours] in Latin America’ in describing the development function of
the Bank in a memo to Roosevelt (Helleiner 2014: 108).
Roosevelt himself remained very interested in the role of the US in supporting
Latin American development. In the spring of 1943, he asked an inter-departmental
committee to develop a memo showing ‘that helping others raise their living stan-
dards is “good for our own pocket-book and our own security”’ (Rivas 2002: 58;
see also Green 1971: 123–9). The Latin American focus was clearly central in
his mind. In a note to one official in June 1943, he wrote: ‘I do want to get across
 Latin American origins of Bretton Woods 85
the idea … that the economy and social welfare of Jesus Fernandez in Brazil does
affect the economy and social welfare of Johnny Jones in Terre Haute, Indiana’
(Green 1971: 129). Other officials in his administration were also keen to support
Latin American economic development, including the State Department’s Emilio
Collado, who played a key role in the final drafting of the IBRD plans (McKinzie
1974: 12–13, 15–17).

Latin American influence in the Bretton Woods negotiations

In addition to being an important audience for the US plans, Latin American offi-
cials were actively involved in the 1943–4 negotiations that generated the Bretton
Woods agreements. In April 1943, the US initially invited 37 countries to send
technical experts to Washington to discuss White’s first public draft of his Sta-
bilization Fund; 19 of these countries were from Latin America (Argentina was
the only country not invited, because it had refused to break off relations with
the Axis powers).4 Many Latin American governments sent representatives to
Washington at that time for bilateral discussions with US officials. A few (Brazil,
Ecuador, Paraguay and Venezuela) also participated in a three-day multilateral
consultation session that White chaired between 15 and 17 June, involving 18
countries. Some of the Latin American governments that did not send representa-
tives to Washington in this period submitted written comments on White’s plans
(Helleiner 2014: 157–8).
Given the prominent Latin American role in US consultations, British offi-
cials quickly recognized that they needed to lobby Latin American countries as
well. After Keynes’ plan for an International Clearing Union (ICU) was publicly
released in the spring of 1943, the British Embassy in Washington made sure that
a copy was sent to all Latin American officials traveling to White’s consultations.
British officials also went out of their way to travel across Latin America promot-
ing the ICU proposal (Helleiner 2014: 158).
In the months leading up to the Bretton Woods conference, both American and
British officials continued to cultivate the support of Latin American countries.
When the US and Britain published their Joint Statement of Experts on draft plans
for the Fund on 22 April 1944, they made sure that it was published simulta-
neously not just in Washington, London, Moscow, Chungking and Ottawa but
also in Rio, Mexico City and Havana. Brazil, Mexico, Cuba and Chile were also
included among the 16 countries invited to the pre-Bretton Woods drafting con-
ference at Atlantic City in late June.5 White chaired that meeting and appointed a
veteran of the IAB negotiations, Mexico’s Antonio Espinosa de los Monteros, to
be one of his four deputy chairs (alongside Keynes as well as officials from the
USSR and China) (Helleiner 2014: 158–9).
At the Bretton Woods conference itself, Mexico’s finance minister, Eduardo
Suárez, was given the role of nominating Morgenthau as ‘permanent president
of the conference’ at the start of the conference, and was chosen to chair one of
the three ‘commissions’ around which the conference was organized (White and
Keynes chaired the other two).6 In addition, Suárez and Brazil’s finance minister,
86  Eric Helleiner
Artur de Souza Costa, were invited to give formal addresses to the inaugural ple-
nary session on the first day of the conference (along with Morgenthau and the
chairs of delegations from Canada, China, Czechoslovakia and the USSR) (US
Government 1948: 8). In a US planning meeting on 30 June 1944, White had
insisted on this prominent role for the two officials, noting that ‘we need the sup-
port of the South Americans’. In a private meeting giving instructions to the US
delegates on the first day of the conference, White reiterated that ‘it is the South
American countries who in this are going to be important to us’ (Helleiner 2014:
159). Their importance derived from their numbers: Latin American countries
made up 19 of the 44 countries represented at the conference.7 Many issues were
settled without formal voting at the conference, but when votes were taken each
country had one vote, with the majority deciding the outcome. In this context,
delegates were well aware that the bloc of 19 Latin American countries had almost
enough votes to decide any issue on its own (Helleiner 2014: 159–60). Latin
American delegates at the conference also did not hesitate to remind other del-
egates that they represented ‘practically one-half of the nations here assembled’
(Luis Machado from Cuba, quoted in Helleiner 2014: 159). Their influence was
boosted by the fact that they felt a sense of solidarity and tried to work together as a
group at the conference. As one US official noted halfway through the conference,
‘the Latin American countries are really operating as a unit ... They have a pretty
definite machine’ (Ansel Luxford, quoted in Helleiner 2014: 160).
US delegates worked hard to make sure that this machine served their goals.
According to one US official, the US benefited from the fact that White was ‘pop-
ular’ with the Latin American delegates because, ‘having dealt with the man for
years in various problems’, they ‘had confidence that here is the man who will
understand our problem and who, if he sees our problem, will fight, and he’s not
afraid to fight’ (Oliver 1961: 18–19). Some key officials also had longstanding
personal ties to White. For example, Antonio Espinosa de los Monteros had been a
classmate of White’s at Harvard and had subsequently worked closely with White
in the small subcommittee that developed the IAB proposal in 1939–40 (Helleiner
2014: 161; Urquidi 1996: 50, footnote 5). He and other leading figures in the
Latin American coalition, such as Cuba’s Luis Machado, worked closely with
US officials at the conference (Helleiner 2014: 161). At one point on 10 July, one
US official told his colleagues that Machado had ‘assured me we could get a vote
on any issue we wanted to’ (Helleiner 2014: 161). At the end of the conference,
White also noted that Cuba ‘has given us more help than all the others combined’,
and insisted to his colleagues that the country be given a speaking role in the final
ceremonies of the conference (Helleiner 2014: 161).
The Latin American voting bloc caused much consternation among British offi-
cials. Indeed, the British even hoped to avoid formal votes at the conference in
order to neutralize its influence. As one British official wrote to his superiors in
the middle of the meeting, ‘if the issue comes to the vote every country will count
for one with the result that Latin America is almost sufficient to settle any issue in
a way the United States wishes’ (Helleiner 2014: 59). White recognized the Brit-
ish fears, noting privately at one point during the conference that British efforts
 Latin American origins of Bretton Woods 87
to delay a decision on the location of the Fund’s headquarters reflected Keynes’
frustration with the fact that ‘the vote of Costa Rica is the same as the vote of the
United Kingdom’ (Helleiner 2014: 159–60).

What did Latin American officials push for?

How did Latin American countries use their influence? Existing histories often
mention that some Latin American governments, led by Mexico, secured a vague
statement that further study should be undertaken of silver’s role within the inter-
national monetary system. They also usually cite Latin American demands for
larger quota sizes and representation within the Fund, particularly after it appeared
that their combined quota size might leave them with no more than one seat on the
executive board of the Fund (see, for example, Van Dormael 1978: 166, 178–81).
These demands generated the result that Latin America was guaranteed 2 of the
12 seats on the Fund’s board (a proposal that the US supported fully). The fact
that no other region received this kind of guaranteed representation was a sign of
their influence. A similar proposal from Egypt, Iran and Iraq for the Middle East
to receive one guaranteed seat was voted down (Schuler and Rosenberg 2012:
102–5, 229–31, 235, 239, 276–80; Helleiner 2014: 160).8
Particularly important was the fact that Latin American officials strengthened
the IBRD’s development-lending role. Long frustrated by the failure of the US
Congress to back the IAB initiative, many of them saw the proposed IBRD as
a way to finally bring to fruition its development goals. Indeed, the IAB often
came up in White’s consultations with Latin American officials in advance of
the Bretton Woods conference (Helleiner 2014). Because of their concerns that
the IBRD might prioritize reconstruction lending by the IBRD, Latin American
delegates at the Bretton Woods meeting secured a commitment that the Bank’s
resources and facilities would be used ‘with equitable consideration to projects
for development and projects for reconstruction alike’ (US Government 1948:
496; see also Schuler and Rosenberg 2012: 528–30; Helleiner 2014: 163–5). The
Mexican delegation also took the lead in pressing for the purposes of the IBRD to
make a strong commitment to economic development – pressure that generated
wording that made explicit reference to the ‘encouragement of the development of
productive facilities and resources in less developed countries’ (US Government
1948: 1049–50; see also Helleiner 2014: 162–3).
In advance of the Bretton Woods meetings, Latin American officials also high-
lighted their desire to ensure that adequate IMF lending was available to meet the
distinctive needs of commodity-exporting countries that often experienced sudden
fluctuations in their balance of payments. They applauded the way in which the
Fund would allow them to hold fewer foreign-exchange reserves because it would
serve as what Souza Costa called a useful ‘insurance system’ (from May 1944
speech; Helleiner 2014: 167). As one Brazilian official commented on White’s
1943 plans, ‘the conservation of such reserves has been onerous, since it may be
likened to an insurance maintained exclusively by the insured’ (Otávio Gouvêa de
Bulhões, quoted in Helleiner 2014: 166). At the conference itself, Brazil became a
88  Eric Helleiner
leading proponent of a successful proposal for a ‘waiver clause’ that would allow
the Fund to overrule its regular lending limits as a way to provide this support
(Helleiner 2014: 166–8). Some Latin American officials also attempted to res-
urrect development provisions from White’s early drafts, such as international
commodity-price stabilization and support for infant-industry trade protection.
Because of the monetary/financial focus of the conference, these proposals were
less successful, although the Bretton Woods meeting did endorse a Latin Amer-
ican-backed resolution that recommended governments seek to reach agreement
on ways and means to ‘bring about the orderly marketing of staple commodities
at prices fair to the producer and consumer alike’ (US Government 1948: 1098).
Finally, Latin American governments also made clear their preference for mul-
tilateral rules that would protect their policy autonomy by allowing capital con-
trols and some flexibility in exchange rates. During the IAB negotiations, they had
resisted membership obligations of any kind relating to their external financial
controls and exchange-rate policies. When White made clear in 1943–4 that they
would need to accept some such obligations as Fund members, they worked hard
to minimize the constraints in these areas (as did other countries, such as Britain).
Ultimately, they accepted the compromise provisions of the Fund that required
member countries to embrace currency convertibility and fixed exchange rates,
but allowed the use of capital controls and adjustments of currency pegs under
certain circumstances. Latin American willingness to accept these provisions was
enhanced by the fact that US officials at the time went out of their way to high-
light the Bretton Woods framework’s supportiveness of governments’ autonomy
to pursue state-led development policies.
Particularly important in this respect was the work of Robert Triffin of the US
Federal Reserve, who led a prominent US financial-advisory mission to Paraguay,
at the very time of the Bretton Woods conference, that explicitly rejected the
liberal orthodoxy of previous US financial missions from the 1920s. Triffin rec-
ommended that the Paraguayan government create a new powerful central bank
and national currency that would strengthen its capacity to intervene in the domes-
tic financial system in support of developmental goals. He also made a point of
endorsing the use of adjustable exchange rates and capital controls to defend Par-
aguay’s autonomy to pursue those policy goals, and he highlighted how these
recommendations were in keeping with the new Bretton Woods agreements.
Paraguay immediately adopted Triffin’s advice, seeing these monetary reforms
as key for its development ambitions. The Paraguayan reforms, and Triffin’s
broader rationale for them, attracted enormous attention across the region at the
time. For many Latin American officials, they highlighted how the US and the
new Bretton Woods framework were not just accepting of their new state-led
development goals, but actively supportive of them. After the Bretton Woods con-
ference, Triffin received a number of requests from governments in the region to
repeat in their country the work he had done for Paraguay, as part of their entry
into the Bretton Woods system. Even Latin American governments that did not
seek out Triffin’s advice expressed their interest in, and support for, his work in
the region (Helleiner 2014: chapter 2).
 Latin American origins of Bretton Woods 89
The role of Prebisch
Interestingly, Triffin (1946: 23) himself credited much of the content of his
‘wholly unorthodox’ monetary-policy advice in Paraguay to the ideas of Raúl
Prebisch.9 No reference has yet been made in this chapter to Prebisch because he
did not participate formally in the Bretton Woods negotiations. His native country
of Argentina was the one Latin American country not invited to participate in
the negotiations, a snub that clearly irritated Prebisch. He reportedly told Brit-
ish officials in May 1943 that it was ‘somewhat paradoxical that Argentina with
its unbroken debt record and its organized central bank should be the one South
American country left out of a discussion which so vitally affects interests of all’
(Helleiner 2014: 158). Later in October of that year, he was marginalized further
by being fired from his position as head of the Argentine central bank, leaving him
with no official position.
But Prebisch still had some influence in shaping the Bretton Woods frame-
work. At the time, he was probably the best-known monetary thinker in Latin
America, having helped to create Argentina’s central bank and then become its
first head in 1935. In the Latin American context of that time, the design of
this central bank had been very innovative, with its large powers to regulate
banks, administer exchange controls, pursue activist monetary management
through open-market operations and adjust the country’s exchange rate. Given
Prebisch’s regional and international stature, it is not surprising that in early
1944 the Bank of Mexico invited him to deliver a series of high-profile lectures
as part of its efforts to contribute to the international plans for the post-war inter-
national financial order.
At the time, Prebisch was consolidating some of the broader economic ideas
for which he would soon become well known beyond the region, notably his
case for state-supported ISI to help poorer countries escape from their vulnera-
bility to external shocks and declining terms of trade associated with commodity
exporting (see Kaplinsky and Farooki, this volume). At the core of Prebisch’s
thought at this time was a commitment to greater national policy autonomy. This
commitment echoed that of Keynes, except that Prebisch was critical of the fact
that Keynes had ignored the distinct circumstances and difficulties facing poorer
agricultural exporting countries (see Rivarola Puntigliano, this volume). In Pre-
bisch’s view, these countries needed to insulate themselves from powerful shocks
emanating from the industrialized countries and to carve out policy space to pro-
mote state-supported industrialization and economic development (Dosman 2001;
2008: 218–19; Love 1996: 126–7).
Prebisch’s lectures at the Bank of Mexico on these issues were published in the
daily Mexican press and attracted great attention. They helped strengthen Mexican
officials’ resolve to push for greater development content in the Bretton Woods
negotiations (Helleiner 2014: 162; Urquidi 1996). They also were appealing to
Triffin, who met Prebisch in Mexico for the first time during this visit. Triffin
had already been impressed by the design of the Argentine central bank. Indeed,
Triffin explicitly drew upon its legislative model when developing his advice for
90  Eric Helleiner
Paraguay. He and Prebisch struck up a close personal friendship and Triffin fre-
quently cited his debt to Prebisch’s work in his publications (Helleiner 2014: 151).
The content of Triffin’s Paraguayan mission showed how Prebisch’s ideas
were compatible with the Bretton Woods framework. They represented a kind of
‘Southern’ side of the broader ideology of embedded liberalism that infused the
Bretton Woods agreements. As John Ruggie (1982) notes, this ideology sought
to reconcile liberal multilateralism with new interventionist economic prac-
tices that had become influential across the world during the 1930s. In ‘North-
ern’ industrialized countries, provisions such as adjustable exchange-rate pegs
and capital controls were designed to make liberal multilateralism compatible
with new domestic commitments to full employment and social security. But
in poorer ‘Southern’ country contexts, they were seen as a way to accommo-
date the new state-led development policies aimed at promoting rising living
standards, rapid economic growth and latecomer industrialization (see Briceño
Ruiz, this volume).
Prebisch’s involvement in the creation of this new US-led embedded liberal
order was then formalized when Triffin invited him to spend three months in Par-
aguay, starting in December 1944, to help implement the Paraguayan reforms.
At the time, Triffin told the Federal Reserve Board that ‘we could have no bet-
ter guarantee for the ultimate success of our mission’ than to involve Prebisch
because both he and Prebisch were ‘thoroughly in agreement upon the essen-
tial problems of monetary, banking and exchange organization in Paraguay’
(Helleiner 2014: 151). Other Fed staff concurred with Triffin’s high opinion of
Prebisch at the time. Earlier in August 1944, Walter Gardner had described Pre-
bisch as ‘certainly the outstanding figure in central banking in Latin America’.10
Emanuel Goldenweiser also noted to an official at the Rockefeller Foundation
in February 1945 that Prebisch was ‘without any doubt, the most outstanding
man in his field in Latin America and one of the outstanding ones in the world’
(Helleiner 2014: 151).
Prebisch accepted Triffin’s invitation and went to work on this project in
­Paraguay. As Edgar Dosman notes, Prebisch’s earlier visit to the US in 1940
had already left him with a positive impression of the values of the New Deal
and the openness of US officials to backing state-led development in Latin
America (Dosman, forthcoming). That visit had coincided with the timing of
the IAB negotiations and he had met with US officials, such as White and
Adolfe Berle, who were at the centre of the IAB negotiations (Berle and Jacobs
1973: 353). In his Mexican lectures of early 1944, he had also noted how
encouraging White’s 1942 Cuban mission report had been to him because of its
recognition of the usefulness of exchange controls for countries experiencing
large balance-of-payments fluctuations. He told his Mexican audience how he
hoped to be able to discuss this issue further with US officials (Prebisch 1991
[1944]: 200–1). Triffin’s invitation gave him an opportunity to support the new
US position, and consolidate a trend in Latin American monetary reform that
he had helped to pioneer.
 Latin American origins of Bretton Woods 91
Prebisch’s support for American goals at this time is well expressed in a letter
he wrote to Triffin in June 1945 after reading the latter’s summary of the Para-
guayan reforms:

You have developed monetary principles in your projects which are most
suitable to countries like ours. I deliberately include Argentina: if I had to
prepare a new project for my country I would adopt a great part of what you
have proposed. Paraguay now has an efficient instrument for the stabilization
of its economy. If managed with good judgment and prudence, the reform
will be the beginning of a new monetary orthodoxy in our countries, under
the auspices of the big shots of the Federal Reserve. We shall be freed, my
dear friend, of the exorcisms by which foreign advisors would have wished
to purify the exchange policy of these countries in not too remote periods.

Triffin replied, thanking Prebisch ‘for the nicest letter I have received in a very
long time’ and for his ‘extraordinary contribution to the success of those reforms
in Paraguay’. He noted: ‘If the reform is successful I think the credit should always
go to you. Yours was really the hard work while mine remained perforce confined
to more or less academic theorizing’ (Helleiner 2014: 152–3).
Triffin subsequently consulted with Prebisch in the context of missions in 1945 to
other Latin American countries. The significance of the Triffin–Prebisch partnership
receives little attention from historians of Bretton Woods. In some ways, this is not
surprising, because neither attended the conference in July 1944. Triffin was in Para-
guay at the time, while Prebisch was forced to watch the meeting from afar, envying
other Latin Americans who were at the centre of the action (Dosman 2008: 197). But
their intellectual partnership helped to pioneer the Southern side of the ideology of
embedded liberalism at this time and to solidify Latin American support for Bretton
Woods by demonstrating how the agreements were compatible with, and supportive
of, Latin American development ambitions (Helleiner 2014: chapters 5, 6).

Conclusion
Inter-American relations played a more important role in the creation of the Bret-
ton Woods system than is often acknowledged in existing scholarship. Part of their
significance came before the formal Bretton Woods negotiations even began. US–
Latin American financial relations in the late 1930s and early 1940s – particularly
the stillborn initiative to create an Inter-American Bank in 1939–40 – pioneered
some of the core aspects of the new Bretton Woods framework: the intergov-
ernmental nature of multilateral financial institutions; the commitment to public
international lending, particularly for development purposes; its inclusive mul-
tilateralism; and even the governance arrangements of these institutions. These
innovations had a clear influence on White’s ‘first drafts’ of the Bretton Woods
institutions prepared in early 1942, and on broader US planning for the post-war
international financial order.
92  Eric Helleiner
US policymakers also saw Latin Americans as an important audience for their
initial drafts of the Bretton Woods institutions. It was Latin Americans – not the
British – who were first told of White’s initial plans at an inter-American con-
ference in Rio in January 1942, and those plans included provisions designed to
appeal to Latin American policymakers. Delegates to that 1942 Rio conference
were also the first to formally endorse the idea of holding a multilateral confer-
ence to discuss those plans. Latin American officials then continued to be actively
involved in the 1943–4 negotiations leading up to the Bretton Woods meeting. At
the July 1944 conference itself, they made up almost half of the countries repre-
sented and took an active role in the discussions.
Latin American officials (and others, such as Rául Prebisch) were particularly
interested in how the Bretton Woods negotiations could support their develop-
ment aspirations. To this end, they played an important role in bolstering the
development-lending role of the IBRD which many saw as a successor to the ear-
lier IAB proposal. They also helped ensure the potential for more generous IMF
balance-of-payments support for commodity-exporting countries (the ‘waiver’
clause), and secured a conference resolution calling for a future international
agreement relating to commodity marketing and pricing. Latin American coun-
tries also strongly supported the IMF’s provisions allowing for adjustments to
exchange-rate pegs and capital controls – provisions they saw as protecting their
autonomy to pursue state-led development policies. The Bretton Woods frame-
work’s compatibility with that goal was confirmed and reinforced by Triffin’s
financial-advisory missions at the time, which were, in turn, strongly influenced
by Prebisch’s ideas, and even assisted by Prebisch himself.
Given Prebisch’s support for US goals at the time, it is interesting that he later
emerged as a leading critic of the Bretton Woods system, arguing that it failed to
support the distinctive development needs of Latin America and other poorer coun-
tries. The two positions were not incompatible; indeed, they were closely related.
After Roosevelt’s death in April 1945, and then with the onset of the Cold War, US
policymakers became much less supportive of Latin American state-led industri-
alization and development goals than they had been during the period of the Good
Neighbor Policy and Bretton Woods negotiations. In this context, Prebisch and
other Latin Americans quickly became disillusioned by the sharp contrast between
the expectations raised in the early 1940s and the ‘actually existing’ Bretton Woods
system after the war. As Dosman has noted, Prebisch’s later activities at the UN
Economic Commission for Latin America and the Caribbean (ECLAC) and the UN
Conference on Trade and Development (UNCTAD) can in fact be interpreted as
efforts to restore and extend the forgotten and still unrealized international-develop-
ment vision of the Bretton Woods negotiations themselves (Dosman, forthcoming).

Acknowledgements
This chapter draws on material from Helleiner 2014. I am grateful to Kristen Hopewell
and Matias Margulis for their comments. I am also grateful to the Social Sciences
and Humanities Research Council of Canada for helping to fund this research.
 Latin American origins of Bretton Woods  93
Notes
1 This section and the next draws on Helleiner 2014: chs. 1–3.
2 See also comments by other scholars in Helleiner 2014: 52. US officials at the time
commented on this as well (Ibid: 77).
3 This resolution was also driven by concerns about BIS relations with the Nazis during
the war.
4 US Government 1948: 1574. The list provided on that page does not include six coun-
tries that received invitations subsequently: Egypt, France, Iceland, Iran, Liberia and
the Philippines.
5 The other 12 represented were Australia, Belgium, Canada, China, Czechoslovakia,
France, India, the Netherlands, the Philippines and the UK, US and USSR.
6 While White and Keynes chaired the commissions drafting the IMF and the IBRD
respectively, Suárez chaired the one examining ‘other means of international financial
cooperation’.
7 These included Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Repub-
lic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama,
Paraguay, Peru, Uruguay and Venezuela.
8 Latin America was not guaranteed a seat on the board of the Bank.
9 For Triffin’s debt to Prebisch, see Helleiner 2014: 150–3.
10 Gardner to Federal Reserve Board, 18 Aug 1944, p. 1, Box 230, File: ‘Foreign Mis-
sions, Paraguay (Aug–Dec 1944)’. Record Group 82, Board of Governors International
Subject Files, United States National Archives, College Park, MD. See also Dosman
2008: 132, 233.

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Berle, Beatrice Bishop and Travis Beal Jacobs, eds. 1973. Navigating the Rapids 1918–
1971: From the Papers of Adolf A. Berle. New York: Harcourt Brace Jovanovich.
Dosman, Edgar. 2001. Markets and the State in the Evolution of the ‘Prebisch Manifesto’.
CEPAL Review, 75: 87–102.
Dosman, Edgar. 2008. The Life and Times of Raúl Prebisch, 1901–86. Montreal: McGill-
Queen’s University Press.
Dosman, Edgar. 2015. Review. H-Diplo Roundtable Review, 16(29) (29 June 2015): 5–12,
www.tiny.cc/Roundtable-XVI-29 (accessed 1 August 2016).
Finnemore, Martha and Michelle Jurkovich. 2014. Getting a Seat at the Table: The Origins
of Universal Participation and Modern Multilateral Conferences. Global Governance,
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Gardner, Richard. 1980 [1956]. Sterling-Dollar Diplomacy in Current Perspective. New
York: Columbia University Press.
Green, David. 1971. The Containment of Latin America. Chicago, IL: Quadrangle Books.
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ment and the Making of the Postwar World. Ithaca, NY: Cornell University Press.
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McKinzie, Richard. 1974. Oral History Interview with Emilio Collado. Harry S. Truman
Library and Museum, www.trumanlibrary.org/oralhist/collado1.htm (accessed 1 August
2016).
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Prebisch, Raúl. 1991 [1944]. Conversaciones en el Banco de Mexico, 21 February 1944.
In Prebisch, Raúl, Obras 1919–48 vol. III. Buenos Aires: Fundacion Raúl Prebisch,
pp. 189–206.
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Macmillan.
Part II

Power and resistance

in the global political
economy
http://taylorandfrancis.com
5 Raúl Prebisch and the
historical roots of the current
movement against corporate-
led globalisation
Robin Broad and Zahara Heckscher

As an expert on transnational corporations bemoaned to one of the authors, the

current alter-globalisation movement is ‘a movement that does not … recognise its
own history’.1 The purpose of this chapter is to ‘recognise’ that history and to exam-
ine its relevance to the contemporary period and movement, with a special focus on
the roles played by Raúl Prebisch and other structuralist thinkers and practitioners.
Economic integration through trade, investment and financial flows is not
simply a phenomenon of the 1990s, even if that decade popularised the term
‘globalisation’. Nor, this chapter argues, did resistance to this economic integra-
tion erupt only recently. By some accounts, the resistance appears to have grown
magically from nothing to the 40,000–60,000 on the streets of Seattle. Indeed,
thanks to widespread media coverage, the 1999 ‘Battle of Seattle’ brought this
resistance to living rooms around the world. But recent resistance and alternative
proposals have important roots and antecedents that not only precede Seattle and
the 1990s; they also precede Ronald Reagan, Margaret Thatcher, Helmut Kohl,
and the neoliberal consensus (also known as the Washington Consensus) that came
to monopolise economic development thinking and policy in the 1980s and 1990s.
To explore the historical roots of the movement against corporate globalisa-
tion, the chapter provides snapshots of three dynamic waves of enhanced eco-
nomic integration that provoked transboundary resistance by civil society, by
governments, or by both. We provide case studies of: 1) the period of European
colonialism; 2) the early post-Second World War period (1940s–60s), which saw
the creation of public institutions to manage the world economy and also marked
a period of vibrant debate over the role of developing countries in the economic
order; and 3) the 1970s, when Southern governments banded together to establish
alternative rules and institutions, and when popular resistance to different aspects
of economic integration spread in many nations. These case studies will illustrate
ways in which today’s movement has important antecedents in past popular move-
ments and debates. (Any one of these periods could – and should – be examined
in more depth by others; our purpose here is explicitly to employ a broader sweep
by combining them.)
Students of current social movements can learn lessons not only from these
earlier forays into cross-border organising, but also from the theory and work of
Raúl Prebisch. In addition, the particularly rich period of cross-border organising
98  Robin Broad and Zahara Heckscher
in the 1970s is interesting for yet another reason. As we will detail below, there
are some threads that tie today’s movements directly to that period. Notable,
for instance, is the fact that several leaders of the current movements cut their
teeth on related scholarship and activism during the 1970s. Although their earlier
work is not necessarily widely known by today’s movements against corporate
globalisation, these individuals carry links and lessons from prior historical eras
into their current work.

Our first time period: origins of global integration and resistance

Trade across borders is at least as ancient as the Book of Genesis, which tells
of Joseph being sold by his brothers into slavery courtesy of ‘a company of
Ishmaelites [who] came from Gilead with their camels bearing spicery and balm
and myrrh, going to carry it down to Egypt’.2 Throughout the millennia, extensive
regional trade has taken place around the world, from the Chinese dynasties to the
Roman Empire, from the complex society of Great Zimbabwe to the astonishing
Aztec markets of Mexico.
Today’s patterns of global exchange date back to the period of European colo-
nialism that began in the late fifteenth century. Before then, most of the regions of
the world were largely self-sufficient. But this changed over the next two to three
centuries, as a few European powers built fleets and militaries and began to claim
large parts of the rest of the world under their rule. During this early era of eco-
nomic integration, the central driving force was colonialism. Once the colonisers
took over a territory, they began to transform economic activity. Indeed, this was
at least part of the colonisers’ motivation. Listen to the words of Cecil Rhodes,
British colonial founder of Rhodesia:

We must find new lands from which we can easily obtain raw materials and at
the same time exploit the cheap slave labour that is available from the natives
of the colonies. The colonies would also provide a dumping ground for the
surplus goods produced in our factories.3

Thus, local and regional trade gave way to global trade, as European colonialism
spread to Africa, Asia and the Pacific, the Middle East, Latin America, and the
Caribbean.
Local economies were integrated into the global economy in ways that served
the needs of the colonial powers over those of the colonies and the local populace.
Library shelves are filled with volumes that detail this brutal creation of a ‘colonial
division of labour’ and its winners and losers. Uruguayan Eduardo Galeano’s
Open Veins of Latin America, for example, chronicles rapacious colonialism in
economic, social, and environmental dimensions:

Latin America is the region of open veins. Everything, from the discovery until
our times, has always been transmuted into European – or later US – capital,
and as such has accumulated in distant centres of power. Everything: the soil,
 Prebisch and anti-globalisation 99
its fruits and its mineral-rich depths, the people and their capacity to work and
to consume, natural resources and human resources.
(Galeano 1973: 12)

These and similar trade and investment patterns elsewhere were created to serve
narrow economic and political interests, invariably sowing the seeds of resistance.
Just as the current system of international trade dates back hundreds of years, so
does the resistance to exploitative forms of global integration. Many early expres-
sions of resistance to European attempts at economic integration were individual
and small-group acts of non-cooperation or sabotage. In virtually every society
colonised by the Europeans, people rose up to protest at the cruelty of slavery,
appropriation of land, and plunder of resources. Some communities retreated
into less accessible territories rather than submit to the devastation of European
colonialism. Many captured Africans rebelled or committed suicide rather than
become slaves. Native Americans practised guerrilla warfare in thousands of
incidents of armed rebellion. A few Europeans – including Columbus’ outspo-
ken contemporary and chronicler, Bartolomé de Las Casas – used their power
and privilege to protest against the worst abuses of the colonial trade and labour
practices (de las Casas 1992).
Eventually, out of these isolated incidents, organised social movements devel-
oped in an attempt to counter or abolish perceived injustices of international trade
in goods and labour. Most of these movements were local and national, but a few
were transnational. It is the transnational movements that interest us here, as the
antecedents of today’s international campaigns to alter corporate-driven economic
globalisation. Consider two of the most dynamic examples of organised transna-
tional resistance to economic integration between the 1780s and the early 1900s:
the movement to abolish the slave trade and the First International Workingmen’s
Association.4
In the 1700s, a movement against the Atlantic slave trade gained strength in
Europe and North America (see Hochschild 2005; Drescher 1944; Anstey 1975;
Midgley 1992; Equiano 1995 [1789]; Oldfield 1995; Sypher 1941; Klein 1999).
At its peak, from 1787 to 1807, the movement was strongest in the UK. Numerous
sectors of society were mobilised there – from the textile workers of Manchester
to Methodist Church founder John Wesley, from artisans in small Scottish towns
to wealthy businessmen in London, from rural housewives to prime ministers. But
this was also an international movement that involved significant collaboration
among civil society across continents – British, North American, French, and also
people of African origin, including black sailors of various nationalities, sons of
African royalty sent to Europe to round out their education, and free European and
American blacks. Former slaves from the Americas also played an important role,
such as Olaudah Equiano, whose autobiography was a bestseller in the 1790s.
In other contexts, some have argued that the anti-slave trade movement was
the first modern social movement and the innovator of social-change methodol-
ogies used by virtually every social movement that followed.5 Indeed, the tactics
used by the campaign should sound surprisingly familiar to the organisers of and
100  Robin Broad and Zahara Heckscher
participants in the modern anti-corporate globalisation campaigns: popular the-
atre, speaking tours and rallies, political poetry, letter-writing campaigns, direct
lobbying, petitions, electoral politics, and commercial boycotts. International net-
working was essential to the success of the movement. For instance, former slaves
from the US conducted speaking tours in the UK, providing first-hand testimonies
of the cruelties of the slave trade and bringing thousands of new supporters into
the movement. British religious denominations shared their strategies with their
counterparts in the US, which helped to strengthen the North American move-
ment. Indeed, the religious sector, with its often uncompromising moral core,
formed the backbone of the movement on both continents.
The anti-slave trade movement was certainly effective; not only was the
slave trade banned in the UK and the US, but the English Navy was also used
to intercept ships off the coast of Africa, search them, and send any Africans
found on board back to Africa. The banning of the slave trade also helped create
momentum for the abolition of slavery itself. The movement thus permanently
altered the rules of the global economy and set a precedent for social movements
promoting the value of human rights above the value of commerce (Keck and
Sikkink 1998).
In the case of the European workers and the First International Workingmen’s
Association, the same ideas of justice and equality that had spurred the anti-slave
trade movement also led to an international movement focused on the rights of
workers in the economic integration of mid-nineteenth-century Europe. In the
1800s, as a result of the Industrial Revolution, an increasing number of Europe-
ans worked in factories under dire conditions: excessive work hours, low wages,
abusive bosses, and so on. Economic integration brought in new technologies
that threatened jobs and foreign-made goods that threatened domestic production
(see Milner 1990; Collins and Abramsky 1965). European labour unions, which
had developed out of craftsmen’s guilds, began using strikes, work slowdowns,
and destruction of machinery to fight for better wages, better work conditions,
and protective tariffs. In England in the 1850s, factory owners fought back by
importing workers from poorer European countries to replace striking workers,
including cigar-makers, tailors, and builders.
In response, some European workers developed a strategy that combined
international solidarity with self-interest. Their unions, along with their intel-
lectual supporters and associations of non-unionised workers, formed the First
International Workingmen’s Association in 1864. The First International suc-
cessfully intervened in 1866 to prevent the bosses of striking tailors in England
from hiring strike-breakers from Belgium, France, and Germany, by convincing
workers overseas not to become scabs. In 1867, a delegation of striking Parisian
bronze-workers visited London to seek support for their right to unionise; the First
International subsequently sent financial support from British unions and contrib-
uted to the success of the Paris strike.
While the First International lasted only until 1872, it played a key role in
the development of national labour unions and working-class consciousness in
Europe. In turn, these new unions and new ideas made significant changes not
 Prebisch and anti-globalisation 101
only in labour conditions, but also in national policies, from freedom-of-speech
laws to the extension of voting rights to people who did not own property. Many
union activists, recognising parallels between the exploitation of workers in
Europe and the enslavement of Africans in the Americas, also played a role in
the eradication of slavery overseas, along with veterans of the anti-slave trade
movement (Fladeland 1972). In short, like the current anti-corporate globalisation
movement, the international workers’ movement was a multi-issue movement that
included domestic as well as global goals. And, while its effectiveness might not
match that of the movement against global trade in slaves, it certainly laid down
a yardstick against which subsequent international movements of and for workers
have been and can continue to be measured.

Our second time period: rebuilding the global economy ... and
restructuring
After that broad sweep of almost 500 years of economic integration and resistance
before the Second World War, this section moves to the second of the dynamic
waves of enhanced economic integration and resistance: the early post-war period,
from the 1940s to the 1960s. To understand this period, one must put at cen-
tre stage the public and private institutions that set the rules for the post-Second
World War global economy.
The Depression years and the world war that ensued were crisis times for the
global economy and economic integration – so trying that, while the war was still
raging (indeed, before it was at all clear which side would be victorious), some
of the leading economic thinkers from the richer countries (including Britain’s
renowned John Maynard Keynes) began to exchange detailed plans for the public
multilateral institutions that would manage the post-war world economy.
From these plans came the well-known post-Second World War triumvirate of
public international economic organisations. In finance, the International Mone-
tary Fund (IMF) was created to oversee an orderly exchange-rate system and to
provide short-term loans for countries that experienced unexpected shocks to their
balance of payments. To stimulate production and the rebuilding of war-ravaged
nations, the World Bank (officially the International Bank for Reconstruction and
Development) was created to offer long-term, low-interest loans for the ‘recon-
struction’ of Europe and the ‘development’ of the independent Third World coun-
tries. To complement these ‘Bretton Woods twins’, the General Agreement on
Tariffs and Trade (GATT) was set up in 1948 to oversee the reduction of tariff
barriers to trade in manufactured goods.6
In addition to gearing up production, finance and trade, these post-Second
World War public transnational institutions created an atmosphere ideal for the
growth and global spread of large private transnational corporations, the twentieth
century’s version of the East India Company. As barriers to trade and investment
fell in the decades following the Second World War, several hundred large private
corporations began to weave certain parts of the globe together even more tightly
than before the war, through trade and investment flows.
102  Robin Broad and Zahara Heckscher
The growth and influence over the development process of both ‘multi-
national’ corporations (now more commonly termed ‘transnational’ corpo-
rations) and the public ‘multilateral’ institutions elicited debate over other
possible routes to development via economic integration. Although origi-
nally created to focus on economic growth and job creation, the public multi-
lateral economic institutions increasingly took a free-market focus, ultimately
using increasingly coercive means to require borrowing developing countries
to open up their economies to the global economy through liberalised trade and
investment flows.
The controversy surrounding the free-market policies promoted by these insti-
tutions fed into a debate about how developing countries should relate to the
global economy. Likewise, the global expansion and enlargement of modern
multinational/transnational corporations elicited a related debate over whether
they should be allowed to move around the globe freely or whether ‘checks’
should be placed on them (and who should and how to place those checks). As
will be discussed in the rest of this section, the first of these debates influenced
development thought and practice starting as early as the 1960s. The second, as
we shall see in the next section, became more operative in the 1970s.
In the post-war period, academics and practitioners in Latin America developed
a new framework for the way in which developing countries should relate to the
global economy – a Southern ‘home-grown’, influential critique and alternative
economic integration programme: structuralism (see Rivarola Puntigliano, this
volume). The ‘structuralists’ sought to restructure developing countries’ positions
in the world economy. Their critique focused not on environmental or social and
other distributional issues within a country, but rather on the question of why ‘eco-
nomic growth’ via global economic integration was disproportionately benefiting
richer ‘core’ countries at the expense of poorer ‘periphery’ ones and why the eco-
nomic gap between the two appeared to be growing rather than shrinking. The
answer, according to the Argentine father of structuralism, Raúl Prebisch, was
clear: as long as countries in the ‘periphery’ relied on commodity exports and
manufactured imports (that is, as long as they were mired in the colonial divi-
sion of labour), their economies would be exploited to the benefit of the ‘core’
countries. Indeed, Prebisch and others at the UN Economic Commission for Latin
American and the Caribbean (ECLAC) professed that the very development of the
‘core’ depended on the underdevelopment of the ‘periphery’ – to the extent that
periphery countries were actually moving backwards economically as the value of
their commodity exports fell relative to the value of their manufactured imports
(otherwise known as declining terms of trade). This was not simply theory:
Prebisch and his colleagues found empirical evidence to support the declining-
terms-of-trade thesis.7
But declining terms of trade was not the only obstacle to economic growth
in the South. Prebisch and other structuralists also highlighted the need to dis-
tinguish between domestic-catalysed growth versus foreign corporate-catalysed
growth in order to understand the different historical patterns of economic growth
in the core and periphery – and to understand mounting economic disparities.
 Prebisch and anti-globalisation  103
To break out of these ‘structural’ binds, Prebisch, along with fellow structuralists
Celso Furtado and Hans Singer (among others), advocated temporarily delinking
parts of an economy from the global economy to build up domestic industrial
capacity and internal markets through a concerted, multi-tiered plan of import
substitution industrialisation (ISI) geared to move a country into ever-higher
value-added manufactured goods (see Ho, this volume). Only when a country in
the periphery had built up its own capacity for industrial exports, according to
Prebisch, could that country reinsert itself on an equal basis in the world economy.
This was more than an academic debate. Indeed, Prebisch and structuralism
changed both national policies and the global debate. Prebisch became the first
Secretary-General of the United Nations Conference on Trade and Development
(UNCTAD) after its creation in 1964. Prebisch’s vision led Southern countries
across the globe – from Brazil to the Philippines – to try ISI over the course
of the 1950s and 1960s.8 And it led to a much more vibrant period of divergent
national-development strategies that continued until the onset of the neoliberal
Washington Consensus in the 1980s (see Wade, this volume). Ironically, these ISI
strategies were also important in that opponents termed them ‘failures’ in practice
and used that assessment as a springboard for the neoliberal consensus of the
1980s and 1990s (Broad 2004; Broad and Cavanagh 2009, 2012; Wade 1990;
Chang 2008).
While at the helm of UNCTAD, Prebisch opened a space for critical research
on transnational corporations (TNCs) to expose their power and control. In the
1970s and 1980s, UNCTAD studies on corporate control of bananas, tobacco,
cotton, and textiles and other commodities were among the first to examine corpo-
rate control of commodity-supply chains, which in turn exposed the paradox that
increasing prices of commodities might benefit global corporations and develop-
ing-country elites more than the poorer majority in the developing countries that
produced the commodities. This UNCTAD work contributed to the intellectual
and evidentiary basis for the anti-TNC discourse and movements later on.9

Our third time period: the 1970s and resistance to the corporate
‘global reach’
Despite the continuing influence of structuralist ideas in some academic and
government circles, especially in the South, the 1970s witnessed a significant
increase in TNCs’ ‘global reach’, as Richard Barnet and Ronald Müller (1974)
so aptly phrased it in their best-selling book chronicling the expansion of these
corporations and the transnational banks that funded them in the Third World.
With the rise of TNCs in the 1970s came increasing focus and concern over their
economic and political power vis-à-vis Third World governments.
A major scandal turned the US-headquartered International Telephone and Tele-
graph (ITT) into the poster child for these concerns. The backlash provoked by
the ITT case stands out as a key moment of governmental and non-governmental
‘resistance’ to unfettered global expansion. The ITT case, however, is far less
known among more recent critics of corporate practices overseas, and thus merits
104  Robin Broad and Zahara Heckscher
a summary here. In terms of the scandal itself, evidence surfaced in the early
1970s that ITT had offered funds to the US government to prevent the democrati-
cally elected socialist government of Salvador Allende from taking power in Chile
in 1970.
Using that incident as a starting point, the US Senate Foreign Relations Com-
mittee’s Subcommittee on Multinational Corporations, under Senator Frank
Church, convened a multi-year inquiry into ‘Multinationals and United States
Foreign Policy’, interviewing dozens of expert witnesses to look at the power
and practices of US corporations in the developing world. As Church stated in his
opening statement to a hearing of 20 March 1973, the subcommittee was charged
with moving beyond this one case study to

undertake a broad examination of the role of multinational corporations ...

Do the activities of the multinational corporations advance the interests of the
people of the United States taken as a whole? Are they exporting jobs which
might otherwise be kept at home?10

Over the period from 1972 to 1976, the Church Subcommittee hearings covered
corporate practices ranging from the ‘ITT and Chile’, to ‘Multinational Petroleum
Companies and Foreign Policy’, to ‘Political Contributions to Foreign Govern-
ments’. From that investigation came 17 riveting volumes that offer a more thor-
ough examination of corporate practices overseas than any other inquiry of this
(or perhaps any) era.
To say that Church and his staff trod on potentially controversial topics is to put
it mildly. And, indeed, in 1976, as this era of willingness to criticise TNCs began
to close, the Subcommittee was ‘neutered’ (in the words of its then staff director)
by being converted into a Subcommittee on International Economic Policy.11
Outside the US in the early to mid-1970s – energised by such public rev-
elations of irresponsible TNC behaviour, educated by Raúl Prebisch and his
structuralist theory, and emboldened by the economic success in that era of the
oil-exporting nations belonging to the Organization of Petroleum Exporting
Countries (OPEC) – a number of Southern governments found a collective voice
to demand a different set of rules for the world economy and its players. And so
it was that structuralist theory was transformed into the core of the ‘new interna-
tional economic order’ (NIEO) demands that Southern governments, from that
of Julius Nyerere in Tanzania to that of Ferdinand Marcos in the Philippines,
brought to the United Nations in the early 1970s.
Although Prebisch stepped down as the head of UNCTAD in 1969, much of the
conceptualisation and content of the NIEO agenda was formed by people whom
Prebisch had hired at UNCTAD. In the 1970s, UNCTAD pioneered proposals
to raise and stabilise raw-material prices (that is, to mediate the conundrum of
declining terms of trade) through commodity agreements and to increase Southern
exports of manufactured goods (that is, to break out of the colonial division of
labour). The NIEO demands focused on how the Southern nation state could access
the economic benefits to be gained from interaction with the world economy. In
 Prebisch and anti-globalisation 105
May 1974 the UN General Assembly ‘solemnly proclaimed’ a ‘Declaration on
the Establishment of a New International Economic Order’. This stated, among
other things, that ‘every country has the right’ to ‘control of the activities of trans-
national corporations’, that ‘a just and equitable relationship between the prices
of raw materials, primary products, manufactured and semi-manufactured goods’
needed to be established ‘with the aim of improving [developing countries’] terms
of trade which have continued to deteriorate’ and that ‘the whole international
community’ needed to increase its ‘active assistance to developing countries’
(United Nations General Assembly 1974: preamble and section 4e).
Using the new pulpit and power afforded the South by OPEC’s economic suc-
cess, Southern governments succeeded in pushing the UN not only to pass the
NIEO declaration but also to create a Commission on Transnational Corpora-
tions (UNCTC). For close to a decade and a half after its establishment in 1975,
UNCTC oversaw an attempt (which eventually failed) to negotiate a UN Code of
Conduct on Transnational Corporations, which spelled out norms for corporate
‘rights’ and ‘responsibilities’. Included in the code’s provisions, for example, is
the requirement that

corporations shall respect human rights and fundamental freedoms in the

countries in which they operate. In their social and industrial relations, trans-
national corporations shall not discriminate on the basis of race, colour, sex,
language, social, national and ethnic origin or political or other opinion.
(quoted in Compa and Hinchliffe-Darricarrer (1995): 670)

So too, in this era of 1970s corporate exposés and vociferous Southern demands,
did both the International Labour Organization and the Organisation for Economic
Co-operation and Development issue their own corporate codes of conduct, in
1977 and 1978, respectively. While providing important precedents in terms of
language and reach, these codes were basically non-enforceable documents that
most observers agree did little to effect change in corporate behaviour or public
opinion.12
Thus far this section has chronicled an era in which governments, individually
and collectively, attempted to reform the workings of the world economy and its
key actors. But the 1970s also saw non-governmental actors push for change.
Indeed, catalysed by the ITT scandal, the revelations of the Church Subcommit-
tee, and the new international economic-order demands, citizen campaigns for
more specific corporate codes grew rapidly across borders to challenge various
corporate abuses: corporate support for apartheid; unethical marketing practices
by infant formula corporations such as Nestlé; and exploitative marketing prac-
tices by global pesticide, alcohol, and tobacco companies, to name a few of the
key campaigns. Rather than delineating an overall code of conduct for corpo-
rate ‘rights’ and ‘responsibilities’ in the pattern of the UN code, these campaigns
focused on specific instances of egregious corporate behaviour. While some of
these campaigns were local and most were less grandiose than the UN-code ini-
tiative, several were sophisticated global efforts that succeeded in fundamentally
106  Robin Broad and Zahara Heckscher
changing the public perception of infant formula and other corporations, if not
altering the on-the-ground realities.13

Our third time period (continued): the 1970s and resistance – from
TNCs to the World Bank and IMF
On a parallel front, governments and citizen groups began to expand their focus
from the corporations that were the major private actors in the global economy
to the World Bank, the IMF, and other public institutions that set the rules for
the global economy. On the one hand, as seen in the previous section, Southern
governments called, through their NIEO demands, for expanded governmental
and multilateral assistance to poorer countries – that is, for more aid. On the
other, a series of exposés over the course of the 1970s began to suggest that
aid, be it bilateral assistance from governments or multilateral assistance from
the World Bank and IMF, often had more harmful than beneficial effects on
supposed local beneficiaries. On the ground, of course, local people had been
witness to the impacts of these loans in previous decades, but the fact that this
criticism became more global in the 1970s reflects both the era and the growth
of these institutions over the 1970s. The World Bank, for example, increased its
lending more than tenfold from 1968 to 1981 (see de Vries 1987: 13–14; Broad
1988: chapters 2, 3).
In essence, these exposés said that when one analyses aid on the ground and
listens to what local people have to say, one discovers that loans often coddle
dictators and the well-off at the expense of the poor and a country’s growth and
development. According to these scholars and practitioners, by the 1970s most
aid was invariably geared toward pushing a free-market development model that
encouraged either 1) expansion of traditional primary-product exports (cement-
ing a colonial division of labour) or 2) entry into labour-intensive, low-value-
added manufacturing exports such as apparel and electronics, creating what
academics termed a ‘new international division of labour’ (Fröbel et al. 1980).
In the latter case, the critics claimed, what was promoted by a great deal of donor
money and concomitant advice was not anything like the structuralist version
of developing-country industrialisation, but rather ‘enclaves’ of exploitative,
import-dependent manufactured exports that gave the lion’s share of the profits to
TNCs for repatriation to their home countries. Furthermore, these exposés contin-
ued, aid was seldom provided in the form of grants; more typically offered were
loans, the repayment of which would burden vulnerable populations.
This literature combined critiques based in international political-economic
analysis with specific country and project case studies. Building on the struc-
tural analysis of Prebisch and his fellow structuralists, in part the literature decon-
structed the kind of economic integration pushed by Northern assistance, with an
aim to alter or restructure that interaction into a more positive one.14 However, by
moving beyond a North–South delineation to delve into questions of who benefits
and who loses within countries, these critiques went beyond an NIEO focus and,
 Prebisch and anti-globalisation 107
indeed, foreshadowed the focus of today’s citizen backlash on specific sectors
(labour and environment, or women and indigenous communities, for example)
within North and South. Thus, it could be termed ‘blue–green structuralism’ –
with blue referring to workers (blue-collar) and other dispossessed and marginal-
ised sectors of society (as currently captured in the term ‘the 99%’), and green to
the environment.15
The initial 1970s exposés and critiques that were published in the North are
perhaps the most direct forebears of the more recent movement against the World
Bank, IMF, and World Trade Organization (WTO). The authors were mostly
female and their books’ titles summarise their path-breaking theses. From Europe,
in 1971 came Teresa Hayter’s Aid as Imperialism and in 1977 Susan George’s
How the Other Half Dies. In 1974 Cheryl Payer wrote one of the first critiques
of the IMF in her illuminating work The Debt Trap. Through detailed country-
specific case studies, Payer outlined the devastating impact of IMF policies on
poorer nations, locking them into a development model based on debt, which sub-
sequently forced them into more borrowing, more faulty development policies,
and more debt.
One of the first critical, in-depth, book-length country case studies of World
Bank lending was that of the Philippines (a World Bank ‘country of concentra-
tion’16 and one of its top-ten loan recipients at that time). Over the late 1970s to
early 1980s, Filipino scholar/activist Walden Bello and a group of his colleagues
(including one of the present authors) amassed a wealth of evidence to provide a
detailed case study of how World Bank aid bolstered dictator Ferdinand Marcos
while restructuring the Philippine economy to serve the interests of global corpo-
rations and the global market. While research in the Philippines was crucial to this
documentation, much of the evidence also came from ‘confidential’ documents
supplied by increasingly disillusioned World Bank employees.17
When these exposés began to appear, their audience and the number of protest-
ers in the North were still small. Activism and media reports then spread informa-
tion about the impact of World Bank lending on indigenous communities around
the world; this increase in transparency added environmental issues to what had
been primarily social and economic critiques and, as a result, Northern environ-
mentalists joined the protests.
For example, local and international activists helped publicise the indigenous
peoples’ opposition to the Chico dam project in the northern Philippines, a proj-
ect partially funded in the initial stages by the World Bank. The Chico dam thus
became one of the first large-scale World Bank infrastructure projects to cross the
local–global divide – that is, to jump from local protests by indigenous inhabitants
to international attention and protest. Notable here was that the global protests and
outcries were very clear in the fact that they were channelling, and amplifying, the
voices of the indigenous communities in the Cordillera mountain region, whose
ancestral land was to be inundated by the Chico dam project.
So too did the indigenous people of the Cordillera move to amplify their oppo-
sition beyond that of the dictator Ferdinand Marcos. A case in point comes from
108  Robin Broad and Zahara Heckscher
1975, when some of the affected indigenous communities wrote to then World
Bank president Robert McNamara, beseeching him to stop the funding:

We, the [indigenous] Bontocs and the Kalingas affected by the Chico River
Basin Development Project, object most strongly to any assistance from the
World Bank ... to the Philippine government for this project. The reason is
simple: the project would wipe us out as a people! At least ten Kalinga set-
tlements and six Bontoc settlements will be devastated as a result of this dam
project.18

Five years later, a so-called ‘Permanent Peoples’ Tribunal on the Philippines’

was held in Antwerp, Belgium, and included participation by the local affected
population as well as well-known Filipino and global figures (such as interna-
tional human rights-law professor Richard Falk). The Tribunal not only rendered
judgment on dictator Ferdinand Marcos but, upon hearing testimony from a local
indigenous leader against the Chico dam project, also held that the multilateral
financial institutions were culpable:

the International Monetary Fund, the World Bank, and the Asian Development
Bank ... are playing a crucial role in sustaining, supporting and encouraging
the Marcos regime, despite its commission of systematic state crimes, and
[the Tribunal] calls upon these international financial institutions to termi-
nate these relationships that abet the violation of the rights of peoples and are
responsible for disrupting the life and threatening the very existence of such
tribal peoples as the [indigenous] Igorot and Kalinga through their support for
high-technology hydro-electric projects.19

The significance of both the local letter and the international verdict must be
emphasised. Unlike the contemporary moment, in this period a World Bank
president did not receive such complaints and criticisms regularly. For the local
inhabitants, the protests against the Chico dam were somewhat successful (the
World Bank eventually pulled out of further funding), but extremely risky given
the excesses of the Marcos dictatorship. As the testimony at the Tribunal detailed,
several local inhabitants were killed, including the community’s revered spokes-
person Macli-ing Dulag.20
The major legacy of Chico, foreign-funded dam projects in India, and other
huge infrastructure projects affecting indigenous communities and involving
large-scale resettlement of local populations was Northern environmental groups’
awakening to the connections between aid money and environmental degrada-
tion. Starting in the early to mid-1980s, major US-based environmental groups
launched campaigns to reform the World Bank in terms of large infrastructure
projects. Over the course of the 1980s, development and human-rights advocates
joined in – building in some instances on Hayter, Payer, Bello, and other broader
political-economic critiques of the 1970s, but more often not even aware of them.
Indeed, it was not until the 1990s that the resistance grew to encompass more
 Prebisch and anti-globalisation 109
issues and an expanded lens of analysis. It built from a focus on specific projects
to reinsert broader political-economic critiques reminiscent of Bello, Payer, and
others; from a concern with environment and development in the 1980s to reinsert
social justice; from a preoccupation with aid to include trade and investment; and
from a focus on the World Bank to the IMF and then to the GATT’s powerful
successor, the WTO.
This overview of the 1970s resistance is important for another reason. Sev-
eral of the leading spokespeople for and organisations involved in the current
backlash against corporate globalisation began their work in different parts of the
globe during the 1970s. Their thinking was, in part, shaped by this decade. More-
over, these leaders have personal and professional trajectories that are themselves
cross-national. And most have actually known, if not worked with, each other
over these 30 years, building ties of trust that transcend disagreements.
Take the case of Malaysian Martin Khor (Khor Kok Peng), formerly of the
Third World Network and now head of the South Centre, who in the 1970s was
active in building international consumer movements that helped push the NIEO
agenda at the United Nations and other venues. From France came American-born
Susan George, a leader of the global ATTAC network and of the World Social
Forum. The co-founder of the Institute for Policy Studies, the late Richard Barnet
– who co-authored Global Reach during that same period – launched that institute
to the centre of globalisation work for the ensuing three decades. And then there
is Walden Bello, a Filipino who had come to the US for graduate studies and
remained there in political exile during the Marcos years, subsequently becom-
ing executive director of the Institute for Food and Development Policy (Food
First) and then of the Thailand-based Focus on the Global South. Bello began his
investigations into the World Bank in the late 1970s as part of his scholarship and
activism on both the Philippines and Chile.21
Each of these and several other of today’s activists understand the power that
citizen movements allied with sympathetic Third World governments can exer-
cise. Each of these individuals, as well as other current activists with roots going
back to the 1970s, provides not only continuity between the resistance of the
1970s and the resistance of today, but also a historical frame for the current pro-
cesses of economic integration. And yet, while Bello et al. appear to be respected
as among the ‘wise people’ of today’s alter-globalisation movement, most protest-
ers and observers do not know of their 1970s and 1980s work, never mind of the
structuralist foundation laid by Raúl Prebisch.

Our current time period: reflections from the twenty-first century

Thus, a plea must be issued to those in the alter-globalisation movement in the
post-Seattle period: we must not forget the threads that link what is new and inno-
vative with what has been said and/or tried before. For example, one sub-sector of
today’s global backlash focuses on ‘reshaping’ or ‘restructuring’ the current rules
and institutions of economic globalisation. These ‘reshapers’ – these ‘blue–green
structuralists’ – have a constructive agenda centring on a range of proposals, from
110  Robin Broad and Zahara Heckscher
those in the regulatory world of trade agreements to those which rely on voluntary
corporate initiatives – notably codes of conduct for corporations, third-party certi-
fication initiatives, and fair trade to ensure higher prices for commodities.
Decades ago, the NIEO and UNCTAD proposals were in essence trying to
reshape the rules of the world economy to increase the benefits of economic inte-
gration to Southern nation states in general – although the policies they promoted
benefited the elite most. The 1970s global campaigners against Nestlé and its
attempt to get poorer women in the South to use powdered milk as the ‘modern’
alternative to breast milk were also trying to reshape, but with a more targeted
goal of protecting specific vulnerable populations within the South against North-
ern corporate power.
For most of today’s green–blue structuralists, the goal is to ensure that globali-
sation’s burden does not fall on workers, communities, the environment, women,
and other more marginalised sectors of society, while global corporations receive
the lion’s share of the benefits. But some of today’s blue–green structuralist ini-
tiatives, such as those focused on market access via Northern trade liberalisation,
bear noticeable similarities to certain of the NIEO demands.
Another sub-sector of today’s backlash – often rooted in an environmental cri-
tique – is intent on rolling back certain aspects of globalisation (for example,
halting the privatisation and export of bulk water or the patenting of indigenous
rice seeds) and slowing down other aspects (for example, reducing the flow of
short-term and volatile speculative financial flows). Its constructive agenda pri-
oritises invigorating local economies (Cavanagh and Mander 2002; Smith et al.
2016; Conway 2012; Reitan 2007; Teivainen 2015; Waterman and Sen 2004).
So too did the 1970s have its ‘rollback’ proponents, including Teresa Hayter and
others who attacked the ‘imperialist’ aspects of foreign aid, as well as indige-
nous communities who fought the World Bank’s funding of huge hydroelectric
dams. Their agenda was to stop the aid and the projects.22 In fact, such ‘rollback-
ers’ also should be seen as descendants of the structuralist debate. They follow
in the footsteps of structuralist breakaways such as Andre Gunder Frank, who
began as Prebisch’s fellow structuralist but grew to believe that the solution was
not Prebisch’s temporary delinking from the global economy, but rather a more
permanent delinking. These were the dependency theorists. And, thus, the ‘roll-
back’ part of today’s alter-globalisation movement might be more properly termed
‘blue–green dependencistas’.23
Indeed, the current alter-globalisation movement, the global backlash against
corporate-led globalisation, has much to learn from the resistance to earlier forms
of coercive economic integration that preceded it. This should be studied further;
in some cases, the parallels to today’s movements are striking. Take the earliest
antecedents that this article has examined. Part of the success of movements like
the ones that ended the Atlantic slave trade was the creative use of a broad array of
tactics. As noted earlier, the tactics of the anti-slave trade movement and today’s
movement have pronounced similarities, especially in the way the creative arts
were and are used to educate people. The internet and listservs play the same role
as the thousands of anti-slave trade pamphlets and newsletters that reached the
 Prebisch and anti-globalisation 111
furthest outposts of England, Scotland, Ireland, and Wales, as well as the US and
Canada. North–South alliances and multiracial coalitions are common now, as
then. Now, as then, activists have had to confront racism within their movement.
Likewise, the workers’ movement of the 1860s provides some parallels and
some contrasts to union involvement in the globalisation movement of today. As
did the First International, the labour movement today uses arguments of self-
interest linked to solidarity to promote working-class involvement in anti-corporate
globalisation. In both cases, intellectuals in union leadership have worked hard
to challenge workers to move from protectionist, nationalist, and/or xenopho-
bic perspectives of ‘my workplace’ and ‘my country’ to ‘our rights as workers
everywhere’, or what John Sweeney, former head of the American Federation of
Labor–Congress of International Organizations, termed a ‘new internationalism’
(quoted in Broad 2002: 47–50). A dramatic change since the 1860s is seen in the
enhanced role of women and people of colour in unions as they join anti-corporate
globalisation campaigns. Moreover, the development of vibrant trade unions in
countries – from South Africa to South Korea, Brazil to Bangladesh – lays the
foundation for a different type of internationalism than that of the Europeans in
the 1860s. Indeed, widespread international solidarity for worker rights in other
countries, as seen in a new wave of corporate codes, accords, trust funds, and soli-
darity actions, was catalysed by such horrific events as the 2013 Rana Plaza textile
disaster in Bangladesh that killed more than 1,100 workers.24
Beyond parallels and contrasts, there are important lessons for today. Effective-
ness depends on creative ways to engage constituencies who have not yet been
involved by reaching people where they are, as the anti-slave trade movement
reached people in pubs, at the theatre, and during afternoon tea. Another of the
anti-slavery movement’s most important lessons is less obvious: to create institu-
tional change, one must also engage with the system. Protest alone did not end the
slave trade; work to change the laws was also imperative.
Indeed, the current movement would do well to study the constellation of forces
that successfully delivered change in the past. In most cases, fervent resistance
from citizen movements was joined with sympathetic leaders in government.
Today, movements to roll back and/or reshape corporate globalisation are strong
in many countries and draw forces from many different segments of society. They
have found allies in the parliaments of rich-country governments and, beginning
with the 1999 anti-WTO protests in Seattle, they have found some allies among
poor-country governments. The elections of governments that rejected the neo-
liberal agenda in Argentina, Brazil, and Ecuador in 2002 and 2003 – a trend that
continued over the next decade not only in Latin America (Uruguay, for example)
but also elsewhere (notably Greece) – have added strength to the momentum for
change and reform.
In sum, the anti-corporate globalisation activists, as they work to reshape or
to roll back TNCs themselves as well as the WTO, IMF, World Bank, and other
institutions of globalisation, should not think that they represent the spontaneous
generation of a new protest phenomenon. Certainly, some aspects of the current
movement are new – among them, the now near-global use of the internet for
112  Robin Broad and Zahara Heckscher
informing and organising, the mass demonstrations of coordinated small groups,
and the high degree of economic literacy. But the roots of the Seattle/Washing-
ton/Prague/Quebec/Johannesburg/Paris protests are deep. Changes in technology,
innovative protest styles, information politics, and analytical advances have been
used for hundreds of years by activists seeking to oppose the devastating effects
of economic integration on their communities and on communities in other coun-
tries, and to provide alternatives. Conscious study of the precedents set by earlier
activists – of the successes and failures of the past – can help today’s movements
become more vibrant and effective.
Too many contemporary analysts and activists treat the current cross-border
movement to alter economic globalisation as something so new, so novel, so with-
out precedent. As this chapter has argued, not only is this inaccurate, but it also
deprives today’s movement of the various strategic and tactical insights afforded
by incorporating history.
The events in Seattle in late 1999 were, indeed, momentous. But they need to be
understood as opening a new stage in a concatenation of historical processes and
events, some of which are linked by direct threads, others of which are stitched
together through more circuitous and longer historical trajectories.

Acknowledgements
This article builds on and updates Broad and Heckscher’s 2003 article ‘Before
Seattle: The historical roots of the current movement against corporate-led glo-
balisation’, Third World Quarterly 24(4), 713–28 and expands upon Robin Broad
(ed.), Global Backlash: Citizen Initiatives for a Just World Economy, Lanham:
Rowman & Littlefield, 2002. The authors would like to thank Robert Blecker,
John Cavanagh, Maria Floro, Adam Hochschild, Joseph Horgan, Jerome Levin-
son, Matias Margulis, Michael Prokosch, Shahid Qadir, Richard Tucker, John
Willoughby and anonymous reviewers for commenting on earlier drafts of this
article. Robin Broad would also like to thank the Ford Foundation and the Center
of Concern for their support of her earlier scholarship on this topic.

Notes
1 Personal communication with Harris Gleckman, former chief of the Environmental
Unit at the UN Centre on Transnational Corporations, July 1999. For an explanation of
the term ‘alter-globalisation movement’, see note 23.
2 Genesis 37:25.
3 Quoted in ‘The Uruguay Round: Gunboat diplomacy by another name’, editorial, The
Ecologist, 20(6), 1990: 202.
4 This section is adapted from Zahara Heckscher (2002).
5 Our analysis of the anti-slave trade movement as a precursor was informed by Marga-
ret Keck and Kathryn Sikkink (1998).
6 Note also that present work on international labour rights has its roots in this period.
Indeed, the Havana Charter, the draft document for the ill-fated International Trade
Organization (of which the GATT was supposed to be only one part), actually included
a workers’ rights clause.
 Prebisch and anti-globalisation  113
7 Prebisch’s seminal work is The Economic Development of Latin America and Its
Principal Problems, New York: UN Department of Economic Affairs, 1950. Other key
structuralist writing includes Hans Singer, ‘The distribution of gains between investing
and borrowing countries’, American Economic Review, 40, 1950: 473–85; Celso
Furtado, Development and Underdevelopment: A Structural View of the Problems of
Developed and Underdeveloped Countries, Berkeley, CA: University of California
Press, 1967.
8 See the sources listed in note 7. Also of note is Prebisch’s ‘The crisis of capitalism and
the periphery’, lecture given at UNCTAD, 6 July 1982.
9 See, for example, the ‘marketing and distribution’ studies of UNCTAD in the 1970s
and 1980s.
10 United States Senate, Committee on Foreign Relations, Subcommittee on
Multinational Corporations, ‘Opening statement by Senator Frank Church on Tuesday,
March 20, 1973’, Multinational Corporations and United States Foreign Policy, 93rd
and 94th Congresses, Part 1: ‘The International Telephone and Telegraph Company
and Chile’, 1970–1, pp. 1–2.
11 Jerome Levinson to Robin Broad, email correspondence, 10 September 2001.
12 On the 1970s UN and other external codes of conduct, see Harris Gleckman and Riva
Krut, Business Regulation and Competition Policy: The Case for International Action,
London: Christian Aid, World Development Movement and other NGOs, 1994.
13 See Robin Broad and John Cavanagh, ‘The corporate accountability movement: Les-
sons and opportunities’, a study for the World Wildlife Federation’s Project on Interna-
tional Financial Flows and the Environment, 30 July 1997; Kathryn Sikkink, ‘Codes of
conduct for transnational corporations: The case of the WHO/UNICEF Code’, Interna-
tional Organization, 40, 1986: 815–40.
14 Note that this was prior to the use of the term ‘economic globalization’ which surfaced
in the 1990s.
15 This term was coined by author Robin Broad. This is expanded upon in the conclud-
ing section of this chapter, which distinguishes between ‘blue–green structuralist’ and
‘blue–green dependency’ thinking and policy.
16 Michael Gould, then the World Bank’s Philippine division chief, in the confidential
World Bank document ‘Philippines – Country Program Paper’, Washington, DC, 26
March 1976, p. 17.
17 This group of scholars and activists documented and analysed the Philippine–World
Bank case study in two separate books: Walden Bello et al., Development Debacle: The
World Bank in the Philippines, San Francisco, CA: Institute for Food and Development
Policy, 1982 and Broad, Unequal Alliance.
18 The Bontoc and Kalinga delegates to the Vochong Conference on Development, ‘Letter
to Robert S McNamara, President, World Bank’, 12 May 1975, reprinted in Vivencio
R José (ed.), Mortgaging the Future: The World Bank and IMF in the Philippines,
Quezon City: Foundation for Nationalist Studies, 1982.
19 The proceedings and verdict are reproduced in Permanent Peoples’ Tribunal on the
Philippines, Philippines: Repression and Resistance, Utrecht: Philippines–European
Solidarity Centre-Komite ng Sambayanang Pilipinos (PESC-KSP), 1980, p. 278.
20 Wada Taw-il (pseudonym), ‘We are to be sacrificed: Indigenous peoples and dams’, in
ibid., pp. 84–91.
21 See www.southcentre.int/the-executive-director/, www.twn.my, www.attac.org, www.tni.org/
users/susan-george, www.focusweb.org and www.ips-dc.org (all accessed 1 August 2016).
On Bello, see also Broad and Cavanagh, ‘Protest to power in the Philippines’, The Nation,
6 December 2010 and the interview with Walden Bello, ‘Pacific Panopticon’, New Left
Review, 16, 2002: 68–85.
22 For expansion on the differences and similarities between today’s ‘rollback’ and
‘reshape’ proponents, see Broad, Global Backlash, Parts III–V. See also Broad and
Cavanagh, ‘Reframing development in the age of vulnerability: From case studies of
114  Robin Broad and Zahara Heckscher
the Philippines and Trinidad to new measures of rootedness’, Third World Quarterly
32(60), 2011: 1127–45.
23 The term ‘alter-globalisation movement’ is purposely used by the authors to encom-
pass both reshape and rollback segments of this movement of movements. While
blue–green structuralists seek alternative ways to globalize economically, blue–green
dependencistas seek alternatives to economic globalization. For an expanded analysis
of this, see Broad (2002).
24 For more on Bangladesh, see the website of the International Labor Rights Forum
(ILRF), www.ilrf.org/our-work/bangladesh-garment-factory-safety (accessed 1 August
2016). See also Broad and Cavanagh, ‘Kailash Satyarthi’s heroism’, The Nation,
299(19), 10 November 2014, and Broad and Cavanagh, ‘The global fight against cor-
porate rule’, The Nation, 298(5), 3 February 2014.

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6 From Palais de Nations to
Centre William Rappard
Raúl Prebisch and UNCTAD as
sources of ideas in the
GATT/WTO
Erin Hannah and James Scott

It is just a short walk from the United Nations Conference on Trade and Devel-
opment (UNCTAD) headquarters at the Palais des Nations to the lakeside Centre
William Rappard, home to the World Trade Organization (WTO), but at times the
two have appeared to be separated by an ideological gulf. Since their beginnings,
the General Agreement on Tariffs Trade (GATT) and the WTO have been the
bastions of free trade, where open markets, reciprocity, and non-­discrimination
are touted as panaceas for development and economic growth but where, in real-
ity, bargaining among unequals ensures that the commercial priorities of industri-
alised countries are privileged (Wilkinson 2014). By contrast, UNCTAD was born
in Raúl Prebisch’s image – a parallel trade-negotiating forum that would serve
the needs and priorities of the world’s poorest people (Dosman 2008). Premised
on the principles of non-reciprocity, preferential market access, and regional
South–South trade, UNCTAD was, and remains, the source of alternative ideas
about the ways in which trade can work for global development. Under Prebisch’s
leadership, UNCTAD was positioned to challenge the inequities and asymmetries
generated by the multilateral trading system by establishing an institutional alter-
native to the GATT. Today, UNCTAD operates as the ‘think tank of the global
South’, leveraging its ideas and expertise to influence the course of WTO trade
negotiations. While the formal purpose of UNCTAD has changed and the insti-
tutional dynamics between UNCTAD and the GATT/WTO are less adversarial,
Prebisch’s spirit is very much alive in the development-­oriented ideas and policies
that have filtered from UNCTAD into the GATT/WTO over the past 30 years.
This chapter aims to show the endurance of UNCTAD as the source of heterodox
ideas about trade and development. Historically, we see this in core features of the
multilateral trade regime such as the Generalised System of Preferences (GSP), the
Global System of Trade Preferences among Developing Countries (GSTP), and spe-
cial and differential treatment (SDT) for poor countries, as envisaged in key policy
recommendations set out by Prebisch. Contemporarily, UNCTAD-sourced ideas
have gained traction in WTO negotiations. This is particularly significant in light of
the WTO’s Doha Development Agenda (DDA), which has ostensibly placed devel-
opment priorities at the centre of multilateral trade negotiations since 2001. Among
the most significant of these are provisions to carve out policy space for develop-
ment and special measures for certain groups of vulnerable developing countries.
 Prebisch and UNCTAD as sources of ideas 117
This chapter traces the life of these ideas and shows that while they have enduring
purchase, they are ultimately mediated by the power dynamics inherent in the mul-
tilateral trade regime. The following analysis therefore also highlights the limited
effects of UNCTAD-sourced ideas and policies, the historical failure of SDT and
policy space to achieve meaningful development opportunities, and the continued
ability of the rich world to shape the global trade agenda. The concluding section
reflects upon the enduring relevance of UNCTAD in light of these challenges.

UNCTAD in context
Since UNCTAD’s creation, analysis of it has included a heavy dose of criticism and
scepticism regarding its usefulness. Famously derided as an acronym for Under No
Circumstances Take A Decision, UNCTAD has, for some critics, been little more
than a talking shop, with the standard assessment in the United States and ­Western
Europe being that it is ‘unwieldy, unnecessary and ineffective’ (Jones 1983: 28,
quoted in Weiss 1985: 1198). UNCTAD negotiations have been condemned all too
often to repeat endlessly what Tom Weiss has memorably termed ‘North–South
theatre’ (Weiss 2009) and stymied by the group system of negotiation (Weiss
1985). Some have even gone so far as to suggest that UNCTAD makes the prob-
lems of poor people worse rather than better, as elites in developing countries are
able to maintain the status quo (from which they benefit) while pretending in fierce
speeches within UNCTAD that they are championing the poor (Ramsay 1984).
The 1980s and the breaking of the debt crisis, coupled with the advent of neo-
liberalism, weakened the G77 (on which UNCTAD relied) and, for many, greatly
undermined the ideological alternative that UNCTAD had previously champi-
oned. Meanwhile, the Reagan administration and the government of Margaret
Thatcher were particularly hostile towards the organisation because they viewed
it as a significant threat to the hegemony of the neoliberal project, and thus sought
radical changes to bring it into line with conventional economic thinking. The
problems facing UNCTAD were then compounded by the creation of the WTO
in 1995. While UNCTAD had never been particularly successful as a negotiat-
ing forum, the WTO – a near-universal, formal organisation overseeing trade and
trade negotiations, backed by the ‘teeth’ of the dispute-settlement mechanism –
rendered the negotiation element of UNCTAD redundant. Over this time UNC-
TAD entered a period of crisis and retreat (Taylor and Smith 2007: 67–90). In the
words of one senior UNCTAD Secretariat member, UNCTAD

went through a kind of philosophical quest, or psychological crisis if you

want, when the WTO appeared on the horizon … from 1995 to broadly 2000
there was a big crisis in terms of everyone soul searching and kind of finding
its role. To a certain extent it is still happening.1

In brief, UNCTAD was refashioned in this period under intense pressure from the
global North. To maintain its relevance, centre–periphery analysis was abandoned
and UNCTAD was assigned a new role of supporting globalisation, spreading
core neoliberal reforms ‘while (at best) attempting to ameliorate the worst aspects
118  Erin Hannah and James Scott
of the established order’ (Taylor and Smith 2007: 76). For critics from the left,
this represented the emasculation of UNCTAD’s radical developmental critique
and its co-optation into the neoliberal orthodoxy (Bello 2000). While UNCTAD
was once a site for counter-hegemonic critique against the global order (Cox 1996
[1979]), for these critics the changes forced through during the 1980s and 1990s
robbed it of any role in this regard. As Taylor and Smith argue, UNCTAD

was transformed from being a radical critique of global capitalism and its fram-
ers, to being an apparatus of global economic governance. [It has] abandoned its
traditional role of providing a serious counterbalance to the economic prescrip-
tions of the North.
(Taylor and Smith 2007: 82)

However, it is possible to overstate the decline of UNCTAD’s voice and the impor-
tance thereof. It would appear that UNCTAD continues to play an important role
in critiquing key elements of the orthodox liberalisation agenda. This can be seen
most readily in the battle at the 2012 UNCTAD XIII conference – the quadrennial
meeting at which UNCTAD’s work programme is set. The 2012 conference saw
a concerted effort by the Group B (global North) countries to prevent UNCTAD
from examining the ‘root causes’ of the financial crisis, seeking to restrict its focus
only to the effect the crisis has had on developing countries (see Wade 2012; also
this volume). This led to an outcry from civil society (see Institute for Agricul-
ture and Trade Policy 2012) and from former UNCTAD staff, denouncing the
attempt at ‘[s]ilencing the message or the messenger … or both’ (see Third World
Network 2012). Though ultimately unsuccessful, the fact that Group B countries
were willing to put significant diplomatic effort into trying to silence UNCTAD
demonstrates that they still consider it worth silencing. Though the critique UNC-
TAD provides has been blunted and it has embraced elements of globalisation and
market integration, the experience of UNCTAD XIII strongly suggests that it still
plays an important role in providing critical analysis and alternative policy ideas
that are (at least partially) in opposition to the Western-led orthodoxy.
In this sense, UNCTAD fits with the view of the wider UN system put forward
by Emmerij, Jolly and Weiss (2001) in the United Nations Intellectual History
Project: that the greatest impact the UN system has had has been in the provision
of ideas, some of which they claim can even be said to have changed the world.
The UN system – for all its dysfunctionalities – has been ‘ahead of the curve’, as
those authors put it in the first contribution of the Project (Emmerij et al. 2001),
in formulating and championing progressive ideas and innovative approaches
that aim at bringing about a fairer distribution of global wealth and enhancing
a broad conceptualisation of development. UNCTAD failed as a negotiating
forum and became a site of empty, rhetorical North–South point-scoring, but
to gain a complete picture we must also assess its impact through the ideas that
it has put forward and their influence over broader economic governance. The
remainder of this chapter proceeds to do this with respect to UNCTAD’s core
area – trade – through examining the extent to which ideas aimed at creating
 Prebisch and UNCTAD as sources of ideas 119
a more developmental trade system have flowed from UNCTAD to the GATT/
WTO. The following section begins this analysis by examining the early years
of UNCTAD and the ideas that it generated, in which Prebisch personally played
a central role. The analysis then turns to look at contemporary manifestations of
Prebisch’s ideas and their enduring traction in the multilateral trading system.

Origins of Prebisch’s ideational legacy: GSP, GSTP, SDT

It is well known that the creation of UNCTAD had an impact on the GATT. The
threat to the GATT – the rich world’s trade ‘club’ – from the creation of an alter-
native, UN-based trade body forced changes to be made to the existing system
to protect its position. Most directly this involved the addition of Part IV to the
GATT in 1965, titled ‘On Trade and Development’. Nonetheless, Part IV failed to
alter the situation faced by developing countries in any meaningful way. Its provi-
sions were ‘qualified, and at some points emasculated’ versions of the suggestions
put forward by developing countries (Evans 1971: 121) and lacked precise com-
mitments, continuing the ineffectual ‘best endeavour’ clauses that had become
familiar to how the GATT dealt with developing countries (Srinivasan 1998: 24).
This story is well known and need not be repeated here. For present purposes,
what is of more interest is examining the effect of the ideas of Raúl Prebisch and
how these were incorporated into the GATT.
It is noteworthy that while some developing countries advocated the eventual
abolition of the GATT or its subsumption into UNCTAD, Prebisch was more cir-
cumspect. In his report to UNCTAD’s first conference he gave credit to the GATT
for what it had achieved between industrialised countries, but argued that it had
failed to give the necessary support to developing countries. He wanted to show
‘the course that should be followed so that GATT may become as effective an
instrument for the developing as for the advanced countries’, which would include
an alteration of GATT rules to take into account the consequences of the structural
inequalities between the two groups (UNCTAD 1964: 39).
One of the key ways of doing this was through the creation of preference sys-
tems. Prebisch advocated both North–South and South–South preferences as a
means of overcoming the structural difficulties that developing countries had in
industrialisation, stimulating growth, and blunting some of the excessive protec-
tion that he saw had arisen from import substitution industrialisation (ISI) (UNC-
TAD 1964: 34–9). He explicitly saw such measures as a stepping-stone to moving
away from ISI, arguing that

[U]nless the developing countries manage to expand their exports by stepping

up their characteristically slow rate of growth, they will have to continue import
substitution in spite of the obstacles in the way. If they were able to export more
industrial goods under a preferential system, they could also import more, and
this would enable them to relax the substitution policy and make it more rational.
(UNCTAD 1964: 34)
120  Erin Hannah and James Scott
Such arguments reflect Prebisch’s measured approach and the recognition of the prob-
lems of ISI, which he considered to be necessary but second-best (Toye and Toye
2004: 137–62; Ho, this volume). Prebisch’s aim for UNCTAD was to overcome what
he saw as market failures stemming from different countries being at very different
stages of development, generating asymmetric gains from trade between core and
periphery. Thus his thought was that the existing framework had to be changed ‘so that
the market functions properly not only for the big countries but also for the developing
countries in their relations with the developed’ (Prebisch, quoted in Dosman 2008:
393), with preferences a core part of the solution. Granting developing countries pref-
erential access was a key, concrete endeavour that the rich countries could undertake
to this effect, but he argued that countries of the developing world should also seek to
liberalise trade among themselves. This would have many impacts, serving to

make industrialization policy more rational and economical through special-

ization and the division of labour; to avoid or remedy, as the case may be, the
former distortions deriving from the policy of industrialization in watertight
compartments; to promote industrial competition among member counties;
and to counteract the trend towards excessive agricultural protectionism in
some of the developing countries.
(UNCTAD 1964: 22)

The considerations that Prebisch put forward led to the introduction of the GSP,
granting preferential access to the markets of the North for developing-country
exports. Part IV of the GATT had laid the foundations for the GSP and the der-
ogation from most-favoured-nation (MFN) requirements that preferential systems
entailed, though it took until 1979 and the passing of the Enabling Clause for the
GSP to be made formally consistent with GATT law. While this was an important,
concrete change to the trade system that UNCTAD and Prebisch played a key role
in delivering, its implementation did not allow for the GSP’s potential to be fully
realised. From the start, the GSP was of limited economic benefit to developing
countries, particularly due to the few concessions that the developed countries gave
and the fact that they could be removed at any time (see Patterson 1965: 18–39;
Johnson 1967: chapter 6).
Parallel to this was the creation of South–South preference systems to stimulate
greater trade between developing countries and to foster industrialisation. This began
in the GATT with the Protocol Relating to Trade Negotiations among Developing
Countries in 1971. Work was begun on a second round of the Protocol negotiations
but this was subsequently terminated and the process moved to UNCTAD, which
was felt to be the more appropriate home for such an agreement since it concerned
only the developing world. The UNCTAD-based process led eventually to the
creation of the Global System of Trade Preferences among Developing Countries
(GSTP) in 1987. However, like the GSP, these South–South preferences failed to
deliver the benefits that might have been expected. Flawed modalities that excluded
weaker countries (Gowa and Hicks 2012), combined with disruption by the global
 Prebisch and UNCTAD as sources of ideas 121
North and weak commitment by many countries of the global South (Scott 2016),
ensured that only very limited benefits would flow from either the Protocol or the
GSTP. Nonetheless, the idea of preferential systems remains a positive one and the
benefits of such schemes – ­particularly those that are more comprehensive than the
GSP and GSTP, such as the EU’s Everything But Arms initiative and the US’ African
Growth and Opportunity Act (AGOA) – may well exceed the predicted benefits of
further MFN liberalisation (Kumar and Gallagher 2007: 5).
Underlying Prebisch’s analysis of the trade system and the problems devel-
oping countries faced therein was the idea that non-equals should not be treated
equally. This is an issue that had been raised by developing countries during the
creation of the International Trade Organization (ITO) and GATT and had been
returned to in the Haberler Report of 1958, but little had been done to reflect this
formally within GATT law (see Wilkinson and Scott 2008). Prebisch’s report to
UNCTAD I gave greater clarity to this problem and led to the concept of SDT
– the idea that international trade rules should be adapted and applied according
to respective levels of economic development – being introduced to the GATT.
Most directly, this formalised within GATT law the previous informal practice of
non-reciprocity for developing countries. Since the first negotiations of the ITO
and then the GATT, developing countries had pushed the idea that their interests
were excluded by the GATT’s core principle of reciprocity, since, first, their rela-
tively small markets precluded them from offering equal concessions to balance
those of the rich world, and second, reciprocity and the progressive liberalisation
that it entailed interfered with their industrialisation strategies (Wilkinson and
Scott 2008; Scott 2010).
However, non-reciprocity did not function in the way that had been hoped. In
effect, it further excluded developing countries from the GATT, since it reduced
their capacity to influence the shape and direction of negotiations (Srinivasan
1998). The developed countries paid lip service to giving developing countries
SDT but in practice simply did not grant concessions that were not being recip-
rocated. This was evidenced in the Kennedy Round that took place shortly after
UNCTAD’s first meeting and provided an opportunity to put the principle of
non-reciprocity into practice. The results of the GATT Kennedy Round contin-
ued the previous pattern of offering lesser benefits to developing countries and
excluded their core demands. For instance, tariff cuts on cotton textile products
were low compared to other manufactured goods (Preeg 1970: 206–30) and were
made conditional on the renewal of the Cotton Textiles Agreement quota system
which rendered the cuts largely irrelevant for the largest developing-country sup-
pliers (Evans 1971: 231–2). Negotiations on agriculture were limited and saw
only very modest achievements (Evans 1971: chapter 12; Preeg 1970: chapter
15). More tellingly perhaps, the GATT secretariat had hoped for a complete elim-
ination of tariffs on tropical products, in which developing countries hold a near
monopoly. However, the results of the ­Kennedy Round were again very modest,
with only 39 per cent of dutiable imports of tropical products benefiting from
tariff cuts (Evans 1971: 89–90).
122  Erin Hannah and James Scott
The concept of SDT continued far beyond the Kennedy Round and became a
constant feature of GATT/WTO agreements. UNCTAD continued to play a cen-
tral role in this area, helping to formulate the areas of flexibility that developing
countries could request in the negotiations, which today, in the context of the
DDA, include:

•• longer time periods for implementing Agreements and commitments;

•• measures to increase trading opportunities for these countries;
•• provisions requiring all WTO members to safeguard the trade interests of
developing countries;
•• support to help developing countries build the infrastructure for WTO work,
handle disputes, and implement technical standards; and
•• provisions related to Least Developed Country (LDC) members.

In addition, Paragraph 44 of the Doha Declaration includes special provisions

for the review and, where appropriate, re-articulation of SDT provisions with the
objective of ‘making them more precise, effective and operational’. Notably, of
the 28 SDT provisions in the WTO agreements, 19 originated in the UNCTAD
Secretariat.2 This is but one example showing that UNCTAD-sourced ideas have
become enduring features of the GATT/WTO agreements.
Overall, it is clear that Prebisch’s ideas and their articulation by the UNCTAD
Secretariat into concrete trade-related proposals have had an important impact on
the GATT, but the benefits that the changes brought to developing countries were
limited. Just as occurred in UNCTAD, progress was largely hamstrung by the fact
that any change required concessions to be made by the rich countries – and they
were largely unwilling to offer anything that went beyond the c­ osmetic – and that
negotiations took place in a highly acrimonious North-versus-South atmosphere.
It is perhaps most disappointing for the legacy of Prebisch that where developing
countries could make strides among themselves, such as through the creation
of South–South preferences, progress was very slow and the results rather piti-
ful (see Scott 2016). The countries of the developing world found it easy to
blame the North for their problems but when it came to measures that required
only agreement among themselves, such as the GSTP, they largely failed. This is
something that continues to disappoint the UNCTAD Secretariat. As one mem-
ber put it to us concerning the rhetoric of South–South solidarity around the
GSTP and the failure to ratify the latest round of negotiations on which modali-
ties were agreed in 2009, ‘it doesn’t make sense to have rhetoric when it is not …
coupled with the reality, when you are talking about interests among quote
unquote peers’.3
The picture that emerges is that Prebisch’s ideas had an important impact on
the GATT, often operating through UNCTAD, but that the tangible benefits that
flowed to developing countries from this were limited. This was partly due to
the lack of meaningful engagement by industrialised countries, but developing
countries themselves must also take some of the blame. The following section
 Prebisch and UNCTAD as sources of ideas  123
explores the continued role of UNCTAD as a source of ideas and other inputs into
WTO processes.

The enduring ideational legacy of Prebisch: policy space and groups

of developing countries
UNCTAD’s trade role has become primarily one of supporting developing coun-
tries in formulating their trade positions. Indeed, according to one senior UNCTAD
official, UNCTAD has become a think tank for the global South: ‘This is the role
I see for UNCTAD … we are the OECD of the developing world ... [p]reparing
the ground, tilling the ground for the hard law-making progress [at the WTO].’4
For some, this is a sensible reflection of the reality that the WTO is the arena in
which trade negotiations take place, while for others it is part of an emasculation
or co-optation of UNCTAD away from being a site of ideological critique. We do
not intend to pronounce on that particular debate directly, but in this section we do
explore some of the ways in which UNCTAD continues to be an important source of
development-related ideas that filter through into the WTO. In particular, we explore
attempts to carve out developmental policy space from GATT/WTO disciplines and
secure special recognition and preferences for vulnerable developing countries.
The term ‘policy space’ has emerged relatively recently, but it captures an idea
that has a much longer heritage. It is defined as ‘the freedom and ability of gov-
ernments to identify and pursue the most appropriate mix of economic and social
policies to achieve equitable and sustainable development in their own national
contexts, but as constituent parts of an interdependent global economy’ (UNCTAD
2014a: vii). The concept of policy space is clearly one that owes an intellectual
debt to Raúl Prebisch. As noted above, he was mindful of the importance of being
integrated into the global economy, but advocated more active and interventionist
trade and development policies than that of merely leaving things to the market in
order to secure industrialisation and economic development.
The coining of the term ‘policy space’ has solidified the ideas around which UNC-
TAD has been working since Prebisch’s time. It is interesting to examine the genesis
of the term and how it has filtered across from UNCTAD to the WTO. As noted
by UNCTAD’s Trade and Development Report entitled Three Decades of Thinking
Development (2012a), UNCTAD was highlighting the loss of policy space as early
as 1982 (UNCTAD 2012a: 7). This issue was featured a number of times as a subject
in Trade and Development Reports (TDRs), notably TDR 1996 chapter 3 and 2004
chapter 3, but, as shown in Figure 6.1, it was in TDR 2004 that the phrase ‘policy
space’ began to take off. Indeed, UNCTAD (2012a: viii) notes that ‘in the run-up to
the eleventh UNCTAD conference in Sao Paulo [2004] our economists coined the
term “policy space” to enliven the discussion on [the] issue’ of restrictions of the
available policy options for developing countries. This was not without controversy.
The championing of policy space, as one interviewee put it, ‘nearly broke’ the 2004
UNCTAD XI conference – ‘the big countries were very upset about [UNCTAD’s]
stance’.5 Nonetheless, policy space was then addressed in detail in the 2006 TDR.
124  Erin Hannah and James Scott

40

35

30

25

20

15

10

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Figure 6.1  Frequency of uses of the term ‘policy space’ in TDRs.

Source: Authors’ calculations. Between 1995 and 2002 all years were zero. 2014 is excluded as
policy space was part of the TDR title and appeared 171 times.

16%

14%

12%

10%

8%

6%

4%

2%

0%
1996 1998 1999 2001 2003 2005 2009 2011 2013

Figure 6.2  Percentage of ministerial statements using the term ‘policy space’.
Source: Authors’ calculations, using data from https://docs.wto.org.

The concept of policy space can then be seen to have filtered across to the
WTO. Figures 6.2 and 6.3 show, respectively, the percentage of Minister’s State-
ments at each WTO Ministerial and the percentage of WTO meeting minutes that
include the term, as a measure of its traction as a concept. What these figures
demonstrate is that around the time that UNCTAD was promoting the idea most
strongly, notably around 2004–6, there was a considerable peak in uses of the
term within the WTO. Though causality is difficult to establish, it is reasonable to
 Prebisch and UNCTAD as sources of ideas 125

12%

10%

8%

6%

4%

2%

0%
1998 2000 2002 2004 2006 2008 2010 2012 2014

Figure 6.3  Percentage of WTO minutes including the term ‘policy space’.
Source: Authors’ calculations, using data from https://docs.wto.org.

conclude that the idea had filtered down the hill from UNCTAD to the WTO as
the delegates of developing countries picked up the concept and started to use it
in their WTO negotiations.6
It is worth contrasting the frequency with which the WTO Secretariat has
made use of the term ‘policy space’ in its own flagship annual publication, the
World Trade Report (WTR). In the five WTRs between 2010 and 2014 the phrase
appears only five times in total. While this is not comparing like for like – the sub-
ject matter of the WTRs is not the same as that of the TDRs – it is noteworthy that
the WTR 2014, entitled ‘Trade and Development: Recent Trends and the Role of
the WTO’ (and hence much closer to the development focus of the TDRs), makes
mention of policy space only twice. This perhaps hints at the continued ideolog-
ical differences between UNCTAD and the WTO and the continued difficulties
that developing countries have in altering the WTO’s agenda, though it must also
be noted that the WTO Secretariat is required to maintain a greater degree of neu-
trality, limiting what can be said in the WTRs.
While the concept of policy space is rather abstract and reflects fundamental
ideological approaches to trade governance, UNCTAD has had greater success in
bringing to the WTO more concrete proposals that have found their way into the
DDA negotiations. In particular, efforts to introduce measures that would allow
developing countries more flexibility to secure national and regional food reserves
and to manage price and income volatility for poor, rural households are sup-
ported by the policy-space concept.
126  Erin Hannah and James Scott
The Special Safeguard Mechanism (SSM) – a defensive mechanism that
would give import-sensitive developing countries the latitude to temporarily erect
barriers to trade to protect themselves against dramatic price fluctuations and
import surges – is one such example. The G33 – a coalition of 46 large and small
import-sensitive developing countries in the WTO – formed in 2003 in advance
of the Cancún Ministerial and successfully convinced WTO members to agree,
in principle, to the inclusion of an SSM in the Agreement on Agriculture (AoA)
at the Hong Kong Ministerial in 2005. The idea is to provide developing coun-
tries with policy space to limit imports of agricultural goods when the livelihoods
of poor, rural communities are threatened. The G33 has justified its demand for
an SSM on the basis that ‘developing countries need time and policy space to
improve their poor farmers’ productivity and incomes, and to curtail the risk of
dislocation from agriculture from unmanageable agricultural trade liberalisation’
(G33 2007). The G33 position on the SSM was supported by research provided
by a range of partnering international organisations, including NGOs such as the
International Centre for Trade and Sustainable Development (ICTSD) (ICTSD
2004; 2005a; 2005b; 2007; Bernal 2005; Montemayor 2007) and intergovern-
mental organisations such as the Food and Agriculture Organisation (FAO 2005),
South Centre (2003; 2009a; 2009b; 2009c; 2009d), and UNCTAD (UNCTAD
2014b). Unfortunately, the SSM is in limbo as WTO members continue to dis-
agree over how best to operationalise the mechanism in practice (Wilkinson et al.
2014). At the heart of the matter is an ideological disagreement among WTO
members over the purpose of the SSM – whether it is to protect poor farmers in
import-­sensitive countries from the negative externalities associated with more
open markets, or is a time-limited measure meant to facilitate further trade liber-
alisation in the global South – an issue which ultimately led to the collapse of the
2008 WTO mini-ministerial (Wolfe 2009; Mably 2009).
The G33 highlighted the issue of policy space again in the run-up to the 2013
Bali Ministerial, advocating for measures that would allow developing countries
more flexibility to engage in public stockholding in order to secure food reserves,
distribute subsidised food aid to the poorest, and guarantee minimum-price sup-
ports for local farmers (WTO 2013). Again, the position of the G33 was informed
by work conducted by UNCTAD, in partnership with other international organ-
isations such as the G8/G20 (Margulis 2014). While much political wrangling
ensued, the outcome of negotiations was a compromise that saw WTO members
agree, again in principle, that such policy space is necessary to meet the unique
food-security challenges of poor countries. WTO members introduced a tempo-
rary, four-year peace clause that exempts public stockholding programmes from
legal challenge at the WTO until a more permanent solution can be found. This
means that, like the SSM, the technical aspects of the issue remain unresolved,
because the matter is seen as too technical and politically charged to be tackled in
the current climate (Wilkinson et al. 2014).
Taken together, the SSM and the temporary peace clause indicate that the
policy-space concept resonates with WTO members. Nonetheless, the inability
and, in some cases, unwillingness of WTO members to work out the details
 Prebisch and UNCTAD as sources of ideas 127
necessary to operationalise and make permanent these mechanisms highlights
deeper and more fundamental imbalances in the multilateral trading system,
because developed countries already have access to comparable mechanisms.
The special agricultural safeguard (SSG) is available to WTO members, such as
the United States and members of the European Union, that tariffied during the
Uruguay Round.7 Rich countries also routinely engage in public stockholding
without the risk of running afoul of WTO rules because their allowed levels of
domestic support to farmers are higher by virtue of the subsidy schemes they had
in place during the Uruguay Round.
In the absence of concrete and permanent mechanisms to operationalise the
SSM and public stockholding in developing and least-developed countries, the
notion of policy space in this regard is more promissory than actual. Efforts to
carve out special preferences for groups of developing countries, particularly
LDCs and Small Island Developing States (SIDS), have been marginally more
successful in recent years. This is another area in which UNCTAD has played an
important role, as the next section sets out.

Groups of developing countries

UNCTAD has also played a role in articulating and advancing the interests of
specific groups of developing countries. With the contemporary divergence taking
place among developing countries, between those experiencing protracted high
rates of growth and those being left behind, there has been pressure within the
WTO to split the developing-country bloc and to introduce measures for the grad-
uation of some countries out of ‘developing status’, with the US and EU arguing
that they could not provide the same SDT to the likes of South Korea and Singa-
pore that is provided to Bangladesh and other LDCs (Raghavan 2002). In turn,
the more advanced countries of the developing world resisted this. Despite these
tensions, there has been a tacit acknowledgement of diversity among developing
countries with the introduction to the WTO of special measures for certain groups
of developing countries.
The most prominent such group is that of the LDCs, which can be traced back
to pioneering work by UNCTAD and Prebisch. Prebisch was careful to articulate
in his 1964 report that

it is essential to recognise the different situations of the developing countries,

depending on the degree of their development, and to adapt and co-ordinate
the measures adopted so that the advantages deriving therefrom accrue in
particular to the less advanced of the developing countries.
(UNCTAD 1964: 121, emphasis in original)

While Jolly, Emmerij and Weiss (2009: 43) include among the most serious fail-
ures of the UN system the weak response to the particularly stark problems of
Sub-Saharan Africa and the LDCs (and the continued prevalence and depth of
poverty there makes it hard to disagree), to the extent that this problem has been
128  Erin Hannah and James Scott
addressed within the UN system, UNCTAD has played a crucial role. Since 1995
UNCTAD has published the annual Least Developed Country Report, focusing
on the particularly acute problems these countries have and how these may be
alleviated by international action.
Concerns to address the marginalisation of LDCs in the trade system have led
to a number of agreements to give them SDT, but such treatment has evolved in
recent years to include more substantive, preferential market access by industri-
alised countries aimed at making SDT a more effective tool for fostering global
development than it was during the GATT period. Most notable are the EU’s
Everything But Arms initiative and similar preference schemes introduced by Can-
ada, Japan, India, China, South Korea and others. Within the WTO, the focus has
been on giving duty-free and quota-free (DFQF) market access to exports from
all LDCs by developed countries and those developing countries in a position to
do so as part of the DDA. More recently, focus has centred on the services waiver
which allows WTO members to grant preferential treatment to service suppliers
from LDCs. Progress has been limited on both initiatives, stalled by the problems
elsewhere in the DDA package, but they were revived by the agreements reached
at the Bali Ministerial.
The momentous8 2013 Trade Facilitation Agreement secured mandatory
financial and technical assistance for developing countries, particularly LDCs,
to offset the associated costs of implementation. For the first time, WTO mem-
bers agreed to legally binding obligations to provide SDT. The LDC package also
includes a number of SDT provisions, including reaffirmed commitments to pro-
viding DFQF market access to LDCs and to implementing the services waiver.
­Preference-granting WTO members also agreed to relax rules of origin for goods
and services originating in LDCs and set up a monitoring mechanism for SDT
(Wilkinson et al. 2014).
UNCTAD has been an important part of the pressure to achieve these poli-
cies. For example, the plan for granting DFQF access to LDCs was included in
the UNCTAD X Plan of Action and UNCTAD has provided continued technical
assistance and analysis on the issue. UNCTAD has also conducted a great deal of
research on the costs of trade facilitation (UNCTAD 2012b; 2013) and the bene-
fits for LDCs of relaxed rules of origin (UNCTAD 2009) and the services waiver
(UNCTAD 2015).
While significant in spirit, these SDT provisions are in practice best-endeavour
promises. No detail is provided about when and how – or how much – technical
and financial assistance will be provided to offset the costs of bringing national
regulatory systems into line with the Trade Facilitation Agreement. Critics also
note that even with this SDT provision, rich and poor countries will shoulder a
disproportionate share of the benefits and burdens associated with the agreements.
Moreover, the LDC package contains a set of non-legally binding promises to
fulfil commitments that were made at the 2005 WTO Ministerial in Hong Kong.
Unless permanent solutions and commitments are reached to deliver on these
promises, the WTO will continue to privilege the interests of industrialised coun-
tries to the detriment of global development and the poor (Wilkinson et al. 2014).
 Prebisch and UNCTAD as sources of ideas 129
However, if more work can be done, Prebisch’s ideational legacy will remain
alive in SDT provisions for LDCs in the WTO.
UNCTAD has also been instrumental in supporting work for various groups of
particularly vulnerable developing countries beyond that of the LDC. One such
group is that of the SIDS, which has its own dedicated section within UNCTAD.
At the UNCTAD III Conference in 1972 it was decided that a panel of experts
should be convened to examine the particular problems of island developing
countries, while UNCTAD IV encouraged states to adopt special measures in
favour of such countries. In 1994 it was decided to narrow the focus to small
island developing states (Hein 2004: 4–5). Working with the Joint Task Force on
Small States established by the Commonwealth Secretariat and the World Bank in
1997, UNCTAD worked at gaining greater recognition of the problems faced by
SIDS (Hein 2004: 5–6).
This was successful in securing a mention of SIDS within the Doha Work Pro-
gramme at the launch of the DDA. Within the WTO, SIDS are part of a broader
group of small and vulnerable economies (SVEs). There has been progress in
integrating the interests of such countries into the DDA work programme. This
was made explicit in the Doha Ministerial Declaration in paragraph 35, which
mandated that a work programme be set up under the General Council to identify
where SVEs could be more fully integrated into the multilateral trading system.
Similar efforts aimed at improving the position of developing countries within
the trade system have a long history within the GATT and achieved very little.
More substantively, perhaps, at the Hong Kong Ministerial the members agreed
to instruct the Committee on Trade and Development to monitor the progress of
proposals made by SVEs, to try to ensure they were given due consideration and
to make explicit where they had or had not made their way into negotiating texts
(WTO 2011).
With the support of UNCTAD, the SIDS have put forward proposals for how
the DDA might reflect their particular concerns (see for example WTO 2000),
as have the SVEs, and jointly they have secured recognition in the DDA texts.
For instance, in agriculture they will be required (should the DDA ever be con-
cluded) to give lesser tariff cuts compared to other developing countries in both
agriculture (WTO 2008a: paragraph 111) and non-agricultural market-access
negotiations (NAMA) (WTO 2008b: paragraph 13). SIDS will also have greater
flexibility in the use of the Special Safeguard Measure on agricultural imports. In
addition, SIDS successfully proposed, and were granted the right to use, regional
bodies to provide assistance in implementing the obligations of the Sanitary and
Phyto-Sanitary, Technical Barriers to Trade and Trade Related Intellectual Prop-
erty Rights agreements (for more detail see WTO 2011). In this sense, though
the WTO routinely includes the stipulation wherever SVEs are mentioned that
their inclusion as an element of the Doha Work Programme ‘was not to create a
sub-category of WTO [m]embers’ (WTO 2001: paragraph 35), in reality the SVEs
have managed to carve out further SDT beyond that afforded other developing
countries (though less than that given to LDCs). This should be seen as a success
of UNCTAD, working with other organisations (particularly the Commonwealth
130  Erin Hannah and James Scott
Secretariat), in influencing the substance of the WTO agenda. Whether the greater
SDT provided in the DDA is sufficient as a response to the problems faced by
SIDS and SVEs is a separate question.

Conclusion
This chapter has argued that Prebisch’s ideational legacy endures in UNCTAD
and in the WTO. While it no longer functions as a competing negotiating forum,
UNCTAD continues to play an important role in providing critical analysis and
alternative policies that are (at least partially) in opposition to neoliberal orthodoxy
across the trade landscape. Its core contribution, as is the case with many other
UN institutions, is in the provision and diffusion of ideas. Over the past 30 years,
the principles of non-reciprocity, SDT, preferential market access, policy space for
development, and special categorisations for developing-country sub-groupings
have diffused from UNCTAD to the GATT/WTO and have become ubiquitous in
the multilateral trading system. There is a consistent pattern of c­ ontributions by
UNCTAD to the WTO over time and this persists today.
Nevertheless, WTO members have not operationalised UNCTAD-sourced
ideas and policies in ways that would significantly improve the welfare of the
world’s poorest people. SDT has thus far failed to achieve meaningful develop-
ment opportunities, and the mechanisms currently on the table – DFQF market
access, services waiver, preferential rules of origin – are more than ten years old
and going stale. The WTO has failed to operationalise the policy-space idea in
ways that would provide greater food security to hungry people. Preferential mar-
ket-access commitments such as the EU’s Everything But Arms initiative show
greater promise but are inadequate to redress the deep structural asymmetries in
the multilateral trading system. Meanwhile, the profusion of mega-regional agree-
ments, such as the Transatlantic Trade and Investment Partnership and the Trans-
pacific Partnership Agreement, and plurilateral agreements, such as the Trade in
Services Agreement, are sidelining developing countries in the negotiation of new
trade rules that will inevitably affect them, while prioritising the commercial pri-
orities of industrialised countries. With the future of the multilateral trade sys-
tem in question, the task before UNCTAD is monumental (Capling and Trommer
2014). If it is to maintain its relevance and live up to Prebisch’s legacy, it must
find ways to help developing countries navigate this new and rapidly changing
trade landscape.
UNCTAD is well poised to play a central role in generating new and more
transformative ideas about how trade can best serve global-development prior-
ities. It is equipped with tremendous in-house knowledge capacity and it is the
main intergovernmental organisation providing trade-related, evidence-based
research and policy recommendations to developing countries. At the micro-
level, UNCTAD is a major player in providing in-country, demand-driven exper-
tise and technical assistance, aimed at improving developing-country capacity in
international trade negotiations and in the development and implementation of
national trade policy.
 Prebisch and UNCTAD as sources of ideas  131
At the macro-level, UNCTAD has taken on a leadership role in generating
debate and new ideas about what the purpose of trade is and how it can best sup-
port the needs and priorities of developing countries, particularly in the context
of the post-2015 Development Agenda. UNCTAD supports the post-2015 pro-
cess – a multi-stakeholder process aimed at developing and galvanising universal
priorities to meet the needs of the world’s poorest and most vulnerable people –
along three tracks. First, along the UN Secretariat track, UNCTAD collaborates
with 60 UN agencies to develop broad ideas about the future global-development
framework. Second, UNCTAD gives civil society a voice by hosting policy dia-
logues on trade and development and facilitating the transfer of their ideas into
the post-2015 process, something the WTO has been reticent to do. Third, along
the intergovernmental track, UNCTAD supports developing countries’ inputs and
strategic interests in the post-2015 negotiations. With the Development Agenda
launched in September 2015, an enormous task remains, in which UNCTAD can
and should play a key part—operationalising the Sustainable Development Goals
and building coherence across trade and development institutions (Bernstein and
Hannah 2012). While all of the UN’s 60 agencies have a part to play in this pro-
cess, UNCTAD is the one responsible for leveraging trade to maximise economic
growth, poverty reduction, and development in developing countries. Balancing
these priorities with the social and environmental imperative to provide opportu-
nities for future generations is the central task of UNCTAD. It should therefore be
a leader in the post-2015 process.
Beyond the UN system, UNCTAD contributes to a burgeoning and often
collaborative network of international organisations that provide expertise and
trade-related technical assistance to developing countries. Working alongside,
and sometimes in tandem, with other intergovernmental organisations – such
as the Organisation for Economic Co-operation and Development and the
South Centre – and non-governmental organisations, such as the International
Centre for Trade and Sustainable Development, UNCTAD is a key node in
the web of expert knowledge production in global trade (Hannah et al. 2015).
These collaborations beyond the UN system have fallen outside the purview
of most scholarly treatments of UNCTAD and more work needs to be done
to better understand the possibilities for the body to develop transformative,
heterodox ideas through these channels. Nonetheless, the promise and endur-
ance of UNCTAD clearly rests in its ability to be a knowledge producer and
a knowledge broker for the global South. Working in this way will help keep
Prebisch’s legacy alive and ensure UNCTAD-sourced ideas have traction in the
WTO and beyond.

Notes
1 Interview with senior UNCTAD official, April 2015.
2 Interview with member of UNCTAD’s Secretariat, October 2014.
3 Interview with senior member of UNCTAD’s Secretariat, April 2015.
4 Ibid.
5 See note 2.
132  Erin Hannah and James Scott
6 It is significant to note that many Geneva-based officials from developing countries are
responsible for representing their countries at both the WTO and UNCTAD. This fact
alone makes the likelihood of ideational diffusion high.
7 Only 22 developing countries are eligible to use the SSG: www.wto.org/english/­tratop_e/
agric_e/negs_bkgrnd11_ssg_e.htm (accessed 1 August 2016).
8 The Trade Facilitation Agreement is the first and only legally binding agreement
reached among members since the creation of the WTO in 1994.

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7 The West remains on top,
economically and politically
Robert H. Wade

We don’t want UNCTAD providing intellectual competition with the IMF and
the World Bank. (Senior American delegate to negotiations over the United
Nations Conference on Trade and Development’s four-year mandate, 2012)

Introduction
It is commonly said that the world system is experiencing a tumultuous rebalanc-
ing between North and South, East and West, centre and periphery. One indicator
is the growth gap between the middle-income countries (including India as well
as China) and the high-income countries: the former grew at 6 per cent a year or
more between 2005 and 2010, while the latter grew at 2 per cent or less, creating
an unprecedented growth gap in favour of developing countries. Another is shares
of world (gross) exports between 1999 and 2009: China, South Korea and India
gained nine percentage points in their combined share, while that of the top five
exporting countries in 1999 – the long-established industrial countries, the United
States (US), Germany, Japan, France and Britain – fell by nine percentage points,
from 43 per cent of the exports reported by 40 large countries to 34 per cent.
The common narrative goes on to say that developing countries have been
translating their increased economic weight into greater influence in global gov-
ernance organizations. The Group of 7 (G7), which consisted of finance ministers
and central bankers, expanded in 1999 to become the Group of 20 (G20), includ-
ing 11 developing countries, and in 2008 the leaders of the same countries consti-
tuted themselves as the G20 leaders or heads-of-government group. Directed by
the G20 leaders, several global coordination and standard-setting bodies, such as
the Financial Stability Forum (FSF), expanded in 2008 to include all G20 states,
signalled in the case of the FSF by a name change to the Financial Stability Board.
Nationals of the G20 states have taken a rising share of senior positions in global
organizations such as the International Monetary Fund (IMF) and World Bank.
The head of the World Trade Organization (WTO) is currently Brazilian and the
head of the United Nations Industrial Development Organization (UNIDO) is
Chinese, marking the first time either organization has been headed by a develop-
ing-country citizen. In short, rising economic multipolarity seems to be translating
into greater multilateralism in global governance.
136  Robert H. Wade
Many commenters in the West celebrate the ‘rise of the Rest’ to the extent that
Southern states accept the frame of Western foreign policy. In this frame, America
leads a system of Western democratic-capitalist states in changing the world in
the West’s own image, superseding the Westphalian notion of state sovereignty
where necessary (Rice 2008). But when prominent ‘emerging countries’ reject
incorporation into the Western order on Western terms, alarm bells ring. Thanks
to WikiLeaks, we can hear such alarm in the January 2010 words of the senior
US official for the G20 process: ‘It is remarkable how closely coordinated the
BASIC [Brazil, South Africa, India, China] group of countries have become in
international fora, taking turns to impede US/European Union (EU) initiatives
and playing the US and EU off against each other’ (emphasis added). Moreover,
the incorporation of low-wage countries into the world economy has prompted
pervasive fear in the American public, as seen in the fact that the proportion of
respondents saying economic globalization was a positive development for Amer-
ica fell from 60 per cent in 2001 to only 36 per cent in 2011.
I imagine that Raúl Prebisch would have taken a certain measure of satisfaction
from this picture of the current ‘global rebalancing’, were he still alive (he died
in 1986). After experiencing the 1930s Great Depression in Argentina, he worked
to accelerate the economic development of ‘periphery’ countries by formulating
theory and policy distinctly different to the neoclassical doctrine prevailing in the
‘centre’, and by promoting organizations of ‘peripheral’ states to counterbalance
the ‘international’ organizations dominated by the ‘centre’. Prebisch knew that
both tasks faced strong opposition, not least because the US had been so success-
ful in building a post-colonial empire. The logic of that empire was articulated in
1924 by Robert Lansing, Woodrow Wilson’s secretary of state:

We must abandon the idea of installing an American citizen in the Mexican

presidency, as that would only lead us, once again, to war … we must open
the doors of our universities to young, ambitious Mexicans and make an effort
to educate them in the American way of life, in our values, and in respect for
the leadership of the United States … And without the United States having
to spend a single cent or fire a single shot, they will do what we want.
(Cockcroft 2010: 77)

But Prebisch would surely have realized that the picture of today’s global rebal-
ancing is a substantial exaggeration. In what follows I spell out the measure of this
exaggeration. First I examine the distribution of economic ‘weights’ and political
leadership; then I consider the politics of particular international organizations in
order to recognize the micro-processes through which Western states keep their lead.

Economic weights
The United States remains by far the biggest national economy, having lost little of its
preponderant share of global GDP over the past three decades. Housing 4.5 per cent
of the world’s population (making it the third most populous country in the world),
it accounts for more than 20 per cent of global GDP at market exchange rates and
 The West remains on top  137
almost 20 per cent in purchasing power parity (PPP) exchange rates (­Reisen and
Turkisch 2012). The preferred measure of a country’s relative ‘economic weight’ in
the world economy is its share of world GDP at market exchange rates, rather than
GDP in PPP terms, which is preferred for measuring relative welfare.1 The US’ GDP
share is magnified by its dominance of international capital markets, reflecting its
national currency’s role as the main international currency and the sheer depth of
its capital markets. Most world trade outside the Eurozone and 60 per cent of world
foreign-exchange reserves are denominated in US dollars. This means that US mon-
etary policy has quick and deep effects around the world, on the size and direction of
capital flows, on exchange-rate changes and on inflation, to the point that monetary
sovereignty in much of the rest of the world is more fiction than fact. The other main
component of the global ‘centre’ is the European Union – with a population of more
than 500 million – which has the first or second-largest GDP in the world, depending
on the source of data, if treated as an entity.
What is striking is how little, rather than how much, the ‘developing world’ – outside
of East Asia – has caught up with the West after 65 years of deliberate ‘development’.
Even China, with almost 20 per cent of the world’s population and the second biggest
economy, lags far behind the US in economic size. Its GDP at market exchange rates
is around 10 per cent of world GDP, less than half the size of the US’ GDP. India, with
slightly under 20 per cent of the world’s population, is a long way behind China, at
around 3 per cent of global GDP in market exchange rates. Brazil, Russia and Indone-
sia each account for 3 per cent or less of global GDP and have gained little share since
1990. Japan and Germany both account for more than 5 per cent.
A study by the Pew Research Centre (2015) finds that the global middle class
is smaller and poorer than previously thought. Prosperity remains well entrenched
in North America and Europe, while large parts of the developing world have
made only marginal income progress since 2001. Only 16 per cent of the world’s
population live on an income that takes them safely above the US poverty line.2

Political influence
The US and other Western states continue to set the global economic and financial
governance agenda for the most part, while the major developing countries have
exercised little leadership so far. One indicator of this is the rush by many central
banks to make bilateral swap arrangements with the US Central Bank during the
global financial crisis starting in 2007–8, on terms set by the US Central Bank,
including the central bank of Korea in 2008 and then, in May 2010, the Bank of
Canada, the European Central Bank, the Bank of England, the Bank of Japan and
the Swiss National Bank; plenty more wished to set up such protective arrange-
ments but were declined. Most crisis-hit states, excepting those near the bottom of
the income hierarchy, tried to avoid the arms of the IMF.
Another indicator of Western dominance comes from a study of more than 50
transnational institutional innovations over the past decade and a half. The innova-
tions include public, private and hybrid entities: transgovernmental networks (for
example, in finance and accounting), arbitration bodies (for example, the World
Bank’s Inspection Panel), multi-stakeholder bodies (for example, the Global Polio
138  Robert H. Wade
Foundation) and voluntary regulation bodies (for example, the Marine Steward-
ship Council). Hale and Held summarize their conclusions:

[M]any of the programs rely on Southern participation and serve the interests
of Southern stakeholders, [but] almost none of the innovations in transna-
tional governance gathered here can be described as a Southern-led initiative.
Instead, Northern actors have driven institutional innovation: states, NGOs,
corporations, and international organizations. While some of the innovative
institutions (e.g., the World Commission on Dams …) have been careful to
try to ensure Southern participation, and many of the programs target policies
in the global South, Southern leadership remains limited.
(Hale and Held 2011: 25)

Inside international organizations

Extending the Hale and Held argument, I present two case studies to show how
Western states have managed to retain global leadership even after they became
the epicentre of the Great Slump in 2008 and even as Southern criticism of their
rule rises. The first case shows how, in 2012, the well-coordinated bloc of Western
states almost succeeded in stopping UNCTAD from further analysing the global
financial crisis, so as to leave the subject to the inter-state organizations controlled
by the West. UNCTAD is a particularly interesting case in a volume on Prebisch,
because he instigated it as a counterbalance to Western-dominated Bretton Woods
organizations and served as its first Secretary-General, starting in 1964. The sec-
ond case shows how, also in 2012, the US retained the presidency of the World
Bank, after years of member states chorusing that the heads of international orga-
nizations like the Bank and the IMF should be open to all nationalities, and despite
the candidacy of two well-qualified people from developing countries.3
The case studies suggest several reasons why Western states have successfully
kept control of the commanding heights so far; some are related to the sources of
Western cooperation, others to the sources of developing-country disunity.
The larger conclusion is that the emerging world order can be described as a
combination of ‘hegemonic incorporation’, as in the past, and a new ‘multipo-
larity without multilateralism’. The result is often stalemate, far from enhanced
inter-state cooperation around increasingly urgent global problems.4 The chapter
provides no ‘solutions’ to stalemate, but it does suggest that the standard narra-
tive about an emerging global political order shaped by ‘the rise of the South’ is
overdrawn, and that developing countries and their inter-state organizations must
become more proactive in shaping the global agenda rather than simply accepting
Western invitations to participate in organizations commanded by Western states.

The West almost succeeds in marginalizing UNCTAD in 2012

Prebisch and colleagues envisaged UNCTAD as a policy-oriented think tank
under predominantly Southern control, within the UN family of organizations, to
 The West remains on top  139
counterbalance the General Agreement on Trade and Tariffs (GATT), as well as
the World Bank and IMF. It was also to serve as an international forum for negoti-
ating commodity agreements and trade preferences for developing countries, and
to provide technical assistance and training.
Right at the new organization’s inception, a struggle arose about its mandate to
discuss financial issues. Developing countries said that it must have a mandate for
financial issues because of the close link between finance and trade. Western states
said, in effect, ‘no; finance is for us’. The deadlock was broken at the last minute
when Ted Heath, then President of the British Board of Trade (later Prime Min-
ister), visited Geneva for the final round of negotiations and met up with one of
the leaders of the developing-country side, an Algerian who had been his Oxford
college-mate years before. They went into a private room and emerged with a
suitable compromise: that UNCTAD could appropriately concern itself with the
‘invisible account’ in the balance of payments as it related to trade, the invisible
account including finance. The Western side reluctantly agreed.
Over the early 2000s, through its annual Trade and Development Reports and
other publications, UNCTAD produced sustained empirical analyses of global
macroeconomic issues and often offered ‘second opinions’ to those of the IMF,
the World Bank and Western states. Its publications warned of the dangers of the
prevailing neoliberal and ‘Great Moderation’ narratives. They emphasized rising
financial fragility due to the interaction between private debt and current-­account
deficits in several major Western economies, and the dangers of a global architec-
ture lacking incentives for countries to reduce external surpluses and for the biggest
debtor country, the United States, to reduce its deficits (Wade 2009a, 2009b, 2011a,
2011b, 2013). The Trade and Development Reports have not hesitated to identify
destabilizing government policies, including those of Western governments.
For most of its history, Western states and Western-dominated international
organizations have ignored UNCTAD or treated it with the annoyance one might
direct towards a fly in the room. They have less leverage over it than over most
international organizations, because its budget comes mostly out of the overall
UN budget. This means that Western states are less able to use conditional finan-
cial payments to make UNCTAD say and do what they want, as they can with
UNDP and the Bretton Woods organizations, among others. Western states have
kept the IMF’s Special Drawing Rights very limited, partly because SDRs are
‘special’ in that they can be drawn on without being subject to IMF conditionality,
unlike ordinary drawing rights.
UNCTAD’s governance requires that ministers from its member countries
approve a mandate and work programme every four years. In the run-up to the
13th ministerial quadrennial conference in Doha in April 2012, Western states
made a concerted effort to stop UNCTAD from working on global macroeco-
nomic and financial issues. As a senior US delegate declared in one of the last
negotiating sessions in Doha – and as noted at the beginning of this chapter – ‘We
don’t want UNCTAD providing intellectual competition with the IMF and the
World Bank’. Another Western delegate said that while UNCTAD had been ahead
of the curve on important issues in the past, the IMF had now ‘caught up’ with it,
140  Robert H. Wade
so further UNCTAD work on global macroeconomics and financial crisis was no
longer needed. A senior UNCTAD official, talking to a European ambassador at
the negotiations during an intermission, asked him: ‘Should international orga-
nizations all speak with a single voice about how to handle the global financial
crisis?’ The ambassador replied, ‘I think yes’.
The Western states together constituted Group B, divided into the European
Union (EU) group and the JUSCANZ group (abbreviated JZ), where the latter
refers to the non-EU OECD countries, including Japan, US, Canada, Australia,
Norway, New Zealand, Switzerland and a few others (the group is known by the
acronym pronounced like ‘juice-cans’). For the UNCTAD negotiations, the JZ
group led the Western states, and within it the US delegation led from behind
while the Swiss delegation led from the front (the Swiss being the group’s official
coordinator). The EU team agreed with the JZ group on most issues.
The developing countries were grouped into what is called the G77 + China
(G77/C). As the negotiations over the mandate went on in Geneva from January
2012 onwards, the G77/C, led by its coordinator (Thailand), played an accommo-
dative and moderate game so as not to appear to be the difficult party. The Thai
delegation was supported by other ‘moderates’, including Indonesia, Ethiopia,
Tunisia, Morocco and others. Their critics described them, disparagingly, as ‘the
G77 friends of JZ’. But few developing countries devoted time to the negotiations
in the run-up to Doha (they have tiny delegations in Geneva to cover a wide range
of activities, and little back-up in capitals). As the negotiations went on and the
Western states dug in their heels, a hard-core of G77 countries emerged which
resisted most of the concessions being made by the Thai coordinator. They were
described by some of the moderates as ‘the hard-liners’, and included Bolivia,
Peru, Egypt, Algeria, Iran (the Asian Group Coordinator) and Zimbabwe (the
African Group Coordinator). They helped to block the accommodating Thai nego-
tiator from making many more concessions to Group B.
China was quietly influential behind the scenes; it leaned towards the ‘hard-­
liners’ more than towards the ‘moderates’, but was more concerned than others
to maintain consensus within the G77/C. People paid careful attention to what its
delegation said, even when they had to read between the lines. Brazil and South
Africa were little involved until the BRICS (Brazil, Russia, India, China, and
South Africa) summit in March 2012, when senior officials and politicians finally
resolved to pay attention to the way the West was marginalizing UNCTAD.
The procedure was that the President of the Negotiating Committee (the ambas-
sador from Lesotho) tabled a negotiating text, based on the different groups’ posi-
tion papers and on drafts provided by the UNCTAD secretariat. Delegates from
the two Western groups treated it in the manner of gleeful children poking sticks
into the spokes of a moving bicycle. No phrase, word or comma escaped their
attention. As they submitted deletions and revisions, and the G77 made count-
er-submissions, the draft ballooned by the day. Eventually it was jettisoned only
three weeks before the Doha conference and replaced with a President’s ‘distilled
text’. This, as amended over the subsequent days, formed the basis of the docu-
ment discussed in Doha.
 The West remains on top 141
The G20 is an important reason why the G77/C showed itself to be so unsure
of what it wanted. Since the G20 was upgraded to the heads-of-government level
in late 2008, the big developing countries within it had tended to give priority to
their G20 membership, and were less inclined to engage in forging a common
G77 position. Only a few of the major developing countries sent their trade min-
isters to the UNCTAD meeting – for the ostensible reason that the G20 had at
the last minute called a meeting of trade ministers in Mexico on a date which, by
‘unfortunate coincidence’, clashed with the long-scheduled UNCTAD ministerial
in Doha.
However, a few weeks before the Doha ministerial, an open letter from a group of
65 former staff of the UNCTAD secretariat, plus some civil-society organizations,
brought the issue out of the negotiation closet and into the public domain – alerting
countries in the G77/C to what was happening and in the process strengthening
the hand of the so-called ‘hard-liners’, who were worried about the increasingly
absurd tone of negotiations. By the time of the ministerial conference in Doha,
some major developing countries were prepared to fight back under the G77/C
banner, though Indonesia, which took over from Thailand as the group coordinator,
was anxious to be as moderate as Thailand had been.
The negotiations in Doha fractured repeatedly on North–South lines, and until
the last moment it looked as though, for the first time since UNCTAD VI in 1983
(the sixth quadrennial ministerial conference), there would be no consensus on
UNCTAD XIII’s mandate. Just a few days before the start of the Doha negotia-
tions, the Summit of the Americas ended, for the first time ever, without a consen-
sus declaration, because of unbridgeable North–South differences. Doha looked
set to repeat this.
One of the key issues was a paragraph in the draft text giving UNCTAD a role
to ‘contribute to the work of the United Nations in addressing the root causes
and the impacts of the global economic and financial crisis’. The West objected
to the term ‘root causes’ (which might point to the West); it wanted UNCTAD’s
remit to be limited to ‘impacts on developing countries’. The final agreed text
came up with the compromise that UNCTAD should ‘continue … research and
analysis on the prospects of, and impact on, developing countries in matters of
trade and development, in light of the global economic and financial crisis’. The
Western groups hoped that by stipulating ‘developing countries’ they would be
able to keep UNCTAD silent about their role.
Another North–South fracture arose regarding the phrases ‘enabling state’
and ‘effective state’. UNCTAD’s mandate from the ministerial conference of
four years before, in Accra, had ratified the idea of the ‘enabling state’, as in the
­prescription for UNCTAD to help

developing countries … pursue development strategies that are compatible

with their specific conditions within the framework of an enabling state,
which is a state that deploys its administrative and political resources for
the task of economic development, efficiently focusing human and finan-
cial resources. Such a state should also provide for the positive interaction
142  Robert H. Wade
between the public and p­ rivate sectors. [These words are coded scepticism
about the universal validity of the Washington Consensus.]
(UNCTAD 2008: 51)

The West tried to replace this in the new mandate with the sentence that UNCTAD
should promote ‘an effective [not ‘enabling’] state, working with private, non-
profit and other stakeholders’ to ‘help forge a coherent development strategy and
provide the right enabling environment for productive economic activity’. The
final text was a compromise. It mentions neither ‘effective state’ nor ‘enabling
state’. It talks only of an ‘enabling environment’, and the Western groups consid-
ered this another victory.
The Western states also objected to any inclusion in the Doha Mandate of sev-
eral issues that UNCTAD had been sanctioned to work on in the previous Accra
Mandate of 2008: issues such as ‘policy space’, ‘macroeconomic and development
policy’, ‘systemic coherence’ and ‘regional financial and monetary coherence’.
The West said, in effect, ‘We do not want UNCTAD to discuss any of these issues,
because UNCTAD is not competent to do so. They are for the G20 and IMF.’
So one of the sticking points in Doha became the extent to which the existing
work programme (Accra Mandate) would be continued, if not intensified, through
the new Doha Mandate. The Western groups said that the Doha Mandate should
‘build on’ the Accra Mandate. The G77/C said that ‘build on’ could be taken to
imply that the Accra Mandate itself could be superseded, and those controversial
subjects dropped. Instead, the G77/C wanted the text to say ‘reaffirm and build
on’ Accra.
In the final hours of the negotiations, the Swiss ambassador, leading the nego-
tiations for Group B, said he would accept ‘reaffirm and build on’ if the G77/C
substantially watered down the wording in paragraphs on the US embargo of
Cuba and the Israel/Palestine issue. He did not expect the G77/C to agree. But
five minutes later, into the room walked the Cuban delegate to say that he and the
American delegate had agreed to language on the Cuban paragraph; shortly after,
in came the Palestinian delegate to say he and the Israeli representative had just
agreed language on the Israel/Palestine paragraph. So the Swiss ambassador felt
he had to allow ‘reaffirm and build on’ Accra.
By this time, China, Brazil and South Africa had climbed into the driving seat
on the G77 side and cut deals with the JZ and EU. At 5am on the last morning –
with a press conference scheduled for 10am – a mandate and work programme
for the next four years were agreed by consensus. The outcome represents a draw
between North and South, but at least it gave the secretariat enough wiggle-room
to continue to work on global macroeconomic issues and to present ‘second opin-
ions’ to those of the IMF and World Bank, if the secretariat wished to do so.
However, for all the protracted negotiations, the mandate and work programme
are of secondary importance. The main issue is personnel. If the Western states
succeed in getting the ‘right’ people into the key positions (recall US Secretary of
State Lansing’s argument), not even the Doha compromise could give the organi-
zation much protection from being railroaded into safe issues sanctioned by the
 The West remains on top  143
West – such as an FDI-friendly investment climate, ‘trade facilitation’ (code for
free trade), strong intellectual-property protection, good governance, youth and
gender – and away from heterodox arguments on global macroeconomics and
national development strategies.
In the months following the Doha conference UNCTAD lost momentum as
the G77 became re-lethargized, the EU and JZ groupings again gave it the cold
shoulder and the Secretary-General, with the end of his time in the position in
sight, disengaged.
By 2015 a new Secretary-General had been appointed from Africa (following
the rule of regional rotation, the previous one having been from Asia) – a former
trade minister from Kenya with links to the Brookings Institute. A new Deputy
Secretary-General has also been appointed (in early 2015) – a former Swedish
ambassador to the WTO with close ties to Brussels (EU Commission) and Paris
(OECD), hardly UNCTAD-friendly organizations. Their selection was in line
with Western wishes and Scandinavian patronage of UNCTAD. In the more oper-
ational divisions, such as the Trade and Investment Divisions, senior staff already
tended to think like WTO, OECD and World Bank staff.
For UNCTAD’s intellectual work, the key position was head of the Global-
ization and Development Strategies division, responsible for producing the
annual Trade and Development Report. This publication had long articulated ‘het-
erodox’ arguments about the biases and asymmetries in the workings of the world
economy which can hinder development prospects – one of very few regular and
prominent sources of such arguments, though funded at a fraction of the resources
devoted to the World Bank’s World Development Report and the IMF’s World
Economic Outlook. The arguments developed in the Globalization and Devel-
opment Strategies division (backed up by the UN Global Policy model, which is
now housed in the division) have more recently, with developing-country support,
been introduced into the G20 Framework Group discussions.
When the incumbent retired as head of this key division at the end of 2012,
many people assumed that Western states would try to shoe-horn in a supporter
of the Washington Consensus. Instead, the new UNCTAD Secretary-General sent
just two names to the UN Secretary-General’s office in New York, where the final
decision lay. One of them was a long-time UNCTAD economist with clear aca-
demic and heterodox credentials as well as operational experience; the other was a
leading female economist from the developing world. New York chose the former.
The Trade and Development Report 2014 was substantially about ‘policy space’
(see Hannah and Scott, this volume).

The US keeps control of the World Bank presidency

In April 2012 the World Bank elected Dr Jim Yong Kim, a US citizen, as the next
president, to replace departing president Robert Zoellick. His appointment fits
a long-established pattern: the Bank’s governing body always elects whomever
the US government nominates. Similarly, the IMF always elects whomever the
Europeans nominate as Managing Director. The US and the Europeans can go on
144  Robert H. Wade
getting their respective candidates appointed indefinitely, provided they support
each other, and prevent a major change in voting shares.
What makes Kim’s appointment remarkable is that it flies in the face of a cre-
scendo of support for opening up the top positions of the Bank and the Fund to
international recruitment. The G20 finance ministers and heads of government
have several times reaffirmed their commitment to transparent, merit-based
recruitment for the top positions. In 2012, for the first time, well-qualified candi-
dates from developing countries presented themselves, while Kim’s qualifications
were questionable. How did the US again prevail?
The Bank’s president is elected by a vote on its board of executive directors,
the day-to-day governing body of the Bank, with 25 seats. The bigger financial-­
contributor states have their own seats, representing only themselves; the other
seats represent constituencies. The executive directors are civil servants from their
respective countries. Each casts a vote weighted by the sum of the voting shares of
the countries they represent. When President Zoellick announced his resignation,
in February 2012, the executive board immediately ‘reaffirmed the importance of
a merit-based and transparent process with all executive directors able to nomi-
nate and then consider all candidates’ (World Bank 2012). The G24 secretariat in
Washington, a small organization which concerts views among developing-coun-
try members of the Bank and the Fund, had been preparing for the opening,
had approached a number of developing-country candidates and had discussed
the organization of a campaign. In the end, two developing-country candidates
came forward. One was Ngozi Okonjo-Iweala, generally known as Ngozi, then
Nigeria’s Finance Minister and a former managing director at the World Bank.
The other was Colombia’s José Antonio Ocampo, a former finance minister, for-
mer Deputy Secretary-General of the UN and current professor of development
­practice at Columbia University, New York.
After dragging its feet, the Obama administration nominated the relatively
unknown Jim Yong Kim, president of Dartmouth College. He was a medical doc-
tor, former director of the World Health Organization’s HIV/AIDS department
and former chair of the department of Global Health and Social Medicine at Har-
vard Medical School. His special field was mitigating the health consequences of
poverty in the poorest parts of the world.
It is not clear why the Obama administration nominated Kim rather than another
US citizen. It is widely rumoured that Treasury Secretary Timothy Geithner held
out until the last minute in favour of his friend and erstwhile boss at the US Trea-
sury, Lawrence Summers, but shortly before nominations closed, the White House
vetoed Summers. This left little time. The initiative swung to Secretary of State Hil-
lary Clinton. Her husband Bill, former US President and now head of the Clinton
Foundation, knew Kim, whose interests mirror the Clinton Foundation’s. Geithner,
a Dartmouth graduate, also knew Kim. Besides, Kim’s name and Korean–­American
background would, it was thought, help to get him support in Asia.
Kim’s nomination also reflected a consensus in US political circles, including
the Democratic Party, that the development challenge is to mitigate extreme pov-
erty and particularly its health consequences, and that the World Bank should work
 The West remains on top 145
less as a bank making productive investments with strong public-good spillovers,
and more as an aid agency working alongside charities like the Gates Foundation
and the Clinton Foundation. This same notion of development was reflected in
the appointment, not long before Kim’s, of a young physician as Administrator of
USAID, whose main work experience had been with the Gates Foundation and
who championed the social sectors and opposed USAID working in sectors like
infrastructure, which should be left to private companies.
In contrast, both Ngozi and Ocampo had long experience in development as
a large-scale national transformation project, including economic management,
education, health, infrastructure and environmental management (Briscoe 2012).
They had set economic and financial policy in their countries, conducted intergov-
ernmental negotiations and managed large organizations. Dr Kim had not.
A strong critique of Kim came from Lant Pritchett, a former World Bank econo-
mist and current professor of development practice at Harvard’s Kennedy School.
Drawing the distinction between national development and humane development
(mitigation of famines, pandemics and violence in very poor parts of the world
where national development has failed), Pritchett said:

[Kim’s] appointment appears to be an intrusion of the world of humane devel-

opment into one of the core institutions of national development. By con-
trast, the nominee backed by many African countries, Ngozi O ­ konjo-Iweala,
has been finance minister of Nigeria and a Managing Director of the World
Bank ... [S]he is from the world of national development, rather than the
world of humane development. What has shocked the development world is
that President Obama did not seem to know the difference.
(Pritchett 2012)

The candidates travelled the world seeking support. Kim had ample backing from
the White House and Treasury, and secured key nominations before those govern-
ments had even met the other candidates (notably from the Japanese government,
which has the second-largest share of votes on the board). But apart from signing
a few newspaper articles on his vision for the World Bank (which had all the hall-
marks of having been written by the US Treasury), Kim kept out of sight and took
no part in debates arranged with the others. Perhaps he worried about exposing his
lack of experience in finance and national development.
All three were interviewed by World Bank governors in Europe (ministers of
European governments). At the main gathering, Ngozi and Ocampo received
standing ovations. Kim did not. A source close to the process reported:

I’ve seen some of the EU governments’ confidential reports of the interviews

EU governors had with the three Presidential candidates last week. Of course,
they all had differing views, but a fair summary would be: ‘Okonjo-Iweala:
passionate performer, good knowledge of how the World Bank operates, but
her pitch wasn’t so well set out or structured. Ocampo: best prepared, clearest
ideas about where he would take the Bank, most knowledgeable on economic
146  Robert H. Wade
issues. Quite academic in style. Kim: Very committed, but limited knowledge
outside health, and particularly not on finance and economics’.
(Worldbankpresident.org 2012)

The African Union summit of African heads of government unanimously endorsed

Ngozi. Two networks of economists sprang up in support of Ocampo, one led by
a prominent Chinese economist and two heterodox Anglo economists, the other
linking many Latin American economists. The candidates were interviewed sep-
arately by the executive directors, sometimes one-on-one, sometimes with exec-
utive directors in groups.
The ‘G11’ group of executive directors representing developing countries met
several times in the run-up to the board vote. They committed themselves, several
times over, to vote according to their judgement of the best candidate, irrespective
of US wishes. Two days before the vote, the G11 met for several hours. Near the
end, they conducted an unofficial ballot and ten voted for Ngozi. The exception
was the Brazilian (also representing Colombia), who voted for Ocampo. After the
vote, he rang Ocampo and invited him to withdraw his candidacy, which he did.
They had another unofficial ballot: all for Ngozi.
The Obama administration galvanized itself to lock in the US candidate. Per-
haps it felt the opportunity for Obama to enter the history books by nominating a
woman from an African country who was widely regarded as an excellent candi-
date did not warrant the cost of ceding the American monopoly, which could easily
be construed as a symbol of Obama being unwilling to stand up for America – in
an election year with prominent critics declaring ‘I wish this president would learn
how to be an American’ and ‘I think it can now be said without equivocation –
without equivocation – that this man hates this country. He is trying – Barack
Obama is trying – to dismantle, brick by brick, the American dream’.5 And though
the Bank is no longer a copious source of finance for most developing countries,
it is a rich source of information, especially informal political and economic infor-
mation. Appointing a personal friend as its president gives the Secretary of State
and Treasury Secretary the opportunity to contact him at any time of day or night
for a chat about what is going on in some part of the world they want to know
about, and to suggest deals they would like the Bank to make or not make.
The first to break ranks were the Russians. The next day, the Russian foreign
minister announced from Moscow that Russia would support Kim. Soon other
developing-country governments began to peel away. Little is known about how
they were induced to do so, but the Treasury may have promised positions such as
chief economist, treasurer or head of the International Finance Corporation (the
private-sector lending arm of the World Bank) in return for a vote for Kim.
When the board met to vote (in closed meeting, only executive directors
present – no advisors, no Bank staff), it conducted first an unofficial vote to
see whether consensus was likely, and then the official vote. By this time, the
big European countries had swung behind Kim as well. The Latin Americans
decided after the unofficial vote that there was no point in annoying the Ameri-
cans, so they went for Kim, in the absence of Ocampo. The official vote was over
 The West remains on top 147
80 per cent for Dr Kim, with only the African executive directors supporting
Ngozi. They held out because the African Union’s heads of government unani-
mously supported Ngozi. The subsequent World Bank communiqué about Kim’s
appointment made no mention of the word ‘unanimous’ – the first time ever that
the president had not been appointed ‘unanimously’ (even the very controversial
appointment of Paul Wolfowitz in 2005 was officially unanimous).
Within the World Bank, many non-economists, especially in health and edu-
cation, welcomed Kim’s appointment. They appreciated not only his expertise
in health, but also his scepticism about Western agencies working with national
governments of developing countries. He prefers to work closer to the intended
beneficiaries – with the NGO sector and at lower levels of government. For these
staff, Kim’s appointment carried the promise of exciting innovations in Bank
operations. Moreover, his appointment resonated with a recent backlash among
non-economists against economists’ long dominance of Bank thinking. They were
empowered by the ever-growing significance of Western-country ‘trust funds’
for financing Bank operations, which tend to promote a ‘social first, econom-
ics second’ view. Finally, Ngozi had established a mixed reputation in people-­
management during her time as a Bank managing director, while Kim gave the
impression of being a big improvement over Zoellick, who was known as reluc-
tant to delegate and prone to denigrate his senior officials in public and private.
However, most of this ‘contest’ was theatre. It was foreordained that almost
whomever the US government proposed would be appointed, for two reasons.
First, the Americans had supported the European nominee to replace the disgraced
Dominique Strauss-Kahn at the IMF in 2011, and they expected European reci-
procity. The Europeans were not about to jeopardize their countries’ chances of
retaining the top position at the Fund by voting against the American nominee
at the Bank. Second, the Obama administration’s electoral strategy in an excep-
tionally evenly balanced presidential race meant it could not afford to give up
a symbol of American pre-eminence. It would do whatever it took to keep the
presidency of the World Bank.
In the months after Kim assumed office, several nationals of major developing
countries were appointed to senior positions. Jin-Yong Cai, a Chinese national,
was appointed as CEO of the International Finance Corporation (the private-­
sector lending arm) in August 2012, the first time the position had been held by a
non-European. Kaushik Basu, an Indian national based at Cornell University, was
appointed chief economist in September 2012 – only the second time the position
had been held by a non-Westerner (his predecessor was Chinese).
The story shows how easily the US can use unilateral influence over the multi-
lateral Bank to get it to do what the US wants, such as allocating incumbency to
senior posts. Still, the good news is that well-qualified non-American candidates
presented themselves in 2012 for the first time, and went through a semblance of
a merit-based selection process. The contest worked to the extent that the official
selection was – unprecedentedly – not ‘unanimous’. The US government may
have to cut even more deals to retain the presidency next time around, but next
time may not be till 2022 if Kim is re-appointed to a second five-year term.
148  Robert H. Wade
Conclusions
Today, global governance is more fractured and turbulent than has been the case
for many decades. The causes are partly near-term ones relating to the global
financial crisis and slump, and the tensions generated in inter-state relations as
governments of the core states try to ratchet down wages in order to boost profits
and ‘competitiveness’ and export their unemployment elsewhere. But the causes
are also more structural, relating to the increasing dissociation among the major
economies between economic weight (measured by GDP) and GDP per capita.
Up to, say, the year 2000, the G7 economies had the largest GDPs and the highest
GDPs per capita, and occupied the top table of global governance. This correla-
tion is breaking down as developing countries, led by China, take more positions
in the world’s top 20 economies by GDP, even as their average incomes remain
a fraction of those of Western economies and their economic structures remain
very different from those of the G7 and from each other. Their ascent to global
governance fora – such as the G20 – greatly increases the diversity of interests at
the top tables, as compared to earlier decades.
However, there is not much sign, in this more fractured and turbulent environ-
ment, that Western states have been displaced from the leadership position they
have long occupied in global governance, even though their leadership is some-
times more contested than before. This chapter has suggested several reasons why
they have been able to protect their power.6
The first is path-dependence and constitutional rules. Western states built in
power advantages from the beginning, and ensured that the procedures for chang-
ing the distribution of formal power make it very difficult to do so, as in the US’
ability to dismiss any moves to remove its veto in the Bank and the Fund.
Second, the economic rise of the South is not nearly as pronounced as the
popular image has it, as a result of focusing on what has changed to the neglect
of what has not changed (Cox 2013). The G7 economies continue to have heavier
economic weight (measured in terms of share of world GDP). When we add cen-
tral bank and capital-market size and centrality as further components of eco-
nomic weight, the G7 economies – the US above all – look to be even more
dominant, because the realm of finance dominates the realm of GDP (the ‘real
economy’). The central role of the US gives its Federal Reserve and Treasury
leverage over other governments, especially in crisis conditions like the ones seen
since 2007–8.
A third reason why Western states have been able to protect their power is that
Western states have long practice of consulting and often coordinating with each
other, and can now use this to block Southern influence when it might run against
common Western interest. All great powers resist giving up privileges (a tradition
that China is following, as seen in its resistance to change in the UN Security
Council). So it is hardly surprising that leading Western states, long accustomed
to orchestrating global government, resist ceding power and flock around the US
as their leader. All are affected by the US’ preternatural fear of China and Russia,
 The West remains on top 149
which now serve as the useful unifying threat for the Western-centric order in
place of the Soviet Union (Wade 2015).
A fourth reason for continued Western dominance is developing countries’ dif-
ficulty in concerting their actions. We saw this in the case of the negotiations over
the mandate of UNCTAD, the most developing country-friendly organization of the
UN. We also saw it in the case of the new president of the World Bank. Recall that
two days before the executive board voted on the next president, the 11 executive
directors from developing countries unofficially voted unanimously for the develop-
ing-country candidate, Ngozi, while all but three voted for the American candidate
in the official vote a few days later.
The elevation of the G20 to heads-of-government status in late 2008 (bringing
11 heads of government of developing countries to the top table) is a helpful
development for the West, because it weakens a developing-country bloc. The
governments of major developing countries tend to give priority to their partici-
pation at the top table, where they rub shoulders with American, British, German
and other accustomed Western rulers. There, they tend either to go along with the
G7 view or to block specific discussions that might impinge on national interests
(China on exchange rates, for example, or ‘multilateral surveillance’). Western
states can easily split them.7
However, there are small signs that the BRICS are beginning to act concertedly
on some issues. The BRICS executive directors at the World Bank now meet
once a month or so, in an informal way, to coordinate positions. They support
each other in board discussions more than was the case in the past. At a meet-
ing of a board sub-committee in 2012, for example, executive directors of Anglo
countries were complaining, yet again, about the over-generous pay of Bank staff
and insisting that staff compensation be cut to ensure the Bank’s financial health.
The Chinese representative responded with a passionate and voluble defence of
staff compensation, to general amazement, saying that China is a borrower from
the Bank and wants to sit at the table with top-quality staff. He pointed out that
since the Anglo countries did not borrow from the Bank, they were unconcerned
that staff quality was deteriorating even at the existing levels of compensation. If
anything, staff compensation should be increased, he said. The Indian and Russian
representatives spoke in support.
Outside the Bank, the BRICS agreed in 2014 to establish their own develop-
ment bank, the New Development Bank, and their own currency-swap institu-
tion, the Contingent Reserve Arrangement. China has led the creation of the Asian
Infrastructure Investment Bank, which by 2015 had attracted more than 50 states
to join. When the British government announced it would apply, a US official told
The Financial Times: ‘We are wary about a trend toward constant accommodation
of China, which is not the best way to engage a rising power’, and delivered a slap
to the subordinate British wrist, complaining that the decision was taken after ‘no
consultation with the US’.8
For all the ‘global rebalancing’ talk about these organizations, we should
remember that they were only just starting as of 2015. And we should note that
150  Robert H. Wade
strong geopolitical tensions exist within the BRICS. A senior Indian diplomat
remarked, ‘In this grouping, as usual, there’s what China wants and there’s what
everyone else wants’. Another prominent Indian observed:

The new world order isn’t going to be fair and just. We recognize that there is
a high table [e.g. the G20], and we want a seat so we can set rules as well. So
the last thing we [BRICS] should do is destroy that high table.9

Prebisch would probably have applauded the new organizations, with the quali-
fication that they should not substitute for more developing-country cooperation
through properly global organizations, preferably under the UN umbrella.
Looking ahead and considering global governance more generally, the worry is
that as more states – with different average income levels, different economic struc-
tures, different modes of integration into the world economy and different c­ ultures –
assert divergent national interests and fundamental beliefs in the top fora (for exam-
ple, on the developmental role of the state or on capital account and exchange-rate
management), and as Western states resist ceding their long-­established dominance,
the possibility of creating strong, integrated regulatory systems will be blocked.
Global mandates will be restricted to ‘coalitions of the willing’ and to narrow and
loosely coupled agreements of a kind which can be reached by overcoming coordi-
nation problems of the ‘prisoner’s dilemma’ type, where the parties at least agree on
the nature of the problem.10 Yet it is doubtful that narrow and loosely coupled agree-
ments on finance will suffice to avoid more multi-­country financial crises of the sort
that have roiled the world once every five to seven years for several decades. It is
also doubtful that such narrow inter-state agreements on curbing carbon emissions
and adapting to climate change can prevent intolerable temperature rise by 2050
and the erosion of the planet’s biotic capacity.
It is in Western states’ longer-term interest to soften their attempts – as captured in
the chapter’s epigraph – to stop the articulation of views on global macroeconomic,
financial and trade issues that are different from established Western neoliberal ones.
Their aim should be to help build global and regional regulatory regimes that can
accommodate the growing divergence of national preferences. They have to permit
a wider range of trade-offs at the national level than those prescribed in the Wash-
ington Consensus and its democratic-governance counterpart. In terms of a soft-
ware analogy, they have to aim for ‘middle-ware’ which facilitates communication
between different software programs, rather than aim to sustain a single software
program for the whole world (Vestergaard and Wade 2012b). They should not expect
to change the world in their own image, especially not after the crash and long reces-
sion starting in 2008 exposed the falseness of prevailing beliefs about the efficiency
of financial markets, the growth benefits of high income inequality and the desirabil-
ity of ‘flexible’ labour markets without collective bargaining. These beliefs justify
the owners and managers of (mainly Western) multinational capital in exercising
even more control of national and corporate labour forces and national politics.
In the South, governments, corporations and civil-society organizations have to
accept that much of the Western prescription for economic development is empirically
 The West remains on top 151
doubtful, except as a recipe for sustaining Western primacy. They will only be able to
catch up, against powerful gravitational forces, by creating states with the fiscal, legal
and organizational capacity both to impart directional thrust to capitalist markets and,
acting in concert, to reshape the international economic regime (Wade 2004). Pre-
bisch’s project remains as pressing today as it was when he and others created UNC-
TAD in the 1960s, but now with the added constraint of climate change.

Notes
1 On the distinction between market exchange rates and purchasing power parity
exchange rates, see Wade (2014).
2 Pew Research Center 2015.
3 Except where otherwise indicated, the following case studies are based on the anthro-
pologist’s practice of ‘soaking and poking’, plus interviews with people who requested
anonymity.
4 See further Wade (2011a). On the G20, see Vestergaard and Wade (2012a, 2012b).
5 The first quote is from John Sununu, former New Hampshire governor; the second is
from Rush Limbaugh, a popular talk show host. Quoted in Maureen Dowd (2012).
6 In a longer treatment, one should take up Naim’s argument that everywhere in the past
two decades we see an erosion of power, including in states and inter-state organiza-
tions (Naim 2013).
7 In the General Assembly, where nothing much is at stake, developing countries are
more prepared to take a different stand from the West. One measure of Western influ-
ence is the voting coincidence score, which measures the amount of support a state
receives from other states in the General Assembly. In the late 1990s, the EU and
the US received around 70 per cent support for their positions on human rights. By
2009–10, the score had fallen to only 40–42 per cent. China and Russia increased their
score from around 40 per cent and 60 per cent in the late 1990s, respectively, to around
70 per cent today. See Gowan and Brantner 2010.
8 G. Parker et al., ‘Europeans Defy US to Join China-led Development Bank’,
FT.com, 16 March 2015, www.ft.com/content/0655b342-cc29-11e4-beca-00144fe-
ab7de (accessed 14 October 2016).
9 Kathrin Hille et al., ‘Differences of BRICS Nations in Evidence as Club Stages Summit’,
Financial Times, 9 July 2015, p. 16.
10 On fragmented and comprehensive regimes, see Keohane and Victor (2011). On the
belief–action relationship at different ‘levels’ of learning or enmeshment, see Spiro (1966).

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Part III

Diagnosing structural
change in the global
political economy
http://taylorandfrancis.com
8 A changing role for agriculture
in global political economy?
Brazil’s emergence as an
agro-power
Kristen Hopewell

For Raúl Prebisch – and resulting offshoots of his thought, such as depen-
dency theory and world-systems theory – a central claim was that development
requires moving from the export of agricultural and other commodities to man-
ufactured goods, since agriculture is seen as locking developing countries into
a marginal position in the global political economy (GPE). Prebisch (1962) and
others inspired by his structural analysis (Frank 1966; Gereffi and Evans 1981;
­Wallerstein 1974) argued that poor countries’ prospects for development were
blocked by their dependence on the export of primary products, at declining and
volatile prices, to the core industrialized countries of the global economy, in
exchange for imports of higher-value manufactured goods. Peripheral countries
were thus seen as locked into a system of unequal economic exchange, with those
unfavourable terms of trade worsening throughout much of the twentieth century
(Ho, this volume). With the export of commodities identified as a barrier to eco-
nomic prosperity, it was argued that underdeveloped countries needed to industri-
alize in order to be released from ‘the straitjacket of agrarian, pastoral, and mining
production’ (Cardoso 2009: 297).
Prebisch and his intellectual successors maintained that development policy
should therefore be guided towards the promotion of industry. Prebisch was a
leading proponent of import substitution industrialization (ISI) to foster the devel-
opment of manufacturing industries. Rejecting the premise of laissez-faire, Pre-
bisch advocated an interventionist state, actively engaged in steering economic
growth and development. Technology is central to Prebisch’s theory, which saw
advanced technologies and systems of innovation as concentrated in the core. As
Matías Vernengo (2004: 3) writes, at the heart of the dependency relation between
centre and periphery lay ‘the inability of the periphery to develop an autonomous
and dynamic process of technological innovation … The Centre countries con-
trolled technology and the systems for generating technology’. Prebisch and other
structuralists thus emphasized the role of the developmental state in the promotion
of technological advance.
In this chapter, I analyse the case of Brazil to show how its recent develop-
ment experience both confirms and defies the expectations of Prebisch’s theory. In
recent decades, Brazil has become one of the largest and most competitive agricul-
tural exporters in the world. Brazil emerged as an agricultural-export powerhouse
156  Kristen Hopewell
and channelled this newfound source of economic might into new and important
forms of political power in the international system. For Brazil, the rapid expan-
sion of its agribusiness exports contributed to fostering macroeconomic stability,
fuelling high rates of economic growth and boosting government revenues, which
in turn made possible redistributive policies that produced significant gains in
reducing poverty and inequality. Brazil’s new role as a major agricultural trader
also played an important role in its enhanced status and influence on the global
stage – as an emerging power and one of the BRICS (Brazil, Russia, India, China
and South Africa) – and enabled it to secure a more prominent role in global eco-
nomic governance. Contrary to Prebisch’s expectations, agriculture has provided
an important source of economic growth and development in Brazil.
Yet the Brazilian case also conforms to Prebisch’s belief that an active, inter-
ventionist state concentrated on fostering technological innovation is critical to
development. As I will show, Brazil’s emergence as an agricultural powerhouse
was propelled by state-driven innovation and related policies that transformed a
large part of a country previously considered an agricultural wasteland into one
of the most productive agricultural regions in the world, made it possible to grow
temperate crops in its tropical climate and dramatically increased the efficiency
and competitiveness of Brazilian agriculture. Importantly, however, this is not
the traditional form of agriculture that has long been prevalent in developing
countries; instead, the dominant form of agriculture that has emerged in Brazil is
highly capital-intensive and based on technological advance and innovation. In
accordance with Prebisch’s theory, technological innovation has played a critical
role in Brazil’s recent development model – although not in manufacturing, but
in agriculture.
It is worth noting that Brazil’s experience has thus departed significantly from
the policy prescriptions of the dominant neoliberal trade-and-development para-
digm. Neoliberalism maintains that the solution to the development problem is
for countries to liberalize and open their economies, remove state intervention,
privatize functions previously performed by the state and thereby ‘free’ mar-
kets to facilitate the efficient movement of goods and capital (McMichael 2012).
However, in contrast to the neoliberal orthodoxy, Brazil did not emerge as an
agro-export powerhouse by relying simply on ‘the magic of the market’. Instead,
active state intervention played a critical role in its agricultural revolution, which
in turn provided the foundation for its newfound economic and political clout on
the international stage.

The changing GPE of agriculture

Prebisch, like many others, saw agriculture as a backwards and declining sector in
the global political economy. But two things may be changing this: the industrial-
ization of agriculture and structural changes in global demand.
Agriculture has become highly industrialized, capital-intensive and –
­particularly with recent growing global demand and food scarcity – lucrative (see
Hopewell 2016a). This is connected with other changes in the global economy. It
 Brazil’s emergence as an agro-power 157
is no longer simply the case that the global South exports primary products and the
global North manufactures goods. Since the 1980s, the global South has exported
more manufactured goods than primary products, while the global North exports
far more primary products than the global South (Harris 1987). Between 1950
and 1980, the developing world’s share of global agricultural exports dropped
from 53 to 31 per cent (Grigg 1993: 251). Concurrently, the US and Europe sig-
nificantly expanded their share of global agricultural production and consolidated
their positions as the world’s dominant exporters in this sector, through increases
in productivity fuelled by technological advance and the strategic use of trade pol-
icies (such as tariff and subsidies). While capital-intensive production and intel-
lectual property remain concentrated in the core, the periphery is now associated
with low-skilled, labour-intensive production, whether in traditional agriculture
or manufacturing. The presence of manufacturing industry alone is thus no lon-
ger a marker of development and, conversely, nor is agriculture or raw materials
production necessarily an indicator of weakness. Indeed, many of the emerging
powers today – such as China, India and Brazil – are major commodity producers
(Wilson 2015).
The dominant form of agriculture that has now emerged in Brazil (as well as
other major exporters such as the US, Europe, Canada and Australia) is indus-
trialized agriculture – capital-intensive and technologically sophisticated. It is
‘high-tech’ agriculture, employing advanced machinery and production methods,
engineered seeds and chemicals, and large economies of scale. As Prebisch and the
dependency theorists recognized, the key marker of development is ‘knowledge-­
based assets’ (Amsden 2001) – research and development-­fuelled knowledge,
technology and intellectual property. And it is precisely such k­ nowledge-based
assets that have been the basis of Brazil’s agriculture boom, which has been
technology-driven and, importantly, based on domestic innovation. While in an
earlier period of dependent development, Brazil’s industrial development (like
that of other semi-peripheral countries) was heavily dependent on foreign tech-
nology (Evans 1979), its recent emergence as an agro-power has been driven by
indigenous technological development. In fact, Brazil is now even exporting its
advanced agricultural technology and know-how to other ­countries. In this sense,
Brazil’s experience conforms to Prebisch’s expectation that the underlying driver
of growth and development is systematic investment in knowledge and technology.
The expansion of Brazil’s agriculture exports has also been buoyed by the boom
in global commodity prices since 2003, which, as Kaplinsky and Farooki describe
in this volume, is unprecedented in the last two centuries. There is evidence to sug-
gest that this may not be simply a transitory phenomenon, but may represent a ‘new
normal’ in the global political economy. As Kaplinsky and Farooki write, unlike

the post-Second World War era in which high-income developed economies

with low commodity-intensive growth paths were the drivers of demand
growth, existing and future demand growth in the global economy is likely
to be a function of the expansion of commodities-consuming middle and
low-income economies.
158  Kristen Hopewell
Rapid growth in per capita incomes and increasing meat consumption are fuel-
ling surging demand – especially from China, but also from other large emerg-
ing economies (such as India) and developing-country markets – specifically for
the products in which Brazil is now a dominant producer, such as beef, chicken,
pork and soy (used as animal feed). Although commodity prices in general have
fallen from the heights they reached at the peak of the commodity-price boom,
demand for animal protein has continued to grow unabated, fuelling prices for
meat and soy that remain elevated above historical levels – and this shows no
signs of abating (OECD/FAO 2016). Brazil’s agricultural exports are directly tap-
ping into and benefiting from rising incomes and growing demand across much
of the developing world – a result of the massive shift in global economic activity
from the global North to the global South currently underway in the global polit-
ical economy.

The evolving role of agriculture in Brazil

As in many developing countries, for much of its early history the Brazilian
economy centred on the export of tropical agricultural products, such as coffee
and rubber, to rich-country markets in Europe and the US. Motivated by the
desire to move the country away from its dependence on agricultural exports
and foster the development of manufacturing industries, the state embarked on
a programme of ISI beginning in the 1930s and accelerating in the 1950s–70s
(Evans 1979). Economic policy during this period emphasized the subordina-
tion of agricultural to industrial development, and, with the success of Brazil’s
ISI policies, the importance of agriculture in the national economy declined
as that of manufacturing increased. As recently as the 1970s, Brazil was a net
agricultural importer and, until the 1960s, it systematically received food dona-
tions from abroad (Martha et al. 2013). Brazil’s agricultural sector was then
based primarily on large plantations producing tropical products for export,
small family farms supplying the domestic market and peasants engaged in
subsistence production.
Although Brazil’s ISI policies achieved considerable success in fostering eco-
nomic development and transforming Brazil into a major industrial economy, the
international debt crisis in the early 1980s plunged Brazil into an economic crisis,
faced with major balance-of-payments problems, soaring inflation and an inability
to meet its international debt obligations. Policymakers determined that the old
model of an inward-looking economy with substantial state intervention to pro-
mote industrial development was no longer sustainable and embarked on a major
programme of economic reform and liberalization. During the 1980s and 1990s,
Brazil introduced market-oriented reforms, including aggressive inflation-fighting
to stabilize the macroeconomic environment, the elimination of foreign trade
restrictions and barriers to foreign investment and reduced state intervention in
markets. As I will show, liberalization had an explosive effect on the growth of
Brazil’s agribusiness sector and its exports. But this should not simply be read as
a story of the triumph of neoliberal economic reforms, unleashing the market and
 Brazil’s emergence as an agro-power 159
prompting a flourishing of private enterprise. On the contrary, state-led innovation
played a critical role in the transformation and take-off of Brazilian agribusiness.

The role of state-led innovation in transforming Brazilian agriculture

In the 1970s, the Brazilian state began an effort to modernize agriculture in sup-
port of its ISI programme (see Hopewell 2016a). Its goal was to facilitate indus-
trial development by boosting agricultural productivity and output to 1) alleviate
a food-supply shortage by providing cheap food for the domestic market and 2)
expand agricultural exports in order to boost the foreign-exchange earnings needed
to finance the import of technology and capital goods for the continued process
of industrialization. Brazil’s agricultural-modernization programme centred on
substantial investment in research and development, backed by the provision of
agricultural extension services and subsidized credit to facilitate the diffusion of
new practices and technologies.
A new federal research institute, the Brazilian Enterprise for Agricultural
Research (EMBRAPA), was created in 1973 and charged with constructing a
large research infrastructure of laboratory and other facilities. Within a decade,
EMBRAPA was employing nearly 1,000 researchers, in addition to coordinat-
ing nationwide agricultural research (Wilkinson and Sorj 1992). EMBRAPA’s
research concentrated on increasing productivity and adapting agricultural sys-
tems to the distinctive ecosystems of Brazil’s agricultural frontier: the Ama-
zon, the Pantanal, the semi-arid interior and especially the cerrado. Substantial
investments were made in the development of novel, science-based technolo-
gies for tropical environments, including plant genetics and new seed varieties,
soil correction and management and improved agricultural practices adapted
to the use of industrial inputs and machinery (Martha et al. 2013). The stream
of scientific and technological innovations ultimately produced by EMBRAPA
played a central role in propelling the development of Brazil’s contemporary
agro-export sector.
Simply put, the development of Brazilian agribusiness would not have been
possible without state intervention. Despite its large landmass, much of Brazil’s
land is not naturally suited to commercial agriculture. Most of Brazil’s land lies
in a tropical climate, but tropical climates generally provide acidic, weathered
soils of low fertility that cannot sustain the bulk staple crops grown in temperate
climates (Pereira and Neves 2011). It had long been understood that only temper-
ate regions could engage in large-scale, intensive agricultural production. Con-
sequently, even by the late 1960s, more than half of Brazil’s territory remained
untouched by agriculture (Martha et al. 2013). In particular, the vast cerrado
region – a savannah that stretches for more than 1,000 miles across central Brazil
and accounts for 24 per cent of the country’s total area – was considered unfit
for agriculture due to its acidic and infertile soil. As Martha et al. (2013: 207)
state, ‘the stock of agricultural technologies and empirical knowledge at that time
indicated that the agricultural frontier – the “Brazilian Cerrado” – could, at best,
accommodate only subsistence farming’. In the words of Norman Borlaug, the
160  Kristen Hopewell
Nobel Peace Prize-winning agronomist, ‘nobody thought these soils were ever
going to be productive’ (Rohter 2007).
It was technological innovation driven by state-sponsored research and devel-
opment (R&D) and related policies that enabled Brazil to overcome these seem-
ingly insurmountable constraints. New technologies developed by EMBRAPA
transformed Brazilian agriculture by turning the cerrado into arable and pasturable
land, enabling the expansion of large-scale, intensive agricultural production. In
just decades, what was once considered a wasteland was transformed into one of
the most important productive regions of the country. State-directed research car-
ried out by EMBRAPA led to the successful development of new seed varieties and
accompanying agricultural practices tailored to tropical conditions, thus making
possible the emergence of a highly sophisticated and competitive agriculture sec-
tor in Brazil. This state-led technological innovation enabled Brazil to move away
from the tropical products typically exported by developing countries (coffee, tea,
sugar, bananas, etc.) to producing and exporting commodities (soybeans, cotton,
beef, chicken, pork, etc.) that directly compete with those of the world’s dominant
agricultural producers – the US, EU and other countries of the global North.
Left on its own, with soils that are naturally highly acidic, low in fertility and
prone to degradation, the cerrado was effectively toxic to agriculture (Huerta and
Martin 2002; Rada 2013). Yet new technologies created by EMBRAPA made it
possible to improve soil chemistry, reduce acidity and enable key crops – such as
soybeans – to thrive in the cerrado’s less fertile conditions (Correa and Schmidt
2014; Rada and Valdes 2012). EMBRAPA also developed and promoted import-
ant technical solutions to address the cerrado’s poor-quality, fragile soil condi-
tions and vulnerability to erosion, including soil recuperation, ‘no-till’ agriculture
and integrated systems of crop production and cattle-grazing (Correa and Schmidt
2014; Huerta and Martin 2002).
At the same time, EMBRAPA’s innovations in plant breeding made possible
the adaption of temperate crops to Brazil’s tropical climate, most notably in the
case of soybeans, which have become the cerrado’s main crop and one of Brazil’s
leading exports (Goldsmith and Hirsch 2006). Historically, it was only possible
to grow soybeans in temperate climates (such as the US and Argentina). Through
cross-breeding and genetic improvements, however, EMBRAPA created new soy
cultivars that could grow in tropical climates, with greater tolerance for soil acid-
ity, thereby enabling the expansion of soybean production in the cerrado as well
as the arid northeast (Wilkinson and Sorj 1992). EMBRAPA also developed new
fast-growing soybean varieties; their shorter growing period enabled Brazil to
operate two harvests per year (compared to one in traditional producers such as
the US), dramatically increasing the yields and productivity of Brazil’s soy indus-
try (Huerta and Martin 2002). Propelled by these innovations, Brazil has emerged
as a significant challenger to the US, which was historically the world’s dominant
soy producer and accounted for more than 75 per cent of global exports (Gibson
and Benson 2005). Brazil is now the world’s second largest soy producer, with
its exports claiming 45 per cent of the global market, and it is expected to soon
overtake the US (OECD/FAO 2016).
 Brazil’s emergence as an agro-power  161
EMBRAPA made similarly important technological advances in other crops.
Brazil’s cotton sector, for example, was hampered by low productivity, plant
disease and fierce international competition, until EMBPRAPA developed new
­varieties of cotton adapted to tropical conditions that dramatically improved
yields – which tripled between 1983 and 2010 – and quality (Correa and Schmidt
2014). Brazil has consequently emerged as a rapidly rising cotton producer and
become the world’s fourth largest exporter.
In addition, EMBRAPA developed novel plant varieties that dramatically
increased productivity for grazing (Rada and Valdes 2012). This made it possible
for parts of the cerrado to be turned into highly productive pasture, fuelling a
massive expansion of Brazil’s beef industry and a dramatic increase in its pro-
ductivity. As a result, Brazil’s beef production increased nearly fourfold and it is
has become the world’s largest beef exporter, supplying 30 per cent of the global
market (Contini and Martha 2010).
The transformation of the cerrado has been described as ‘one of the great-
est achievements of agricultural science in the 20th century’ (World Food Prize
cited in Rohter 2007). The cerrado now accounts for 70 per cent of Brazil’s
farm output and is one of the top grain and beef-producing regions in the world.
State-­sponsored R&D has thus played a fundamental role in expanding Bra-
zil’s agricultural ­frontier and boosting levels of productivity. Between 1970 and
2010, Brazilian agricultural production more than tripled, and it is projected to
increase by a further 38 per cent by 2019 (OECD/FAO 2010). As Contini and
Martha (2010: 3) put it, ‘the sector moved fast forward from a traditional to a
science-based agriculture’. State-led innovation was a pivotal contributor both to
this increase in productivity and to the territorial expansion of agriculture, which,
combined, simultaneously lowered the overall costs and increased the yields of
Brazil’s agriculture sector.
These technological advances have been supported by important related pol-
icy measures. Extension services facilitated the rapid diffusion of EMBRAPA’s
research discoveries and Brazilian farmers’ adoption of the novel production sys-
tems it developed. The adoption of new technology packages and the expansion
of agricultural production into previously idle regions was further stimulated by a
national system of subsidized credit. State-sponsored credit peaked in the 1970s,
during Brazil’s ISI period, with high rates of rural credit provided by the state at
heavily subsidized interest rates; yet, although rural credit was reduced substan-
tially with structural adjustment in the 1980s and early 1990s, it has risen steadily
since then (Contini and Martha 2010). Access to low-interest loans was critical in
helping producers gain access to and apply the new productive systems that were
being developed by EMBRAPA. Subsidized credit also enabled large producers
from the southern part of Brazil, which had traditionally constituted the country’s
centre of commercial agriculture, to expand their operations into the cerrado.
Brazil’s agricultural revolution has thus been fuelled by large and sustained pub-
lic investments in science and technology and related policies. It was only through
extensive state support – for R&D, as well as extension services and subsidized
financing – that incorporating the cerrado into Brazilian agricultural production,
162  Kristen Hopewell
and using that land to grow temperate crops, was possible. Through state-led inno-
vation, Brazil dramatically increased its effective agricultural land supply, along
with the productivity and global competitiveness of its agribusiness sector.

Brazil’s emergence as an agro-export powerhouse

State intervention originating in the ISI period thus created the enabling condi-
tions for the take-off of Brazil’s agribusiness sector, with economic reform and
market-opening in the 1990s. The combination of technological innovation and
economic liberalization led to explosive growth in Brazilian agricultural produc-
tion and exports. Liberalization generated substantial investment, restructuring
and consolidation in the sector, spurring rapid and sustained export-led growth.
Between 1995 and 2013, Brazil’s agricultural exports increased over sixfold, from
$14 billion to $86 billion.1 This growth has been driven by the expansion of cor-
porate farming, including the emergence of ‘mega farms’ – large, professionally
managed corporate farm groups benefiting from massive economies of scale,
many with planted areas in excess of one million hectares. The agro-industrial
sector that has developed in Brazil is among the world’s most sophisticated, based
on large-scale, mechanized, capital-intensive, vertically integrated production.
Brazil has emerged as an agro-industrial powerhouse: it is one of the most com-
petitive agricultural producers in the world and a leading exporter of a large and
growing number of products (including beef, poultry, ethanol, soy, corn, cotton
and pork). Brazil is now the third largest agricultural exporter, after the US and
EU, and the country with the largest agricultural trade surplus.2 It is the first coun-
try to catch up with the traditional ‘big five’ grain exporters (the US, Canada, Aus-
tralia, Argentina and the EU), and its exports are expected to continue to expand
rapidly over the next decade and beyond. Brazil has undoubtedly arrived among
the world’s ‘agro-powers’ (Margulis 2014).
Brazil’s highly industrialized, export-oriented agriculture sector now plays
a major role in its economy. Agribusiness has become an important engine of
economic growth, contributing 28 per cent of GDP and over 40 per cent of
exports (Damico and Nassar 2007; Valdes 2006). Responsible for 97 per cent
of the c­ ountry’s balance-of-trade surplus (OECD 2009), agriculture exports pro-
vide a critical means of generating foreign exchange and avoiding the balance-
of-­payments problems that have historically plagued the country. Between 1997
and 2009, agribusiness produced a trade surplus of US$405 billion (Contini and
Martha 2010). As one Brazilian trade official stated: ‘Just look at the figures – my
macro[economic] stability depends on agribusiness.’3
Brazil’s agricultural exports have contributed to fuelling strong rates of eco-
nomic growth and providing revenues for social programmes that have made
meaningful gains in reducing poverty and inequality. The state has combined the
pursuit of neoliberal macroeconomic policies and export-led growth with redis-
tributive policies, including raising the minimum wage and expanding social
welfare through programmes such as the Bolsa Familia, an income transfer to
poor households, and Zero Hunger (Fome Zero), a programme to combat food
 Brazil’s emergence as an agro-power  163
insecurity and extreme poverty. These policies have succeeded in reducing pov-
erty, especially extreme poverty, as well as inequality (Soares et al. 2007). The
proportion of the population living in poverty has fallen from 30 per cent in 1990
to 11 per cent in 2009, and inequality has fallen from a GINI coefficient of 60 in
2001 to 55 in 2009.4 However, despite these impressive gains, 22 million people
continue to live on less than $2 per day, with poverty especially prevalent in rural
areas, and Brazil remains one of the most unequal countries in the world.
Brazil’s agricultural revolution has fuelled the expansion and internationaliza-
tion of Brazilian agribusiness. There are now approximately 20 agribusiness com-
panies in Brazil with annual sales of more than US$1 billion and others are poised
to soon reach this level (EIU 2010). Brazilian firms have diversified their activities
and moved up the value chain into higher value-added activities, such as trading,
processing, transport and energy production (biofuels). Many of Brazil’s largest
companies have globalized their activities and joined the ranks of the world’s
leading agribusiness multinationals. Brazil’s JBS, for instance, has become
the world’s largest meatpacker, with annual revenues of over US$40 ­billion; it
acquired many of the largest beef, pork and chicken-processing companies in
the US and Europe and now operates 150 plants around the world, with 190,000
employees and exports to 110 countries.5 BRF-Brasil Foods has emerged as one
of the largest processed-food producers in the world, operating in 110 countries,
with $14 billion in annual revenues and 130,000 employees.6 The major Brazilian
firms have transformed themselves into global actors, targeting foreign markets
and engaged in extensive production and trading activities around the world.
Recently, the halcyon days of Brazil’s economic boom have come to an end as
the country has fallen into deep political turmoil and economic recession. Brazil’s
remarkably high growth rates, which peaked at nearly 8 per cent in 2010, were
buoyed by high commodity prices not only in agriculture but also for its natural-­
resource exports such as iron ore and crude petroleum. With iron ore and petroleum
its first and third largest exports respectively, Brazil has been badly hit by slowing
growth in the Chinese economy and weakening global demand, along with the glut
in global oil markets. Yet demand and prices for Brazil’s agricultural exports have
remained strong; consequently, as Antonio Ioris (2015: 2) describes, amid the wider
economic downturn in Brazil, agribusiness has remained ‘an island of prosperity
and economic dynamism in a national context of losses and lack of investment’.
Agro-exports have been particularly critical for bolstering Brazil’s trade balance
and macroeconomic stability.

Emergence as a major power at the World Trade Organization

Brazil’s emergence as an agribusiness powerhouse has led to a fundamental reori-
entation of its trade policy. Historically, Brazil’s trade policy was inward-looking –
centred on protecting domestic industries from foreign ­competition – and it played
only a minor role in multilateral trade negotiations (Lima and Hirst 2006). However,
as the agribusiness sector developed, it pressed the state to take a more a­ ggressive
position in international trade negotiations, and Brazilian trade policy became
164  Kristen Hopewell
increasingly focused on agricultural exports and expanding access to foreign mar-
kets as a key source of economic growth and development (see Hopewell 2014).
Brazil emerged as a key actor in the Doha Round of trade negotiations, which began
in 2001, and one of the strongest champions of agricultural trade liberalization at the
World Trade Organization (WTO) (Hopewell 2016b).
Brazil’s stance in international trade negotiations has been shaped by a sig-
nificant change in the destination of its exports. Developed countries were once
the main market for Brazilian agricultural products, but since 2004 most of the
­country’s agricultural exports have been destined for developing countries and
other non-traditional export destinations (Damico and Nassar 2007). China is now
the largest market for Brazilian agro-exports, and other emerging markets in Asia-­
Pacific, the Middle East and North Africa and Eastern Europe and the former
USSR represent the most dynamic markets for Brazil’s exports, with demand in
these regions continuing to grow rapidly. In the words of one Brazilian negotiator:

Brazil is a truly global exporter, not tied to any particular region or market.
More than half our exports are South–South trade and we expect markets in
Asia and Africa to represent the future for Brazilian exporters. We think this
trade has a lot of growth potential – many of these countries are already net
food importers and have limited natural resources to produce their own agri-
cultural products. The more these countries get richer – like China, India – the
more they will need our exports, particularly meat.7

In developing countries, more and better food is one of the first demands from
consumers as incomes rise. While developed countries are mature markets with
limited potential for growth, rapid income growth in the developing world is driv-
ing an explosion of demand for Brazil’s agricultural products and Brazil’s trade
is now heavily oriented towards these countries. Rather than being dependent on
the US and EU markets, Brazil now competes with them in third-country markets.
Indeed, for most of its key agricultural exports – including products such as soy-
beans, beef, poultry, pork, corn, cotton and orange juice – Brazil is in direct com-
petition with the US and EU (USDA 2009). Thus, far from being dependent on
rich-country markets, as it was in the past as a tropical-products exporter, B­ razil
now sees the US and EU as its primary competitors in the developing-country
markets that represent the main destination for its exports and the key source of
future demand growth.
Since Brazil’s agricultural-export markets are increasingly concentrated in
the developing world, where it competes with heavily subsidized agricultural
products from the US, EU and other developed countries, it determined that its
primary objective was to reduce rich-country subsidies. In the words of a Bra-
zilian negotiator:

Structural changes in the world trading system really can provide Brazil
with great opportunities in the future. The WTO negotiations are important
because we will probably be displacing the big guys in the global market.
 Brazil’s emergence as an agro-power  165
That’s why we have been pushing so hard on the Doha Round and why we are
the major d­ eveloping-country user of the dispute-settlement system.8

Another Brazilian official expressed it thus: ‘Now, in the US today, agriculture is

inefficient, addicted to subsidies and seriously flawed. It’s the law of survival –
you either survive by being competitive, or die.’9
Consequently, Brazil became highly active in seeking to advance its offensive
trade interests at the WTO (see Hopewell 2016b). In 2002, it launched – and
ultimately won – two landmark trade disputes against US and EU agriculture sub-
sidies (the cotton and sugar cases, respectively). These marked the first time that
a developing country had successfully challenged developed-country agriculture
subsidies through the WTO’s dispute-settlement system and required both the US
and EU to substantially modify their agriculture programmes. In addition to their
material implications, the cases were also symbolically important in strengthening
Brazil’s position, helping it to construct an image of itself as a contemporary hero
of the developing world taking on the traditional powers.
Within the Doha negotiations, Brazil created and led a coalition of developing
countries – the Group of 20 (G20-T) – in challenging developed-country agri-
cultural subsidies. The creation of the G20-T represented a critical turning point
at the WTO, which one ambassador likened to ‘a tectonic shift’ within the insti-
tution.10 By turning the tables and seizing the offensive vis-à-vis the traditional
powers, Brazil’s leadership of the G20-T helped bring an end to the longstanding
dominance of the US and EU and catapulted Brazil into the elite inner circle
of power at the WTO, making it a central player in the Doha Round. Brazil’s
activism helped to make agriculture – and particularly rich-country subsidies – a
central focus of the Doha Round, and Brazil and the G20-T came to have a major
influence on the substance of the negotiations.
In Brazil’s leadership and mobilization of developing countries into an effective
political bloc at the WTO we see echoes of the Third World activism that took place
during Prebisch’s leadership of UNCTAD. Yet the recent dynamic – of developing
countries going on the offensive against the advanced industrialized states and
pushing them to open their markets and reduce trade barriers through the WTO –
is entirely new and represents a major break with the strategies of earlier decades.
In an earlier era, with the GATT heavily dominated by the rich, advanced industri-
alized states, developing countries went outside the GATT to pursue their interests
via the creation of UNCTAD. UNCTAD was intended to provide an alternative
forum for international trade negotiations and became the site of developing-country
efforts to construct a New International Economic Order (NIEO), in which Brazil
was an important figure (see Hannah and Scott, this volume). In contrast, how-
ever, today Brazil is pursuing its trade interests in and through the GATT/WTO,
rather than seeking to go outside and challenge that system, as it did in the past.
Although Brazil has employed a rhetoric strongly reminiscent of the era of Third
Worldism in the 1960s–70s and its calls for a radical overhaul of the international
economic order, the agenda it has actually been pursuing at the WTO fits solidly
within – rather than challenging – the liberal trade paradigm. Rather than rejecting
166  Kristen Hopewell
the rules, norms and principles of the liberal trading system, Brazil has embraced
them, seeking to work with the rules and use them to its advantage (Hopewell
2016b). In effect, it has turned the WTO system against its originators, demanding
further market-liberalizing reforms from the US and other rich countries. Brazil’s
strategy – calling out the US, which had long been the traditional aggressor in
multilateral trade negotiations – proved highly effective in destabilizing the tradi-
tional power structure within the WTO, dramatically increasing Brazil’s status and
influence and boosting the bargaining power of developing countries more broadly
in the negotiations. Ironically, however, in seeking to advance its interests via the
WTO, Brazil – along with China and India – substantially disrupted that system,
as evidenced by the breakdown of the Doha Round due to conflict between the US
and the emerging powers (Hopewell 2016b).

A rising power on the international stage

Brazil’s emergence as a major agricultural trader has thus played an important
role in its enhanced prestige and influence as a rising power in the global politi-
cal economy. While Prebisch saw being an agricultural exporter as incompatible
with either economic or political power in the international system, the dramatic
expansion of Brazil’s agro-industrial sector has been a central factor in its new-
found status as both an emerging economy and an emerging power. Besides
being a hard-power resource, Brazil’s economic achievements have also provided
a ­crucial source of soft power, helping Brazil to construct itself as a successful
voice and leader of the developing world and a model for other countries to emu-
late in seeking to foster growth and reduce poverty. Combined, these forces have
­propelled Brazil to the high table of decision-making in the institutions respon-
sible for global economic governance (Armijo and Burges 2010; Hurrell 2010;
Narlikar 2010).
While Brazil’s ascension has been perhaps most striking at the WTO, its
enhanced status in global economic governance is evident far beyond that insti-
tution. Brazil secured a seat at the Group of 20 (G20) Leaders’ Summit, com-
posed of the major developed and developing economies, when it replaced the
old Group of 8 (G8) advanced industrialized states as the primary forum for
international economic cooperation (Cooper 2010; Schirm 2013). It is a found-
ing member of the BRICS grouping of emerging powers, as well as of the new
BRICS Development Bank, an alternative and rival to the Western-dominated
World Bank (Chin 2014). Brazil has also played a prominent role in the inter-
national climate-change negotiations (Hochstetler and Viola 2012). And, in a
further sign of the country’s growing international clout, its former officials
have been selected to head key international organizations: José Graziano da
Silva, the architect of Brazil’s Zero Hunger programme, has served as Director-­
General of the UN Food and Agriculture Organization since 2012 and Roberto
Azevêdo, previously Brazil’s ambassador and chief trade negotiator, has been
­Director-General of the WTO since 2013.
 Brazil’s emergence as an agro-power  167
In addition, EMBRAPA has become a key element of Brazil’s foreign-aid pol-
icy and efforts to foster South–South cooperation, and an important source of
soft power (White 2010). Now the world’s leading tropical-research institute,
EMBRAPA began internationalizing its activities in the late 1990s, providing
technical training and capacity-building to other developing countries and dissem-
inating its technologies and expertise (Correa and Schmidt 2014; Pardey 2004).
Brazilian political leaders and officials celebrate these endeavours as helping
other countries in the global South to achieve economic growth and development
through agricultural modernization and the fostering of competitive, market-­
oriented agro-export industries, while also improving food security and contrib-
uting to poverty reduction. EMBRAPA currently has cooperative arrangements
in place with 56 countries; it has been particularly active in Africa, where it has
projects in 38 countries (Cabral and Shankland 2013). One such initiative, for
example, involves transferring and adapting Brazil’s successful technologies for
boosting cotton yields and quality to the ‘Cotton-4’ countries (Mali, Benin, Chad
and Burkina Faso), which have been strategically important supporters of Brazil’s
challenge to US cotton subsidies at the WTO (Alves 2013).
Among the most high-profile initiatives is ProSAVANA – a project launched in
2011 to transfer and adapt the Brazilian technology and expertise that transformed
the cerrado to Mozambique, where soil and climate conditions are similar (Alves
2013). The project – essentially an effort to replicate Brazil’s model of intensive,
export-oriented agriculture in Africa – has been criticized by many civil-society
organizations as a land-grab by Brazilian agribusiness, facilitated by the state
under the guise of development cooperation, which they fear will result in a large-
scale displacement of peasants (GRAIN 2013). Nonetheless, despite such criti-
cism, technical cooperation in agriculture has been an important factor in Brazil’s
efforts to build political alliances and strengthen relations with other developing
countries, which in turn is part of the country’s broader ambitions to increase its
status and influence on the international stage. Agricultural cooperation has thus
come to serve as an instrument of Brazil’s foreign policy, while simultaneously
creating commercial opportunities and advancing the interests of Brazilian firms.

Criticisms of Brazil’s agro-industrial export model

Despite the success Brazil has achieved with the growth of its agribusiness sector,
the consequences of its path of industrialized, export-oriented agriculture are com-
plex and far from unproblematic. The expansion of industrialized agriculture has
generated considerable social and environmental upheaval. Although the cerrado
had previously been viewed as a wasteland from the perspective of commercial
agriculture, in reality it was neither vacant nor barren. While population density
was low, the cerrado was home to peasants and indigenous peoples and supported
rich biodiversity (Machado 2009; Oliveira 2013; Pires 2000). The expansion of
Brazilian agribusiness – in the cerrado and elsewhere throughout the country –
has been accompanied by the (often violent) expulsion of peasants and indigenous
peoples from the land (Sullivan 2013).
168  Kristen Hopewell
Even today, when agribusiness is responsible for most of Brazil’s agricultural
production (75 per cent) and virtually all of its exports, the vast majority of the
country’s farmers (85 per cent) are small-holders, peasants and subsistence pro-
ducers, for whom the expansion of large-scale agribusiness represents a signifi-
cant threat (MDA 2009). Land distribution in Brazil has historically been among
the most unequal in the world and this has only been exacerbated by economic
liberalization and the industrialization of agriculture, which have increased the
concentration of large land-holdings. Brazil’s intensive, agro-industrial model
has also come with significant environmental impacts, including soil degradation,
water misuse and contamination, air pollution, deforestation and the loss of bio-
diversity through the sacrifice of native fauna and flora (Barros 2009; Machado
2009; Pires 2000; Rodrigues 2009). The negative environmental impacts of indus-
trialized agriculture are particularly acute in the cerrado, where the application of
massive quantities of industrial fertilizers is required to counter the natural acidity
of its soil and raise its fertility (Rada 2013).
As a result, there has been extensive criticism from social movements, such as
the Landless Workers’ Movement (MST), of the social and environmental costs
of Brazil’s intensive commodity-export model. Yet such concerns have not sub-
stantially disrupted the direction of Brazilian policy. Within the Brazilian state,
small-scale farming and subsistence production are widely seen as a backwards
and declining sector – and primarily as a target for social protection and welfare
programmes – while agro-industry is viewed as a dynamic sector and a key source
of growth and prosperity.11 Consequently, the commercial interests of the agri-
business sector and the continued expansion of exports have been given primacy
in shaping the direction of Brazil’s economic and trade policy (Hopewell 2016b).
Despite the success of Brazil’s agribusiness sector, and its role in enhancing Bra-
zil’s status and influence on the international stage, there are nonetheless import-
ant questions about the replicability and desirability of Brazil’s model, given its
environmental and social costs.

Conclusion
Contrary to Prebisch’s expectations, agricultural expansion has provided Brazil
with a means to enhance both its economic and political power. Not only has Bra-
zilian agriculture been profoundly transformed, but so too has its position in the
global political economy. Brazil’s emergence as an agribusiness powerhouse has
brought it enhanced economic clout as a rising power, which it has successfully
channelled into a higher profile on the international stage and, particularly, in global
economic governance. But, importantly, what has emerged in Brazil is industrial-
ized agriculture, driven by state-led technological innovation. State-led R&D and
the resulting technological advances, backed by extension services and subsidized
financing, played a critical role in Brazil’s emergence as an agro-export power-
house by expanding its supply of arable and pasturable land, adapting formerly
temperate crops to the country’s tropical climate and soils and significantly increas-
ing yields and productivity. Combined, these factors have dramatically increased
 Brazil’s emergence as an agro-power  169
Brazil’s agricultural production while reducing the costs and improving the com-
petitiveness of its exports in global markets, transforming Brazil into a major rival
to the world’s leading agricultural exporters – the US and EU. The Brazilian case
thus confirms Prebisch’s belief that an active, interventionist state engaged in pro-
moting technological innovation is critical to economic growth and development,
although in Brazil’s case this has been in agriculture rather than manufacturing.

Notes
1 UN Comtrade data.
2 FAO data 2011.
3 Interview, May 2009.
4 World Bank data.
5 Information available at www.jbs.com.br (accessed 1 August 2016).
6 Information available at www.brf-br.com (accessed 1 August 2016).
7 Interview, Geneva, March 2009.
8 Interview, Geneva, March 2009.
9 Interview, Geneva, June 2009.
10 Interview, Geneva, May 2009.
11 Interviews with Brazilian negotiators, Geneva, September 2008–June 2009, and offi-
cials, Brasilia and Sao Paulo, May 2010.

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9 Back to the future reloaded
Latin America’s development
strategy during the commodity
boom
Esteban Pérez Caldentey and Matías Vernengo

Raúl Prebisch (1901–86) argued that the cycle is the natural form through which
capitalist economies evolve and grow over time. The cycle, which, according to
Prebisch, takes the particular form of a wave motion, determines all the differ-
ent areas of economic activity, including production, employment and distribu-
tion. Prebisch (1948, 1949, 1950) also made a clear connection between the cycle
movement and the long-run trend performance of an economy. The most recent
expansionary cycle in Latin America, spanning the five-year period (2003–7) lead-
ing up to the Global Financial Crisis (2008–9), and the region’s V-shaped recovery
in the aftermath of the crisis exemplify this relationship between cycle and trend.
During this period, Latin America registered one of its highest average growth
rates in four decades. Aggregate-demand decomposition into the three major sec-
tors of the economy (external, government and private) shows that the growth
trajectory is explained mainly by the favourable situation provided by the external
sector, and to a lesser extent by an increase in private-sector debt (Godley 2000).
The favourable external-sector conditions are partly attributable to a ­commodity-
price boom (also referred to as the commodities supercycle) that benefited a
subset of Latin American countries, namely those that specialize in exports of
­primary-commodity products, which comprise mainly the South American econ-
omies and Mexico. The commodity boom is often attributed to the increased
demand for primary products from Asian countries, and in particular by China. It
also responds to a great extent to speculation in financial futures markets. Finally,
the relative appreciation of currencies and commodity exporters’ higher real wages
in dollars might also play a role in the commodity boom (see Serrano 2012).
In addition to the terms of trade, another explanatory factor is the significant
increase in remittance flows that has taken place since 2002, responding, in part,
to a notable increase in illegal immigration flows from Latin America to the rest
of the world. The effects of remittances on the current account are concentrated
in those economies that were not favourably affected by the boom in the terms of
trade, and more specifically Central American economies. In addition, in the case
of these countries, the availability of external finance that allowed a build-up of
private debt helped to boost and sustain aggregate demand (Pérez Caldentey and
Vernengo 2015a).
 Back to the future reloaded  173
These same factors also account for the rapid and V-shaped recovery that Latin
America and its sub-regions (South and Central America) experienced following
the impact of the crisis, which was felt with full force in 2009. Both factors, while
feasible in the short run, are ultimately self-defeating, as shown by the current
deceleration affecting most Latin American countries and the return to long-run
average mediocre growth. Indeed, even if Latin America and the Caribbean’s
GDP per capita grew by 2.8 per cent in the period 2003–7, in fact its average rate
of growth from 1980 to 2014 is below 1 per cent (0.93 per cent).
As Prebisch argued in the 1950 ‘Manifesto’, terms-of-trade booms can be eas-
ily reversible and turn into terms-of-trade busts, as the current commodity-price
situation readily shows (see Ho and Kaplinsky and Farooki, this volume). Since
about mid-2011, the prices of energy, metals and agricultural commodities have
declined, and this decline has accelerated since the last quarter of 2014. For its
part, a strategy based on debt-led growth increases an economy’s fragility to exter-
nal shocks and can become rapidly unsustainable, especially under unfavourable
external conditions. Finally, remittances can eventually hamper growth and hurt
external performance through higher imports, and also by contributing to exchange-
rate appreciation.1
The analysis adopted in this chapter attributes a differentiated role to financial
flows according to whether countries did or did not experience a positive terms-of-
trade effect.2 The majority of the countries that were favourably affected by the
movement in the terms of trade recorded a negative net transfer of resources
roughly for the 2003–7 period. That is, they were not net recipients but rather net
suppliers of financial flows to the rest of the world. The rest of the countries were,
for the most part, net recipients of financial flows in the same period, and this
helped them to maintain the growth momentum.
The development strategy followed by Latin America in the six-year period
prior to the Global Financial Crisis does not represent a new development
­strategy.3 Rather, it is based on a variation of the agro-export model adopted during
the late nineteenth and early twentieth centuries, although some relevant differ-
ences exist. At that time, primary production for export supported Latin American
development. However, the external demand for primary commodities proved to
be insufficient to guarantee the full employment of Latin America’s productive
potential. One policy alternative based on free-market principles to fill the gap
between the demand and supply of resources, which could not be implemented at
the time, was to allow workers to migrate (Kregel 2007; Cypher 2007). Roughly
a century later, Latin America’s economic performance is sustained not only by
primary production for export, but also by the export of labour. In addition, this
free market-driven approach has solidified a regional division of labour within
the Latin American region: the north exports mainly labour and the south mainly
commodities.
Moreover, as in the nineteenth century, the current pattern of productive spe-
cialization and growth is driven and shaped by financial factors. In the latter half
of the nineteenth century, free capital mobility was fundamental to the creation of
the agro-export model. Long-term financial flows from the centre to the periphery
174  Esteban Pérez Caldentey and Matías Vernengo
allowed the creation of the infrastructure that led to the export boom in the region.
The instability derived from a growth strategy based on reprimarization and its
effect on long-term growth were issues that led Raúl Prebisch to rethink the role
of capital flows in the process of development, as well as the need for expansion-
ary policies and the development of a new pattern of integration with the world
economy, not only during contractions, but also as a necessary tool for expanding
the booms.
Global financial imbalances, the growth in the volume of private financial flows
and the growing interrelation between financial and real factors, together with a
perverse pattern of specialization and the attachment to orthodox views on the role
of demand policies, in the period leading up to the recent crisis determined to a
great extent the growth performance of Latin American countries, the swiftness
with which they recovered from the effects of the crisis and the current growth
deceleration experienced throughout the region.
The difference relative to the current context lies in the fact that in the nineteenth
and early twentieth centuries, free capital mobility and the role of financial factors
reflected a successful integration with the hegemonic economy of the period (that
of England) that functioned for all purposes like a closed circular flow with no
leakages.4 However, if the collapse of the British economic order led to a search
for new forms of integration in the world economy, the emergence of developing
Asia, in particular China, has led to a deepening of the already entrenched pattern
of specialization in the region. Note also that, as commodities have become finan-
cial assets, the evolution and progress of an economy whose structure is centred
on the production and export of commodities is highly volatile, since it is directly
dependent on the whim of financial markets. Furthermore, the hegemonic country
(that is, the United States) is also a producer of commodities, and in many cases
competes with the region for external markets.5
This chapter focuses on the Latin American development strategy in the period
leading up to the Global Financial Crisis (2003–7) and places it in a historical con-
text and in the light of Prebisch’s old, and still relevant, concern with the limitations
of primary export specialization. The chapter also addresses – but to a lesser extent
– Latin America’s growth trajectory in the post-crisis period. The remainder of the
chapter is divided into four sections. The first analyses the current economic per-
formance of Latin American economies using a demand-driven approach, and more
specifically the financial-balance approach. Sections two and three examine the per-
formance of the external sector and of remittances and financial flows, respectively.
The final section presents the chapter’s conclusions and draws preliminary policy
implications.

The growth performance of Latin American economies and its rela-

tion to the external sector
Following the ostensibly poor performance in the 1980s and the meagre perfor-
mance of the free market-driven reforms of the 1990s, Latin American economies
witnessed, with a few exceptions, a strong economic recovery in the five years
 Back to the future reloaded 175
Table 9.1  GDP per capita growth rates for Latin America and the Caribbean 1963–2013

  1963–70 1970–80 1980–90 1990–2000 2000–13 2003–7

Average LAC 2.5 2.5 0.9 1.8 2.0 3.7

Latin America 2.4 2.5 −0.4 1.6 2.5 4.1
South America 1.8 2.7 −0.3 1.5 2.6 4.1
Central America 3.0 1.9 −1.2 2.2 2.4 3.7
Mexico 4.0 3.7 0.5 1.8 1.0 2.1
Source: Authors’ own, based on World Bank (2015a).
Note: Central America includes Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua,
Panamá and the Dominican Republic.

r­ unning from 2003 to 2007. During this time, Latin America and the Caribbean
experienced the highest average rate of growth in four decades. The regional aver-
age per-capita growth rate including the Caribbean reached 3.7 per cent (4.1 per cent
for Latin America), surpassing not only that of the lost decade of the 1980s and that
registered during the free-market structural-reform era (1990–2000) (1.8 per cent),
but also those of the 1960s and 1970s (2.5 per cent for both decades) (see Table 9.1).
Performances at the sub-regional and country levels are by no means different.
During the period 2003–7, the countries of South America and Central America
attained among the highest average per-capita growth rates in their history (4.1
per cent and 3.7 per cent, respectively).
The growth path during the period 2003–7 can be understood, at the regional
level, by the favourable performance of the external sector. This can be seen
clearly by analysing the structure of aggregate demand through the financial
balances of the three major sectors of the economy, namely government, private
and external sectors, which are plotted in Figure 9.1. The analysis shows that
during the period 2003–7, the external sector and the private sector, through debt
accumulation in some economies (in particular, the non-commodity producer and
exporting economies), were the major contributors to the expansion of aggre-
gate demand and economic growth. Between 2002 and 2003 the position of the
external sector switched from a deficit to a surplus. The financial balance of the
external sector equalled −2.5 per cent, −0.9 per cent and 0.39 per cent of GDP in
2001, 2002 and 2003 respectively.
For its part, the private sector registered a surplus (positive savings), at the
regional level, for the period 2003–7. The surplus, which was equivalent to 1.8
per cent of GDP in 2002, rose to 3.0 per cent of GDP in 2003. However, thereafter
the surplus and, hence, the level of savings of the private sector declined to 1.6 per
cent and 0.2 per cent of GDP in 2006 and 2007. The decline in savings contrib-
uted, in part, to stimulating the growth in aggregate demand.
Contrarily, by reducing its budget deficit significantly and eventually achieving
a surplus, the government sector increased its level of savings. On average, the
government deficit shrank from −0.56 per cent to −0.1 per cent of GDP between
2002 and 2003. Thereafter it registered an increasing surplus position that reached
176  Esteban Pérez Caldentey and Matías Vernengo

4
3
2
1
0
–1
–2
–3
–4
–5
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014a
Government Balance External Balance Private Sector Balance

Figure 9.1  Latin America, financial balances as percentage of GDP 1990–2014.

Source: Authors’ own computations based on official data.

the equivalent of 1.9 per cent of GDP in 2007. In some cases, government spend-
ing increased and the fiscal balances moved to a surplus as a result of growth and
the consequent expansion of fiscal revenue. In other cases, adherence to fiscal
orthodoxy led to a contractionary fiscal stance.
The analysis at the country level shows that during the period 2003–7, 11 out
of 18 countries for which there is available data (that is, 61 per cent of all cases)
improved their external position against that of the 1990s. With some exceptions,
these are commodity-producer or exporter countries. Non-commodity produc-
ers or exporting countries, and mainly Central American countries, witnessed
an increase in their current-account deficit. This result reflects precisely the fact
highlighted above, and developed later on, that during the period 2003–7, Latin
American growth was sustained by export-led (mainly countries specializing in
commodities) and debt-led (non-commodity countries) growth (Pérez Calden-
tey and Vernengo 2015a). In both cases, exports of commodities and financial
inflows mainly related to remittances allowed easing of the balance-of-payments
constraint that Prebisch saw as the main limitation for economic growth in the
periphery. For its part, the analysis of the fiscal performance at the country level
shows that most Latin American economies reduced their budget deficits during
the period under study.

The external-sector performance

At the regional level, the improved external trade performance in the aggregate
for Latin America and the Caribbean for 2003–7 years was feasible mostly as
a result of an improved position in the current account. Decomposition of the
current account into its different components shows, at the aggregate level, that
 Back to the future reloaded 177
the balance on trade and the balance on unilateral transfers are the only two items
that yield a consistent positive balance between 2003 and 2007. The services and
income balances for the region have yielded a negative result for every year since
1990. For the period 2003–7, the balance of trade stood at 2.7 per cent of GDP.
The balance on remittances showed a similar result (1.7 per cent of GDP). Taken
together, both types of transactions (4.4 per cent of GDP) managed to offset the
deficits in the balance of services (−0.72 per cent of GDP) and the income bal-
ance (−2.9 per cent of GDP). As a result, the overall current account was positive
(0.81 per cent of GDP).
The position in the balance of trade is mainly explained by the vibrant expan-
sion in export of goods.6 In the period 2003–7, regional exports recorded an
expansion of 9 percentage points of GDP with respect to the period 1991–2001,
and reached a level equivalent to 20 per cent of GDP on average. By contrast,
imports of goods recorded a rise of 6 percentage points of GDP in 2003–7 with
respect to 1991–2001.
In turn, the evolution of exports was determined by the significant increase in
the terms of trade (relative prices), and also greater external demand. The correla-
tion coefficient between exports of goods and the terms of trade in real terms for
the period 1985–2006 averages 0.5 during the 1990s and 0.88 in the period from
2002 to 2006 (Figure 9.2). During the 2003–7 period, the terms of trade for Latin
American exports of goods experienced the longest and most pronounced increase
in four decades. Between 2003 and 2007, the terms of trade expanded by an aver-
age of 5 per cent. Overall, Latin American products’ export prices have more than
doubled since 2003.
The prices of Latin American economies’ leading export commodities, such
as crude petroleum and petroleum products, copper, soy beans, coffee and oil

1.2
1
Correlation coefficier

0.8
0.6
0.4
0.2
0
–0.2
–0.4
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006

Years

Figure 9.2 Five-year rolling correlation coefficient between goods exports in real terms
and the terms of trade 1985–2006.
Source: Own computations on the basis of official data.
178  Esteban Pérez Caldentey and Matías Vernengo
Table 9.2  Average annual growth of commodity indices 1980–2013

Average annual growth Energy Foodstuff Grains Metals and minerals

1980–9 −6% −2% −1% −1%
1990–2000 5% −2% −2% −1%
2000–10 27% 20% 21% 23%
2010–13 6% 3% 4% −1%
2003–7 63% 35% 40% 74%
2013–14 −22% −9% −17% −11%
Source: Authors’ own on the basis of Pink Sheet: World Bank (2015b).
Note: Growth rates were computed using a geometric averaging procedure.

seed – which represented a quarter of total exports of goods in 2005 – increased

rapidly during the period 2003–7. In fact, a comparative exercise shows that
during this period, the price indices of energy, foodstuff, grains, metals and min-
erals expanded at rates of 63 per cent, 35 per cent, 40 per cent and 74 per cent,
respectively, amply surpassing the rates of growth registered in the 1980s, the
1990s and the 2000s, on average (Table 9.2). As a result, on average, the pur-
chasing power of Latin American exports rose by roughly 12 per cent between
2003 and 2007 (see ECLAC 2007).
The economic expansion of Asia, and in particular China, has contributed in
part to improvement in international commodity prices, and in particular those
of oil, steel, aluminium and copper, reaching record levels around the world.
Available evidence for the period 1990–2006 shows that China’s share of world
consumption of oil, coal, iron ore, aluminium, copper and nickel has steadily
increased. In addition, the evidence indicates that in 2006, China’s consumption
accounted to roughly one third of world coal, iron ore and aluminium consump-
tion and roughly one quarter of world copper consumption. In other words, the
exceptional Chinese performance, which is tied to the symbiotic relationship with
American markets’ insatiable appetite for Chinese goods, is behind the positive
terms-of-trade shock that has allowed the current Latin American expansion. The
Latin American response to Chinese demand has resulted mainly in an increas-
ing specialization in natural-resources production and exports. This has not only
resulted in the reprimarization of the production and export structure, but has also
solidified the societal class and power structures (see Veltmeyer 2013).
The importance of Chinese consumption of raw materials continued to increase
throughout the end of the decade. In 2011, China accounted for a quarter of world
consumption, more than 40 per cent of aluminium, refined copper and zinc con-
sumption and more than 90 per cent of iron consumption. It is worth noting,
however, that according to Jenkins (2009), Chinese demand only significantly
impacted the price of metal commodities, in which the Chinese share of demand
is sufficiently large, with little impact on oil and agricultural commodities.
More importantly, the commodity-price boom is also explained by other factors,
including the use of market power through manipulation of metal and mineral
 Back to the future reloaded 179

Venezuela
Chile
Bolivia
Colombia
Argentina
Peru
Ecuador
Mexico
Brazil
El Salvador
Panama
Costa Rica
Honduras
Paraguay
Guatemala
Uruguay
Nicaragua
–60 –40 –20 0 20 40 60 80 100

Figure 9.3  Discrete change in the terms-of-trade indices between 2003–7 and 1990–2000.
Source: Own computations based on UNCTAD (2015).
Note: The base year for the index is 2005.

commodity prices and, more importantly, by financial speculation in the futures

markets (Wray 2008).
The country-level analysis shows that not all Latin American economies have
benefited from the commodity-price boom (Ocampo 2007). Comparison between
the ‘commodity boom period’ of 2003–7 and the decade of the 1990s shows that,
in fact, on average the terms of trade improved for 9 out of 18 Latin American
economies – that is, for half of the total (Figure 9.3). The economies for which
the terms of trade improved include those of Argentina, Bolivia, Brazil, Chile,
Colombia, Ecuador, Mexico, Peru and Venezuela.
This is explained by the fact that the countries that benefited from the com-
modity-price boom have two common characteristics: first, they export mainly
commodities, and second, they also export petroleum products. An analysis of the
ten leading traditional Latin American exports products on a country-by-country
basis for 1995 and 2005, classified by major categories (food and agriculture,
­beverages, oils and seeds, raw materials, mining and energy), shows that the com-
position of their exports has not changed over time. Rather, most of these econ-
omies have intensified their commodity-export specialization. On average, the
ten major commodity exports accounted for 56 per cent of the total for the set of
countries that benefited from the commodity-price boom, and this increased to 61
per cent in 2006. A more recent analysis of Latin America as a whole shows that
180  Esteban Pérez Caldentey and Matías Vernengo

100
90 Manufacturing based on
80 high technological
content
70
Manufacturing based on
60 medium technological
50 content

40 Manufacturing based low

technological content
30
20 Raw materials and
10 manufacturing based on
natural resources
0
1980-1986 1990-1999 2000-2006 2008-2012

Figure 9.4 Latin America, export composition by technological content 1980–2012

(percentage of total).
Source: Authors’ own on the basis of ECLAC (2015).

between 2000–6 and 2008–12 the region increased the percentage of raw materi-
als and manufacturing based on natural resources from 50 per cent to 60 per cent
of the total (Figure 9.4).
In the case of Venezuela, a country that mainly specializes in petroleum prod-
ucts, these products and natural gas exports account for more than 90 per cent of
the leading export products. For Ecuador, petroleum products account for half
of its main exports. In the cases of Bolivia, Colombia and Argentina, petroleum
products and natural-gas exports represent roughly between 30 and 40 per cent of
all leading export products. Finally, in the cases of Mexico and Peru, the leading
export share of petroleum products and natural gas ranges between 12 and 20 per
cent (Figure 9.5). Finally, the case of Mexico stands out, as its export share of
traditional commodities is very low. Benefiting from its proximity to the United
States and the NAFTA provisions, Mexico has specialized in the export of prod-
ucts related to in-bond industries, and more recently in the export of vehicles.
Note that analysis of the set of countries that were adversely affected by the
terms of trade presents a mixed picture. A first subset of countries (Honduras,
Nicaragua, Paraguay, Uruguay and Panama) is highly specialized in the export
of traditional commodities and products, and in some cases it has strength-
ened its pattern of specialization over time. For this group of countries, the ten
major leading commodities represented 64 per cent and 71 per cent of total
exports of goods in 1991 and 2006.7 A second group of countries, mainly Cen-
tral American countries (Costa Rica, El Salvador and Guatemala) have mark-
edly decreased their degree of specialization in primary products. Some of these
countries have switched to the export of electronic goods, in the case of Costa
 Back to the future reloaded 181

100
90
80
70
Percentages

60
50
40
30
20
10
0
Mexico Peru Argentina Bolivia Colombia Ecuador Venezuela
Countries

Figure 9.5 Export share of petroleum products and natural gas in total leading export
products (percentages), 2002–5 (averages).
Source: Own computations based on ECLAC (2007).

Rica, and articles of apparel and clothing and textiles, for the other Central
American countries.8
The evidence presented in this section has an important implication for analy-
sis and understanding of the commodity-price boom’s effects on Latin American
economies. On the one hand, during the period 2003–7 these economies’ terms of
trade were favourably affected by increases in the prices of the commodities they
export. On the other hand, since – with the exceptions of Mexico and Venezuela –
these economies are also petroleum importers, not just exporters, to some extent
they were able to compensate for the adverse effect on the terms of trade caused
by the increase in the price of oil which had such a negative effect on the other
Latin American economies. Thus, the highly positive effect of the ‘commodity
boom’ on these countries’ economies reflects these two factors.

Emigration and remittances

Formally reported remittances in the Latin American economies increased from
1 to 62 billion US dollars between 1980 and 2007 (Figure 9.6), or from 0.23 per
cent to 2 per cent of regional GDP. The importance of remittances has been par-
ticularly visible since the year 2001.9 The flow of remittances may be explained
by developed countries’ good performance in the period 2002–7. However, most
analyses indicate that the significant rise in remittances is explained by the rising
flow of undocumented immigrants.10
According to the Census Bureau, the number of undocumented Mexicans in
the US increased by more than a million from 2000 to 2005 – an increase of 25
per cent – bringing the total to almost 6 million. In the case of El Salvador, the
numbers are even more dramatic, with an estimated 470 thousand undocumented
182  Esteban Pérez Caldentey and Matías Vernengo

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0
80

82

84

86

88

90

92

94

96

98

00

02

04

06

08

10

12
19

19

19

19

19

19

19

19

19

19

20

20

20

20

20

20

20
Figure 9.6  Latin America, net unilateral transfers 1980–2013 (US$ millions).
Source: Own computations on the basis of ECLAC (2015).

immigrants in the US, corresponding to almost 9 per cent of El Salvador’s total

population. It is important to note that immigrants tend to be working-age adults,
and to be relatively educated. For example, in the case of Ecuador 20 per cent of
the labour force emigrated, and of those, 64 per cent of the males and 73 per cent
of the females have at least secondary-level education (FLACSO 2006).
Remittances play an important role for Latin American economies – mainly those
of Central America, Ecuador and the Dominican Republic – and there are different
facets to their use and function. In the case of Latin America, as remittances can
represent 50–80 per cent of recipient income, they can constitute an important tool
for improving infrastructure, raising educational levels and ­financing productive
activities. However, the evidence suggests that the vast majority of remittances are
used for everyday consumption. In the case of Ecuador, 70 per cent and 75 per cent
of the remittances sent by males and females, respectively, are used for food, rent
and other domestic expenses, with only 12 per cent and 7 per cent, respectively,
used for health expenses (FLACSO 2006). The amount used for investment and
education is negligible.
For the purposes of this chapter, the most important aspect of remittances is that
of narrowing the external financing gap in the short and, perhaps, medium run.
At the aggregate level for Latin America, remittances have managed to narrow
the current account gap by 0.72 per cent, 1.3 per cent and 1.7 per cent of GDP
for 1990–2000, 2000–13 and 2003–7, respectively. More to the point, had it not
been for the increased flow of remittances in the period 2002–7, Latin America’s
current account would not have been in surplus. Rather, when the current account
is adjusted for remittances, its result is negative, averaging US$27 billion dollars,
or 0.8 per cent of regional GDP for 2003–7 (Figure 9.7). This implies that the cost
of softening external constraints and gaining greater space to increase domestic
demand is the export of labour and the loss of human capital.
 Back to the future reloaded  183

2
1
Percentage of GDP

0
–1
–2
–3
–4
–5
–6
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Current account (% of GDP)
Current account adjusted for net remittances

Figure 9.7 Latin America, current account with transfers and adjusted for transfers
1990–2013 (US$ billions).
Source: Own computations on the basis of ECLAC (2015).

The country-level data for the same period shows that in most cases, remit-
tances were a factor that helped to improve the external position mostly of
those Latin American economies that did not benefit from the significant
increase in the terms of trade, in particular during the period under consider-
ation (2003–7).
Tables 9.4 and 9.5 in the Appendix show the current account, the current
account adjusted for remittances and the contribution of remittances to the cur-
rent account, all expressed in terms of GDP, for those economies that registered
an increase in the terms of trade and those that recorded a decline in the terms of
trade respectively.
For the first group, remittances’ contribution to the narrowing of the external
gap was marginal, increasing on average from 2.2 to 2.3 percentage points of GDP
between the periods 1990–2000 and 2003–7. For the second group of countries,
that is, for those countries that suffered an adverse terms-of-trade effect, remit-
tances’ contribution to narrowing the current account is much more significant,
increasing from 2.8 to 8.7 percentage points of GDP in the same periods.
It would seem that remittances and, hence, the process of emigration have
become the latest cycle of expansion in the region central to countries’ abil-
ity to reduce macroeconomic constraints in the region, which is the main
limitation to the expansion of demand in developing countries, as argued by
Latin American Structuralists and post-Keynesian authors. Nonetheless, to the
extent that remittances can, over time, result in higher imports, and change
the pattern of consumption without altering the structure of production, they
can eventually become an obstacle to growth-performance improvement. The
effects question the sustainability of a development strategy based on the
export of labour.11
184  Esteban Pérez Caldentey and Matías Vernengo
Table 9.3  Latin America, net resource transfer 1980–2006 (in percentage of GDP)

1990–2000 2000–13 2003–7

Argentina 4.9 −5.7 −6.5

Bolivia 8.7 −0.5 −1.1
Brazil 0.8 0.2 −1.0
Chile 2.7 −5.3 −10.7
Colombia −0.8 −0.8 −1.2
Costa Rica −1.5 3.3 4.9
Ecuador −5.5 −6.0 −5.4
El Salvador 0.5 2.0 2.4
Guatemala 5.5 3.0 2.9
Honduras 0.0 2.8 3.9
México 2.9 3.1 2.0
Nicaragua −2.5 11.1 11.3
Panamá −1.0 −4.6 −5.0
Paraguay −1.4 −7.6 −9.2
Peru 5.2 −1.2 −3.9
Dominican Republic … 0.9 −2.0
Uruguay 0.6 2.1 2.2
Venezuela … −5.9 −9.5
Latin America, average 1.2 −0.5 −1.4
Average group of countries favourably 2.4 −2.5 −4.1
affected by terms-of-trade
Average group of countries unfavourably 0.2 2.6 2.6
affected by terms-of-trade
Source: Authors’ own computations on the basis of CEPAL Sat (2015).

The above analysis cannot be complete without incorporating the role of finan-
cial flows in the explanation of Latin America’s current economic performance.
To this end, Table 9.3 shows Latin America’s net resource transfers at the national
and regional levels. The data shows that during the commodity-boom period,
Latin America in the aggregate has not been a net receptor of financial flows.
To the contrary, during the period 2003–7, Latin America has in fact transferred
resources to the rest of the world, and this transfer of resources is equivalent to
1.4 per cent of regional GDP.
The country-level analysis indicates that the group of Latin American countries
that are the ‘financial-resource suppliers’ to the rest of the world include most of
those specializing in the export of commodities, that is, Argentina, Bolivia, Chile,
Colombia, Ecuador, Peru and Venezuela. The commodity-exporting countries
transferred a flow of resources to the rest of the world equivalent to 4 per cent of
their GDP. Most of the economies that were adversely affected by the terms of
trade, including Central American countries, were also net financial-flow recep-
tors. Financial flows for these countries averaged 2.6 per cent of their GDP, on
average, for the years 2003–7. This figure is twice as high as that recorded during
the period 1990–2000.
 Back to the future reloaded 185
During the period 2003–7, these countries’ current-account balances were both
negative and greater in absolute value than the government balance. In fact, by
2007, the central government’s imbalances declined for all this country subgroup
except Honduras. Further, in the cases of Costa Rica and Nicaragua the central
government was in surplus (0.6 per cent and 0.3 per cent of GDP), while in the
case of El Salvador it was slightly negative (−0.2 per cent of GDP).12 The result-
ing private-sector deficit was closed through the availability of external finance
and credit.
In fact, for these countries, external financial flows sustained the expansion of
private domestic demand and a growth strategy ultimately based on a process of
debt accumulation, which made them highly fragile and vulnerable to a change in
the external environment. Indeed, as Latin America felt the effects of the Global
Financial Crisis in 2009 and the decline in capital flows, the group of countries
that did not experience a favourable terms-of-trade shock, and in particular Cen-
tral American countries, were forced to contract domestic demand, engaging in a
process of deleveraging, credit restraint and output contraction. In 2009, all Cen-
tral American countries (with the exception of Panama) witnessed a contraction in
their GDP per-capita growth (Pérez Caldentey and Vernengo 2015a).

In guise of conclusion
The Latin American economic expansion during the period 2003–7 did not result
from specific government policies, even though some left-of-centre governments
have tried to implement alternatives to the Washington Consensus, which – as
noted before –allowed for a reduction of inequality in the region.13 The empiri-
cal evidence suggests that this unprecedented economic performance over three
decades was possible as a result of a favourable external context.14 This context
was characterized by higher external demand, including for commodities; a posi-
tive terms-of-trade shock; improved external financing conditions; and an increas-
ing flow of remittances.
Within this context, Latin American economies adopted two types of devel-
opment and growth strategies based on their specific productive structures. The
first strategy, practised mainly by South American countries, relied on increased
commodity prices and greater global aggregate demand. This strategy not only
improved growth prospects through increased exports but also provided, in the
majority of the cases, the necessary space for the expansion of domestic demand
without indebtedness, by significantly softening the external constraint. In sev-
eral of these countries, real wages expanded as well as social transfers, which
also allowed for the expansion of private demand. In addition, these countries
witnessed an improvement in their fiscal accounts, although their fiscal stance
remained mostly on the contractionary side. A second development strategy was
adopted by those countries that experienced unfavourable movements in their
terms of trade coupled with a dependency on external financial flows, including
remittances to close their high or increasingly high current-account deficits. These
186  Esteban Pérez Caldentey and Matías Vernengo
countries – mostly in Central America – relied on private debt to expand internal
demand and growth.
The economic expansion of the period 2003–7 shares with the old agro-ex-
port model of the nineteenth and early (pre-Second World War) twentieth cen-
turies a reliance on limited and volatile sources for external resources, and, as a
result, was subject to the same risks of external shocks. As also occurred in the
agro-export model, financial factors shape and determine the pattern of produc-
tive specialization, and adherence to sound finance reduces the space for alter-
native development strategies. These trends were identified early on by Prebisch
as part of his interpretation of Argentina’s and, more generally, Latin American
performance. Prebisch not only assigned an important role to exports and exter-
nal demand which led him to focus on commodity prices and the terms of trade,
but also assigned a key role to financial factors, expectations and speculation as
drivers of the cycle, as well as the more long-term performance (Pérez Caldentey
and Vernengo 2012).
There is, however, an important difference with the development model of the
Belle Époque, or the pre-Second World War twentieth century. While immigration
was integral to the late nineteenth-century boom, and, as noted above, migration
policies could hardly be implemented at the beginning of the twentieth century,
for some economies the twenty-first-century economic boom has been related to
significant emigration.
Latin America’s growth strategy during 2003–7 was dependent on exports of
commodities in South America and people in Central America. The current devel-
opment model applies free-market principles – although in many cases the free-
trade policies had been inherited from the past – to their full extent and perfects
the agro-export model. As a result, Latin America specializes in exports of its
abundant factors, that is, natural resources and labour. As we have argued else-
where (Pérez Caldentey and Vernengo 2010), these ‘developmental’ strategies are
unlikely to be sustainable in the long run, and they exacerbate the problems which
Raúl Prebisch, more than six decades ago, suggested were at the centre of the
region’s relative underdevelopment.
As the Global Financial Crisis and recent commodity prices show, terms-of-
trade booms can rapidly turn into terms-of-trade busts. As highlighted in Table 9.2,
energy, foodstuffs, grains and metals declined by 22 per cent, 9 per cent, 17 per
cent and 11 per cent on an annual basis for 2013–14. This downward trend and,
in some cases, outright crash in commodity prices has had differentiated impacts
among developing countries, including those of Latin America, reflecting the het-
erogeneity in their production and export structures. While the decline in prices
has benefited net commodity importers (mainly the Central American countries), it
has also hampered the growth possibilities of commodity exporters and countries
whose tax structure depends on commodity prices.
The decline in commodity prices also has important balance-sheet effects, as the
liabilities of commodity producers and companies tend to increase while the value
of assets tends to decline. As leverage rises and becomes one of the main sources of
finance and profits, balance sheets become more fragile (Domanski et al. 2015).15
 Back to the future reloaded 187
Public and private debt associated with lower commodity prices may become
an important issue for Latin America’s near economic future and an important
obstacle to growth, in particular for countries with limited access to international
capital markets and with a negative current-account position. Further, in spite of
the positive consequences for some of the Latin American countries, the facts that
commodities have taken on the characteristics of financial assets and that growth
strategies are based on financial assets increase the possibility of instability and
uncertainty in the commodities market – a side effect of the process of finan-
cialization which was at the centre of the Global Financial Crisis. For its part, a
strategy based on private debt, as in the Central American case, can rapidly lead to
deleveraging and credit contraction, as shown by the crisis’ impact on these econ-
omies in 2009. In addition, relying on remittances (that is, the export of labour)
can, over time, become an obstacle to growth. After all, exchanging a productive
factor (labour) for a flow of income can eventually become extremely costly.
As things stand, Latin America faces the prospect of lower growth in the near
future. At the regional level, outright contractions of the major South American
economies, including Argentina, Brazil and Venezuela, are expected. For its part,
Central America is expected to grow at 4 per cent, below the growth seen in the
1990s and certainly that of 2003–7. The most important question today is whether
this return to mediocre growth represents the future norm or a cyclical phase. To
the extent that lower growth represents the result of policy choices during the
commodity boom – in particular, an inability to diversify exports and reduce the
external accounts’ vulnerability on a more permanent basis – it seems that secular
stagnation, to borrow a term used in developed countries in a different context
(Summers 2014), and not just a cyclical downturn is at hand.
The authors do not believe that Latin America is condemned to live in the past
or to adapt its living standards to mediocre growth as the norm. An alternative
development strategy is possible. We think this would require the recovery of the
State’s capacity and willingness to invest; the utilization of industrial, commercial
and exchange-rate policies to stimulate export diversification; and more space
for macroeconomic policies to promote the expansion of domestic markets. As
many countries are today returning to the practice of austerity, the rejection of
the Washington Consensus voiced by many Latin American governments in the
growth period of 2003–7 is unfortunately a question of rhetoric, not reality. In
today’s Latin America, the analyses and policy prescriptions advocated by Pre-
bisch, which continue to be highly relevant in today´s international and regional
contexts, go unheeded and, by virtue of ideology, the Washington Consensus con-
tinues to be taken to its full fruition, even by governments professing a radically
opposite political discourse.

Acknowledgements
The opinions here expressed are the authors’ own and may not coincide with those
of the institutions with which they are affiliated. This is a significantly updated
version of an earlier paper published in the Journal of Post Keynesian Economics.
188  Esteban Pérez Caldentey and Matías Vernengo
Appendix

Table 9.4 Latin America (countries that experienced favourable terms-of-trade effects),

current account adjusted for remittances and contributions of remittance to nar-
row the external gap 1990–2013

  1990–2000 2000–13 2003–7

Argentina      
Current account −3.6 1.6 3.1
Current account adjusted for remittances −3.8 1.4 2.9
Contribution of remittances to the current account 0.2 0.2 0.2
Bolivia      
Current account −5.8 3.8 7.0
Current account adjusted for remittances −9.8 −0.6 2.4
Contribution of remittances to the current account 4.0 4.4 4.6
Brazil      
Current account −2.7 −1.3 1.1
Current account adjusted for remittances −3.0 −1.5 0.7
Contribution of remittances to the current account 0.3 0.3 0.4
Chile      
Current account −3.1 0.0 2.3
Current account adjusted for remittances −3.7 −1.2 0.9
Contribution of remittances to the current account 0.6 1.2 1.5
Colombia      
Current account −6.7 −1.9 −1.6
Current account adjusted for remittances −13.0 −4.1 −4.5
Contribution of remittances to the current account 6.3 2.2 3.0
Ecuador      
Current account −1.5 0.3 1.2
Current account adjusted for remittances −4.6 −4.9 −4.9
Contribution of remittances to the current account 3.0 5.2 6.1
Peru      
Current account −5.9 −1.3 1.0
Current account adjusted for remittances −7.6 −3.4 −1.3
Contribution of remittances to the current account 1.8 2.1 2.3
Venezuela      
Current account … 7.3 13.4
Current account adjusted for remittances … 7.4 13.5
Contribution of remittances to the current account … −0.2 −0.1
Mexico      
Current account −2.7 −1.5 −1.1
Current account adjusted for remittances −3.7 −3.5 −3.5
Contribution of remittances to the current account 1.0 2.0 2.5
Average      
Current account −4.0 0.8 2.9
Current account adjusted for remittances −6.1 −1.2 0.7
Contribution of remittances to the current account 2.2 1.9 2.3
 Back to the future reloaded 189
Table 9.5 Latin America (countries that experienced unfavourable terms-of-trade effects),
current account adjusted for remittances and contribution of remittances to nar-
row the external gap 1990–2013

  1990–2000 2000–13 2003–7

Costa Rica      
Current account −1.1 −4.9 −5.0
Current account adjusted for remittances −1.2 −6.0 −6.4
Contribution of remittances to the current account 0.2 1.1 1.4
Dominican Republic      
Current account … −3.2 −1.1
Current account adjusted for remittances … −8.7 −8.3
Contribution of remittances to the current account … 5.4 7.2
El Salvador      
Current account −0.6 −4.1 −4.5
Current account adjusted for remittances −3.9 −20.6 −21.6
Contribution of remittances to the current account 3.3 16.5 17.1
Guatemala      
Current account −4.7 −3.9 −4.9
Current account adjusted for remittances −8.3 −15.1 −18.0
Contribution of remittances to the current account 3.6 11.1 13.1
Honduras      
Current account … −5.2 −4.8
Current account adjusted for remittances … −18.8 −20.4
Contribution of remittances to the current account … 13.6 15.7
Nicaragua      
Current account −20.8 −13.2 −13.2
Current account adjusted for remittances −27.2 −25.2 −26.1
Contribution of remittances to the current account 6.4 12.0 12.9
Panama      
Current account −3.1 −6.6 −5.4
Current account adjusted for remittances −3.7 −7.7 −6.9
Contribution of remittances to the current account 0.6 1.1 1.5
Uruguay      
Current account … −2.0 −0.7
Current account adjusted for remittances … −2.5 −1.4
Contribution of remittances to the current account … 0.5 0.7
Average      
Current account −6.1 −5.4 −4.9
Current account adjusted for remittances −8.9 −13.1 −13.6
Contribution of remittances to the current account 2.8 7.7 8.7
Source: Own computations based on ECLAC (2015).
190  Esteban Pérez Caldentey and Matías Vernengo
Notes
1 Note, however, that it is not entirely clear that the current slowdown in the region is
inevitable. Low rates of interest in advanced economies and significant accumulation
of reserves in the boom phase suggest that in some countries, where there is no dan-
ger of a current-account crisis, growth could still be promoted by expansionary fiscal
policies. The danger in this case would be the possibility of significantly higher rates
of interest in the United States, which seem unlikely in the face of a relatively slow
recovery. For the Brazilian case see Serrano and Summa (2012).
2 For a contrary view see Ocampo (2007). In his analysis Ocampo does attribute a fun-
damental role to the terms-of-trade variable.
3 Note, however, that the commodity boom associated with higher taxes on natural
resources or increased public-sector control of natural resources allowed for an expan-
sion of social spending, which allowed the region to be the only one in the world in
which inequality decreased in the 2000s (Cornia 2014). In particular, it seems that
countries with left-of-centre administrations were more likely to reduce inequality.
Admittedly, the reduction in inequality was from very high levels.
4 In fact, Prebisch’s development manifesto is one of the first to suggest that this pattern
of integration had collapsed in the inter-war period. See Prebisch (1950).
5 See Pérez Caldentey and Vernengo (2008) for a comparison of the Argentinean integra-
tion to England and the United States in the two different globalization periods, that is,
the late nineteenth and twentieth centuries.
6 Available evidence from 1980 to 2014 shows that in the period 1980–2 52 per cent of
Latin America’s exports were primary products and 26 per cent were natural resource-
based manufactures. Medium and high-technology manufactures represented 15 per
cent of total exports of goods. In the 1990s the share of commodity exports declined,
coming to represent 33 per cent of the total. However, in the 2000s, as a result of the
reprimarization of exports, the share of commodity exports increased to 40 per cent of
the total in 2011–12 and 2013–14. See Figure 9.4.
7 Figures from the latest WTO Trade Policy Reviews for these countries attest to the
dominance of primary products in their overall export structure. In the second half of
the 2000s, the share of primary products in total exports represented roughly 70 per
cent on average in the case of Honduras; 69 per cent and 76 per cent in the case of
Uruguay for 2005 and 2010, respectively; 87.5 per cent and 90 per cent in the case of
Paraguay in 2004 and 2010, respectively; 56 per cent for Panama in 2012; and 85 per
cent on average for Nicaragua.
8 In the case of Costa Rica, manufacture exports represent more than 60 per cent of the
total (63 per cent and 60 per cent in 2007 and 2012), with electronic goods, medical
instruments and chemical products as the main components. Primary products account
for roughly 37 per cent of the total. For El Salvador, data for 2005–8 show that primary
products accounted for less than a quarter of the total; for their part, manufacturing
products account for more than 70 per cent of the total and within this clothing and
apparel accounted for more than 40 per cent, on average. For Guatemala available-
data for 2003–7 shows that primary products, manufacturing and textiles and apparel
accounted on average for 44 per cent, 57 per cent and 31 per cent of the totals.
9 This estimate, however, significantly underestimates the volume if formal and informal
distribution channels are considered.
10 The total international formally reported migration stock in Latin America has remained
at 5–6 million people since the decade of the 1960s (Solimano and Allendes 2007).
On undocumented immigrants in the United States see Porter (2008) and Ohlemacher
(2008).
11 Bresser-Pereira and Gala (2008) argue that real appreciation is the mechanism by which
loss of competitiveness leads to a Dutch Disease. The argument could be extended
to inflows associated to remittances. However, there are reasons to believe that the
 Back to the future reloaded 191
­external limitations are related to the international trade regimes, in which liberaliza-
tion has more or less been accomplished – particularly in Central America – rather than
the role of the exchange rate.
12 See Godley (2000) and Terzi (2010) for an analysis and key insights on the relationship
between the government and private sector balances. We cannot stress sufficiently the
external sector’s importance in determining the final impact of a crisis or the efficiency
of a given policy. Godley and Cripps (1983: 283) argue that ‘in the long run fiscal pol-
icy can only be used to sustain growth of real income and output provided that foreign
trade performance so permits. This is the most important practical conclusion of our
book’. While this might be open for debate in the case of a developed country with an
international reserve currency, it is clearly binding for developing countries in Latin
America.
13 Some of the economies include Ecuador and Bolivia, which managed to increase the
government’s presence in the economy and carry out important social programmes.
14 This is not to say that countries only grew as a result of a positive external shock and
were, so to speak, lucky. Cohen (2012), for example, debunks the luck hypothesis of
the Argentine case, showing that debt renegotiation, higher wages and higher transfers
also played a role.
15 See Domanski et al. (2015).

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10 Raúl Prebisch and the terms
of trade
How things have changed…
Raphael Kaplinsky and Masuma Farooki

Introduction
Trade, industry and the interaction between trade and industry were central con-
cerns for Raúl Prebisch. His analysis of their dynamics helped him to theorise the
determinants of the inter-national and intra-national distribution of income and
provided a framework for his sustained activism as a ‘development practitioner’.
Prebisch played a key role not only in shaping the history of ideas (notably with
respect to the terms-of-trade and dependency theories), but also in the develop-
ment of global institutions (notably ECLAC and UNCTAD).
Drawing on the empirical work of Hans Singer, who was working at the UN’s
Department of Economic Affairs (DEA), Prebisch’s seminal paper prepared for
ECLA in 1949 challenged the long-held view that the prices of primary com-
modities would rise relative to those of manufactures (Prebisch 1949).1 The
accepted view at that time was that there had been, and would continue to be,
an increase in the commodities–manufactures barter terms of trade.2 However,
in contrast to this conventional wisdom, Prebisch argued that the terms of trade
had in fact been moving against primary products for many decades, and would
continue to do so in the future. He argued further that, as a consequence of
these trends, a pattern of global specialisation in which developing economies
exported primary products and imported manufactures from the developed
economies would lead to a systemic and persistent transfer of surplus from
developing to developed economies. In class terms, it would also lead to an
inter-national and intra-national transfer of surplus from capital in general, and
from primary-product extraction to industrial capital in particular. Beyond his
concern with the distribution of surplus, Prebisch also argued that a combination
of declining terms of trade and the relative lack of externalities from the primary
sector would reduce the growth rate of resource-producing economies (Prebisch
1950, 1959, 1961, 1976, 1981; see also Toye and Toye 2003 and Tandon 1985).
For Prebisch, the implications of these various developments were crystal-
clear. Primary-product producers should industrialise, and, given the global dis-
tribution of industrial capabilities, this required governments to intervene in the
trade regime to support import substitution industrialisation (ISI). However, he
 Raúl Prebisch and the terms of trade 195
believed that the ISI which had occurred in Latin America during the 1930s
and 1940s was hampered by the small scale of markets, and argued instead
for a regional approach towards industrial policy (Briceño Ruiz, this volume).
Additionally, since transnational corporations (TNCs) were a conduit for sur-
plus transfer, primacy should be given to national over transnational capital.
Together, these analytical and policy strands were drawn on extensively in the
Dependency School which influenced much of the development debate from the
1970s to the 1990s.3
The data-set that Singer produced at the DEA in New York was based on the
analysis of the UK’s import and export structure with developing economies
between 1876–80 and 1948. Singer’s data showed that while the UK’s terms of
trade had fallen during the period around the Second World War (that is, between
1938 and 1948), over the long term its terms of trade with the developing world
had in fact risen sharply. That is, there has been a long-term trend for the devel-
oping world’s terms of trade to decline relative to the UK. It is important to note
that both Prebisch and Singer conflated developing-country exports with primary
products, and developed-country exports with manufactures. They were also
happy to use the UK as a proxy for the developed world, despite the fact that many
developed economies were exporters of both primary products and manufactures.
As noted above, these arguments by Prebisch and Singer were revolutionary at
that time, since the conventional wisdom had long been that, given the higher rate
of productivity growth in manufacturing, the terms of trade would move in favour
of the primary sector over the long term.
Prebisch adduced these price trends to two sets of factors: those on the supply
side and those on the demand side. The supply-side argument had its roots in polit-
ical economy and the structure of labour markets. He had a long-­running interest
in economic cycles and had observed that during periods of global boom, primary-
product prices rose (Toye and Toye 2003). However, during global slumps, the
downward price of manufactures was much stickier than that of commodities. His
explanation for this asymmetrical price performance lay in the structure of labour
markets. In the developed world, labour markets were tight and trade-union power
was substantial. Hence manufactures tended to be exported on a cost-plus basis,
with largely unvarying wage costs and profit ratios.
By contrast, developing economies were characterised by large labour sur-
pluses and weak trade unions. Workers were unable to defend their wages, and
hence the price of primary products fell readily when demand collapsed. In
aggregate, the price falls in primary products during slumps outweighed the price
rises in booms, hence providing an important explanation for the long-term fall
in commodity prices and providing space to understand the various periods in
which Argentina and other resource-exporting developing economies had bene-
fited from rising primary product prices. Prebisch’s second explanation for falling
terms of trade had a demand justification. Rising primary-product prices would,
he argued, lead to commodity-saving technical change, reducing the demand for
primary products.
196  Raphael Kaplinsky and Masuma Farooki
Time passes by…
Prebisch’s seminal contributions were developed in 1949 and were the platform
for his subsequent work as a leading development thinker and practitioner. The
world is much changed 65 years on. Industrial capabilities are now spread widely
around an increasingly integrated global economy, and the hegemonic economic
and political power of what Prebisch referred to as the ‘centre’ has been chal-
lenged by the rise of the ‘periphery’. Prebisch’s prescient focus on the terms of
trade and industrialisation remains of fundamental importance to the development
agenda, but how much relevance does his particular perspective on these issues
have in the unfurling twenty-first century? We argue that three central components
of Prebisch’s framework are challenged: that the terms of trade will continue to
rise in favour of manufactures; that industry (or more specifically, manufactur-
ing) provides the basis for sustained income growth; and that externalities from
resource exploitation are limited.

The rising price of commodities

Although the Prebisch–Singer thesis (PST) of the terms of trade is widely accepted
in development theory and policy, an industry of researchers has pored over and
shaken the various datasets to determine whether this has indeed been a real phe-
nomenon. The problems in calculating long-term trends in the terms of trade are
multiple. First, what basket of goods should be used in the price comparison? As
we have seen, Prebisch–Singer conflated UK imports from developing economies
with commodities, and UK exports to these countries with manufactures. But this
was clearly a very primary approximation, and subsequently various bundles of
goods have been defined to produce a more representative set of commodities and
manufactures. Second, what deflators should be used in the estimation of price
series which underlie the commodities–manufactures terms-of-trade calculations?
Third, what constitutes a trend? It is common to distinguish between short-term
price spikes (‘booms’ and ‘busts’); extended supercycles, after which relative
prices return to long-term trends;4 and structural breaks (that is, a permanent shift
in relative prices).
Utilising more comprehensive datasets and more sophisticated techniques for
data analysis, there is widespread (albeit not unanimous) consensus affirming the
Prebisch–Singer conclusion that the commodities–manufactures terms of trade
had indeed been declining over the long term. An analysis of the prices of 23
primary commodities since 1623 concluded that not only had their prices declined
over this period, but they were also negatively correlated with world GDP growth
(Harvey et al. 2014). Cashin and McDermott (2002) showed a downward trend
in the terms of trade of around 1 per cent per year over the time period between
1862 and 1999. Similarly, Sapsford (1985), using 1900–80 data and excluding
petroleum prices, estimated a decrease of 1.3 per cent per year in terms of trade for
primary commodities, interrupted briefly by the 1951–3 commodity-price boom.
Bleaney and Greenaway (1993) focused on the 1900–91 period and estimated a
 Raúl Prebisch and the terms of trade 197
downward trend of 0.5 per cent per year for non-fuel primary commodities. Grilli
and Yang (1988), whose time-series data is widely used, analysed price trends
between 1900 and 1986 and found a 0.5 per cent fall per year for all commodities,
and a decrease of 0.6 per cent per year in the terms of trade of non-fuel commod-
ities relative to manufactures. All of these estimates of the terms of trade ended in
the late twentieth century.
Whatever the conclusions on the long-term trends (for example, compare
Sproas with Grilli and Yang), all of the studies recognise the existence of short-­
cycle commodity-price booms. The first was in the early 1920s; the second was
during the Korean War in 1951–3, fuelled by the expectation of commodity short-
ages (but in the absence of rising energy prices); and the third was between 1973
and 1975, fuelled initially by an increase in oil prices and then spreading to other
commodities. None of these short-term price booms persisted and relative prices
soon reverted to long-term trends.

The recent break in trend

Soon after the turn of the millennium, commodity prices showed a sharp and
persistent upward swing. Beginning in 2003, the initial price increase occurred
in minerals and metals, and this was followed by fuel and then agricultural raw
materials. Although prices crashed with the onset of the ‘Great Recession’ in
2008, by 2011 they had largely recovered and, in the case of metals, increased
beyond their previous peak in early 2008 (Figure 10.1). By the second quarter
of 2015, prices had begun to recover across a range of commodities, exclud-
­ otwithstanding this shift in price trends after 2003, commodity
ing energy. N

300

250
Index (2005 = 100)

200

150

100

50

0
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

All Agri Raw Materials Metals Fuel

Figure 10.1  IMF Commodity Price Index, January 1992–June 2015 (2005=100).
Source: IMF Commodity Price Index, http://www.imf.org/external/np/res/commod/index.aspx,
accessed 1 August 2016.
198  Raphael Kaplinsky and Masuma Farooki

Structural Break
Commodity Prices

Supercycle

Reversion to long-term
trend

Time

Figure 10.2 Which way forward for commodity prices? Reversion to long-term trend
(price spike), supercycle or structural break.

prices retained the volatility which has been a long-term characteristic of com-
modity prices.
The post-2003 decade-long commodity-price boom has no historical precedent
over the past two centuries. It is clearly more than a short-term cycle, but as yet prob-
ably still somewhat short of a supercycle, let alone suggesting a long-term structural
break (Figure 10.2). The question is, how does this recent price trend correspond to
the Prebisch–Singer assertion of a long-term decline in commodity prices? In order
to make a judgement on this, it is necessary to understand the drivers of the extended
2003–15 price boom as a way of assessing these longer-term trends.

Will the commodity-price boom be sustained?

We follow Prebisch’s price analysis by distinguishing between supply and
demand factors (see Farooki and Kaplinsky 2012 for more detailed analysis of
the discussion in this section). The demand side unambiguously reflects a surge in
demand from China. Its very rapid growth after the late 1980s led to an increasing
gap between domestic production and domestic consumption across the range
of ‘soft’ agricultural, ‘hard’ minerals and metals and energy commodities (see
Table 10.1 for a selection of hard commodities).5 In the case of soft commodities,
rapid growth in per capita incomes and a switch towards meat consumption (which
is more land-intensive than grains and vegetable foods) underwrote the growth in
demand. In the case of minerals and metals, the primary driver of demand growth
 Raúl Prebisch and the terms of trade 199
Table 10.1 
China’s percentage share of global production and consumption of hard
commodities (1990–2009)

Hard commodity Year % Share of global

Production Consumption Production minus
consumption
1990 2 3 −1
Bauxite 2000 7 8 −2
Aluminium 2009 18 31 −12
1990 4 4.4 0
Aluminium 2000 11 14.3 −3
2009 33 31.8 2
1990 3 6 −3
Ore 2000 4 18 −14
Copper 2009 6 46 −40
1990 5 5.4 0
Refined 2000 9 13.6 −4
2009 21 30.2 −9
1990 17 19 −1
Ore 2000 21 27 −6
Iron/steel 2009 39 66 −27
1990 9 8.6 0
Steel 2000 15 15.3 0
2009 38 37.1 1
1990 9 9 0
Concentrate 2000 21 30 −10
Lead 2009 43 84 −41
1990 5 4.4 1
Refined 2000 17 9.9 7
2009 37 37.2 0
1990 87 87 0
Ore 2000 20 21 −1
2009 25 60 −35
Zinc 1990 8 7.5 0
Smelter 2000 21 16.2 5
2009 34 36.1 −2
Source: Production calculated from United States Geological Survey (USGS) data, http://min-
erals.usgs.gov/minerals/pubs/commodity/ (accessed 1 February 2011). Consumption data from
Macquarie Commodities Outlook presentation (May 2010) and from COMTRADE data, http://
comtrade.un.org/db (accessed 1 January 2011).
Note: Consumption calculated as production plus imports, assuming no net change in stocks.

was the construction sector as China urbanised nearly 200 million people between
2003 and 2013. China’s role as a manufacturing powerhouse also helped to spur
demand growth for many metals and minerals. The demand for energy reflected a
combination of increased energy consumption by consumers and indirect demand
from construction, infrastructure and manufacturing.
On the supply side, there were growing constraints to the expansion of low-
cost supplies in the global production of soft and hard commodities. The supply
200  Raphael Kaplinsky and Masuma Farooki
response in soft commodities was increasingly limited by the high cost of invest-
ment in irrigation, slowing rates of productivity growth, the growing cost of
hydrocarbon-based agrochemicals, the global shortage of water and climate
change and climate chaos. With regard to hard commodities, although there are
large unexploited deposits of most minerals, these are generally in inaccessible
areas and in countries of high political risk. Moreover, for a combination of rea-
sons, exploration budgets had been low during the 1990s and mines have a long
gestation period between exploration and production (frequently this can be more
than 20 years). In the case of energy commodities, the price was determined by
the high marginal costs of producing offshore oil in deep-water deposits and shale
production.
Added to this confluence of supply and demand factors, prices in the decade
after 2003 were affected, to a greater or lesser degree in different commodities,
by financial investors, including Goldman Sachs, JP Morgan, Morgan Stanley and
Barclays (‘index investors’); mainstream banks; sovereign wealth funds; univer-
sity endowment funds; and insurance and pension funds. This in turn, led to other
short-term investors coming into commodity markets, including speculators and
hedge funds. The 2005–8 period in particular saw an increase in the number and
activity of commodity investors. Although financialisation’s precise contribution
to the commodity-price boom between 2003 and 2012 is contested (Cheng and
Xiong 2013), there is general agreement that it was a third factor underlying the
extended increase in the price of commodities. Financialisation’s role in the evo-
lution of commodity prices was not anticipated, and could not have been antici-
pated, by Prebisch and Singer during the 1950s.

A supercycle?
The 2008 financial crash punctured the post-2003 price boom. And although the
price boom resumed subsequently, the recovery was uneven and there are doubts
about its sustainability in the years to come. The prognosis for both supply and
demand factors is, we believe, as follows.
Beginning with China’s demand for commodities, it seems likely that the ‘new
normal’ for its annual growth rate will fall from an average of around 10 per cent
in 2000–10 to somewhere around 6–7 per cent over the coming decade. Moreover,
China’s economy is witnessing a period of structural change, and the share of
manufacturing in GDP is likely to fall in the future as wage costs increase and the
international competitiveness of labour-intensive manufacturing falls. Neverthe-
less, demand is likely to remain robust. For example, copper and iron ore are often
considered as likely to be prime casualties of this pattern of structural change,
but comparative evidence suggests that the peak of their GDP intensity occurs
at per capita incomes between US$15,000 and US$20,000 (PPP adjusted US$)
(IMF 2006). By contrast, China’s per capita GDP in 2013 was $6,093.
A further potential cause of slowing demand for commodities from China is
that much of its demand for hard and energy commodities since 1990 was related
to the construction and infrastructure boom. These sectors are unlikely to continue
 Raúl Prebisch and the terms of trade 201
to grow at the same rate in the future, notwithstanding the continued drive towards
urbanisation, since China’s construction boom led to massive overinvestment in
residential properties and there is a significant overhang of unoccupied buildings.
In relation to soft commodities, the fall in the rate of China’s demand growth is
unlikely to be as great as that for hard and energy commodities, since per capita
incomes and changing taste patterns are likely to remain strong drivers of future
consumption (Hopewell, this volume). China’s thirst for energy commodities is
likely to remain strong, despite its commitment to the renewable sector.
Thus in some commodity sectors, China’s rate of demand growth in the future
is likely to be lower than that which occurred between 1990 and 2014. However,
set against these generally falling rates of demand growth for commodities lies
the distinction between the rate of demand growth and the aggregate size of
demand growth. That is, although the annual percentage increase in demand may
slow, this is off a larger absolute demand profile so that, in physical terms, this
demand is still substantial. For example, the average annual growth of copper
consumption in 2005–9 was 13 per cent, dropping to 9 per cent in 2010–14.
However, in absolute terms, annual average consumption was 4.8 million tons
in the former period and 8.4 million tons in the latter. The absolute demand for
commodities in China will therefore continue to rise in the foreseeable future,
even if growth rates slow.
However, while China was the driver of commodities demand over the past
two decades, it is not the only large or rapidly growing middle-income economy.
India is at the cusp of rapid growth, as are large surrounding economies such as
Indonesia and the Philippines. In Latin America, Brazil has been growing rapidly,
and in Africa, Nigeria, Ethiopia and other large economies are beginning also
beginning to expand quickly. All of these economies will invest heavily in infra-
structure and most of them will seek to grow their manufacturing sectors (perhaps
displacing some of the commodity-intensive manufacturing exports which have
driven China’s rapid growth since 1985). Thus, unlike the post-war era, when
high-income developed economies with low commodity-intensive growth paths
were the drivers of demand growth while Prebisch was active, existing and future
demand growth in the global economy is likely to be a function of the expansion
of commodities-consuming middle and low income economies.
Turning to the supply-side factors that helped to underwrite the commodity-price
boom after 2003, it is unlikely that low-cost soft commodities will remerge in the
future. The same factors which drove rising costs of production (and thus rising
prices) after 2003 are likely to endure, and probably to increase in severity.
In the case of hard commodities, the sharp drop in exploration and investment
during the 1990s which underwrote production constraints after 2003 has begun
to re-emerge. Exploration spending dropped from $20.5 billion in 2012 to $14.4
billion in 2013 and $10.7 billion in 2014.6 Moreover, there is a growing global
skills shortage, which is considered a business risk by producers in this sector
(E&Y 2014) (as well as in the energy-commodities sector). But even if new
deposits are there to be exploited, the costs of production are likely to be high, not
least because many are located in high-risk, fragile economies.
202  Raphael Kaplinsky and Masuma Farooki

180

160

140

120
Cents/Lb

100

80

60

40

20

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Labour Energy Reagents Other Onsite Offsite

Figure 10.3  Copper cost changes 2003–13.

Source: SNL Metals & Mining (2014).

A sign of these future trends can be found in the rising production-cost profiles
after 2003. Between the start of the boom in 2003 and its peak in 2007, the volume
of copper production in the top 30 mines was stagnant. But whereas the average
production cost was under $0.53/lb in 2000, this had increased to $1.69/lb in 2013
(Figure 10.3). These increased costs resulted from five different drivers, of which
only off-site costs remained stable. Rising costs are not limited to production,
but are also occurring in exploration. In 2003, 19.7 million metric ton of copper
reserves were identified, at a cost of $219 million. In 2012, 29.7 million metric
tons of copper reserves were found, but the cost ($2.14 billion) was substantially
higher. The cost of exploration for each additional metric ton of copper reserve
found thus increased from $10/mt to $72/mt (Farooki 2014).
In the case of energy commodities, the future price outcome will largely be
determined by the policies of Saudi Arabia and other OPEC economies. Should
they choose to limit supplies (as they did until 2014), or should regional instability
in the Gulf region lead to a force majeure in oil supplies (a probability, perhaps?),
then the cost of energy will be determined by the high marginal costs of producing
offshore oil in deep-water deposits and shale production.
What of the likely future impact of financialisation on future commodity prices,
given the evidence that, to a greater or lesser extent, it helped to augment the
prices of some commodities after 2003? After 2010, some of the major finan-
cial institutions that had entered this market (for example, JP Morgan, Morgan
Stanley, Barclays, Deutsche Bank and Bank of America) signalled their intent
to reduce these operations. A number of considerations drove these decisions,
including anti-bank sentiments among policymakers.
 Raúl Prebisch and the terms of trade  203
But this does not portend the end of the financialisation of commodity markets.
A new trend has emerged involving links between stock exchanges, and this has
become a renewed driver of financial speculation in commodities. In the past few
years, the Shanghai Futures Exchange (SHFE) has begun to emerge as a rival to
established exchanges such as the LME and COMEX; Chinese-owned and man-
aged funds are now emerging; and, with the increased internationalisation of the
Chinese RMB, SHFE turnover is expected to increase in the future.
We can conclude the following from this review of the evolving history of
commodity prices. First, in corroboration of Prebisch, there was a long-term trend
for commodity prices to decline. Second, after the turn of the millennium, there
was an unprecedented increase in commodity prices, driven by a combination of
demand factors (particularly the emergence of China as an importer of signifi-
cance), the rising costs of supply and the financialisation of commodity markets.
Third, with regard to the future, which is always uncertain, we foresee a continued
increase in global demand as China and other emerging economies urbanise, invest
in infrastructure and expand their manufacturing sectors. We also anticipate that,
with the possible exception of energy commodities, the trend for high and perhaps
continually rising costs of supply which characterised production after the turn of
the millennium will be sustained. In the case of energy commodities the picture
is less certain, with the geostrategic ambitions of Saudi Arabia and other low-cost
oil producers to block the emergence of low-cost renewables and unconventional
oil and gas balanced against the possibility of disrupted low-cost supplies from
a politically unstable region. Finally, while the character of commodity-market
financialisation has changed, its presence is likely to remain strong.
The question is whether this commodity-price experience translates into declin-
ing commodities–manufactures terms of trade. To draw a judgement on this, it is
necessary to briefly chart the changing character and price performance of global
manufacturing.

Is manufacturing the key to sustained income growth?

The belief that manufacturing holds the key to sustained income growth has a
long pedigree and has been extensively documented as a phenomenon which
began in the early eighteenth century and continued through until the late twen-
tieth century. Analytically, this was explained as a consequence of both supply
and demand conditions. On the supply side, barriers to entry in manufacturing
were high, limiting competition and providing a stream of dynamic rents which
were sustained as the dominant producers were able to upgrade their productive
capabilities. On the demand side, manufactures were income-elastic, underwriting
investments in new manufacturing technologies and productive capacity. (These
were mirror images of Prebisch’s explanation for falling commodities terms of
trade, that is, income-inelastic demand and ease of entry into production.) Hence,
a glance at any of the key texts informing growth policy in developing economies
took it as axiomatic that growth required structural change and that structural
change required the relative expansion of the manufacturing sector (Chenery and
204  Raphael Kaplinsky and Masuma Farooki
Syrquin 1975; Sutcliffe 1971; UNIDO 1983; see also Ho, this volume). It is not
inconsequential that these policy conclusions were developed during a period of
predominantly inward-oriented industrialisation in the developed economies, and
ISI in the developing economies.
However, from the late 1970s, the character of value added in the global econ-
omy began to change. The trade liberalisation promoted by the General Agree-
ment on Tariffs and Trade (GATT) in the post-war period had greased a growing
trade in manufactures, and the resulting economies of specialisation had wreaked
havoc on the relative inefficiency of ISI. Export-oriented industrialisation pro-
vided the route for sustained productivity growth, not just in the hegemonic
high-income economies but also in a group of rapidly growing developing econ-
omies in Asia, notably the four Asian Tigers (Hong Kong, Korea, Singapore and
Taiwan) (Page and other contributors to World Bank’s 1993 East Asian Miracle).
Thus, both as a consequence of pressure from global institutions and dominant
developed economies and as an act of volition by many developing-economy gov-
ernments, the preferred route to the promotion of manufacturing transitioned from
an inward-oriented import to an outward-oriented export-substituting agenda.
But under the surface, it was not just the trade/GDP ratio that had been chang-
ing. So too was the character of global trade in manufacturing. The rise in the
Asian Tigers’ manufactured exports is generally characterised as an outcome of
sustained investments in capability growth, driven to a considerable extent by sup-
portive government policies rather than the interplay of market forces (Wade 1990;
Amsden 1989). However, notwithstanding the importance of these supply-side
factors, there were two significant sets of developments on the demand side which
underwrote the insertion of these developing-economy productive resources into
the global economy.
The first of these was the growing concentration of ownership in the Ameri-
can (and then subsequently European) retail sector. Unlike manufacturing and
resources, where ownership had seen the rise of dominant oligopolies after the
mid-nineteenth century (Chandler 1977), the retail-sector concentration was a
phenomenon which began to unfurl in the early 1960s, when firms such as K
Mart and Walmart began to expand rapidly (Feenstra and Hamilton 2006). They
actively sought a combination of low-cost and large-volume supplies, and were
proactively instrumental in the promotion of export-oriented productive capaci-
ties in the Asian Tigers.
The second demand-related factor promoting export-oriented industrialisation
in Asia was the transition in business strategies in the industrialised world, in
both TNCs and in firms which had historically largely been nationally focused.
The logic of FDI was premised on the need to internalise operations in order to
minimise transaction costs and to avoid the damages of ‘unprincipled’ behaviour
by key suppliers, who might use the capabilities they developed in serving the
lead firm to also meet the needs of competitors. At the same time, many suppliers
were reluctant to invest in dedicated productive capacity to meet the needs of a
dominant buyer who might then either exploit this buying power or switch with
little notice to alternative suppliers. However, largely influenced by the success of
 Raúl Prebisch and the terms of trade 205
the Japanese auto firms in the 1970s and 1980s and subsequently by developments
in other sectors, the dominant logic moved from internalisation to a focus on core
competences. In a world of rapidly growing knowledge intensity and the develop-
ment of supply relations which promoted trust, the dominant strategic logic moved
away from internalisation. Firms sought to focus on their special attributes – core
competences which were largely protected from competition – and to outsource
other more competitive activities to suppliers. Initially these suppliers were often
local to core operations, but with the rise of capabilities in the developing world,
suppliers were increasingly spread across the global economy. Notably, and
significantly, from the late 1980s, China (with its then massive reserve army of
labour) came to play an increasingly important role in global manufacturing and
in trade in manufacturing within the framework of global value chains (GVCs)
(Kaplinsky and Morris 2001; Gereffi et al. 2005).
However, China and other developing economies’ participation in the global
manufacturing sector was an insertion which involved specialisation in activities
rather than in products, a phenomenon which has begun to affect the measures
used to record global trade and value added (Miroudot et al. 2009). That is, the
fracturing of GVCs into increasingly fine segments meant that the ‘exports’ were
seldom what they seemed. For example, the iPhone was exported from China at a
unit value of $175, and sold in the US for $499. However, rather than being ‘man-
ufactured’ in China, it was merely assembled in China, with a unit value-added
content of only $6.50 (Xing and Detert 2010). The example of the iPhone 4 was
replicated across the swathe of manufactures exported from China and other
developing economies, and subsequently spread to many parts of the services
and resource sectors. Global exchange has thus increasingly moved from final
products to trade in intermediates and capabilities. Thus the Organisation for Eco-
nomic Trade and Co-operation (OECD) and World Trade Organization (WTO)
estimated that in 2010, 28 per cent of global trade was double-counted, as inter-
mediates (such as iPhone screens) were valued twice: first as exports of screens to
China from Korea, and then as incorporated in the export value of China’s export
of assembled iPhones to the world (UNCTAD 2013).
Underlying this global division of labour was inter-country specialisation within
manufactures. The developed economies and the leading TNCs concentrated on
those components of the value chain which were protected from competition; this
generally involved specialisation in small-batch customised manufacturing and
in the service component of production (for example, research and development,
design and marketing). By contrast, the developing countries’ participation in
these chains tended to be concentrated in labour-intensive activities such as sim-
ple machining and assembly, where they were subject to the intense competitive
pressure of a global reserve army of labour which doubled in size between 1985
and 1995, when first China and then the former Soviet Union entered the global
trading economy (Kaplinsky 2005).
These developments have important implications for the terms of trade. This
is because the advance of GVCs led to changes in the terms of trade within
manufacturing, between the high-knowledge-content segments characterised by
206  Raphael Kaplinsky and Masuma Farooki

25
Annual price change (%)
20

15

10
5

–5

–10
86

87

88

89

90

91

92

93

94

95

96

97

98

99

00
19

19

19

19

19

19

19

19

19

19

19

19

19

19

20
Figure 10.4  World manufacturing export price 1986–2000.
Source: IMF, World Economic Outlook Database, https://www.imf.org/en/Data, accessed 15 September
2003.

35 80
29.7 71
30 70
25.6 61 59
25 60
% of sectors

51
% of sectors

20 18.3 17.2 50
15 40
10 8.5 30
5 20
0 10
Low income China Lower-middle Upper- High income 0
income middle- Resource-based Low Medium High technology
income technology technology

Figure 10.5  Percentage of sectors which experienced falling prices in EU imports

between 1988–9 and 2001.
Source: Kaplinsky (2005).

barriers to entry and those subject to competition from the global reserve army
of labour. Focusing on the traded prices of manufactures in the period in which
GVCs expanded particularly rapidly (1985–2000), we can observe a trend in
which the aggregate price of manufactures – which had risen for many decades, as
­Prebisch observed – began to decline (Figure 10.4). However, within that process
of price evolution, there was a tendency for the prices of manufactures exported
by China and other developing economies, and of resource-based and low and
medium-technology manufactures, to fall disproportionately (Figure 10.5).
In conclusion, we can observe the following trends in the global manufactur-
ing sector. First, after decades of price increases, China’s accession to the global
economy as a major exporter of manufactures saw the prices of manufactures
decline during the 1990s and early 2000s. Second, the extension of GVCs ren-
ders irrelevant the global price of many manufactures. Countries are increasingly
exporting intermediates, often with very thin levels of value added. The ‘price of
 Raúl Prebisch and the terms of trade 207
manufactures’ is thus becoming less meaningful than the price of particular capa-
bilities, and here developing economies are largely inserted as low-cost assem-
blers of manufactures designed and marketed in the developed economies. We
can in fact witness a change of the terms of trade within manufactures.7 Third, the
character of many products derived from the primary sector is changing. Prod-
uct differentiation, which was a dominant development in manufacturing after the
mid-1970s, is now increasingly witnessed in the soft commodities sector, as is the
opportunity for producers to export into high-price market niches. There is also an
increasing market for specialised metals and minerals – for example, increasing
demand for lithium and graphite for batteries. Fourth, the complexity of these
developments in the manufacturing sector, allied to changes in the regulation of
global trade, requires a rethinking of what is entailed in industrial policy in general,
and effectively rules out ISI policies in particular (Kaplinsky and Morris 2016).

Are spillovers from the resource sector limited?

Prebisch (and indeed Singer) had argued that beyond the declining terms of trade,
a further reason for favouring the industrial sector over the resource sector was the
absence of spillovers from resource exploitation. Non-resource sectors thus bene-
fited from few externalities arising from the expansion of the resource sector. This
was largely a consequence of the dissimilarity between the technologies involved
in the primary sector and those required in manufacturing. But it also arose as a
consequence of the scale and technology intensity of operations in much of the
resource sector. In addition, he argued, this was a consequence of the operations
of TNCs, whose disposition was to favour their home economies, and who acted
to siphon the surplus generated in developing economies to developed economies.
It should be noted that insofar as Prebisch’s views on technological dissimilarities
and scale and technology intensity were in fact correct, they applied to the miner-
als and metals (hard commodities) and oil and gas (energy commodities) sectors
rather than to agricultural commodities (soft commodities).
What, if anything, has changed to affect the wisdom of Prebisch’s judgement on
the lack of spillovers from the primary sector? When he developed his framework
during the 1950s and 1960s, industrial capabilities in much of the developing
world were very low. One reflection of this is the estimation in 1970 that only
2 per cent of global research and development (R&D) – which is a reflection
rather than a driver of capabilities – occurred in the developing world (‘The Sus-
sex Manifesto’: Singer et al. 1970). Since then, following large and sustained
investments in human-resource development, three decades of ISI until the mid-
1980s and experience garnered as developing countries participated increasingly
in GVCs, industrial capabilities have grown greatly in virtually all regions of the
developing world. Again, taking R&D as an indicator of these capabilities, by
2010, around 25 per cent of global R&D occurred outside of the OECD econo-
mies (Hollander and Soete 2010). The growth in these capabilities reduced the
technological gap between the needs of the resource sector and the capacity of
local actors to meet these needs.
208  Raphael Kaplinsky and Masuma Farooki
Further, and partly as a consequence of the growth of capabilities in the devel-
oping world, the factors driving linkages from the resource sector have begun to
change in important ways. In order to understand these changes it is helpful to
use a linkage framework developed by one of Prebisch’s contemporaries, Albert
Hirschman. Hirschman defined three sets of linkages from the commodities sec-
tor (Hirschman 1981). The first was fiscal linkages, in which resource rents were
deployed to develop production in unrelated sectors. These fiscal linkages were
equivalent to Prebisch’s injunctions for resource producers to diversify out of the
primary sector. The second set of linkages was what Hirschman termed consump-
tion linkages, where production in the resource sector provided consumer incomes
to local actors which created a demand for local industry. However, the liberalisa-
tion of trade which occurred after Hirschman developed his framework meant that
many of these consumption linkages were diluted by increased imports.
Hirschman’s third category of linkages was what he termed production link-
ages. These resulted as local suppliers provided inputs into the resource sector
(backward linkages) or processed the output of the resource sector (forward link-
ages). We would add to this another set of indirect linkages (horizontal linkages)
in which capabilities developed in backward and forward linkages are applied
to unrelated sectors – for example, the development of engineering and metal-­
working skills, which have a wide range of applications throughout the economy.
In contradistinction to Prebisch, Hirschman believed that these production
linkages would develop naturally, a process which he termed as ‘one thing leads
to another’. Leaving aside this difference in perspectives between Prebisch and
Hirschman at the time when they developed their respective schemas, the dif-
fusion of the core competence and outsourcing business strategies which drove
the extension of GVCs has now also begun to affect strategic decision-making
and sourcing in the resource sector. Here the logic is quite clear. The core com-
petence of the lead firms in the resource sector – particularly in hard and energy
­commodities – is to extract primary materials, undertake primary processing
where they possess distinctive capabilities and then either directly or indirectly
export the resources to global markets. Any ancillary activities where they do
not possess distinctive capabilities are outsourced. And given the need to reduce
chain inventories (just-in-time/lean production), to avoid stoppages and to tailor
inputs to the contextual circumstances of resource-extraction (since all resource
deposits are in some sense unique), the closer the supplier or the processor to the
point of resource-extraction, the better. Thus instead of TNCs and other lead firms
resisting linkage development (as Prebisch believed to be the case), they have an
active interest in promoting linkages.
Figure 10.6 provides a graphic description of this process. The vertical axis
represents the accretion of value in the resource sector, and distinguishes between
those activities in which the lead firm has a vested interest in outsourcing and those
in which it seeks to protect its rents through the exploitation and protection of core
competences. The non-core competence linkages represent win–win opportunities
for local suppliers and the lead resource-extracting firms; the core-competence set
of linkages is those in which the lead firms resist linkages. Although no systematic
 Raúl Prebisch and the terms of trade 209
measures are available, as a general observation, in terms of share of total product
value, the win–win non-core competence set of activities generally far outweighs
the conflictual win–lose activities. The distribution of activities between these two
sets of inputs will of course vary between sectors and in relation to capabilities in
the supply and forward-processing chain.
The horizontal axis represents the passage of time. What has occurred with
increasing intensity in recent years is a process of market-driven linkage expan-
sion, developing more rapidly as the easy linkages are exploited and then pro-
ceeding more slowly as the capability gaps are exposed and as suppliers seek to
transition into the high-rent components of the value chain’s activities which are
dominated by the lead firms.
When it is successful, policy has the capacity to augment this market-driven
process by speeding up and deepening the role played by suppliers (and custom-
ers) in the chain. Conversely, when it is unsuccessful, policy slows down and shal-
lows the extent of linkages. A growing body of literature has begun to document
this process of below-the-radar linkage development, including in Africa and in
somewhat surprising situations (for example, the role played by indigenously
owned firms in providing knowledge-intensive services in the Nigerian oil and
gas sector) (Morris et al. 2012).
Figure 10.6 has been drawn to show the potential for backward linkage
development. However many of the same arguments apply to the development
of forward linkages in primary-sector value chains. Perez et al. (2014) drew
on these forward linkages to propose a strategic framework for Latin ­America
in which local producers develop the capacity to move into specialised niches
in the resource-processing sectors as a way of producing sustainable and
higher incomes.

Value added Deepening

Inside core
Competences Speeding up
- win-lose

Shallowing

Outside
Mining Slowing down
Company
core
competences
- win-win

Time

Figure 10.6  Market-led linkage development and the effect of policy.

Source: Morris et al. (2012).
210  Raphael Kaplinsky and Masuma Farooki
While none of this gainsays the accuracy of Prebisch’s judgement of limited link-
age spillovers in the second half of the twentieth century, to the extent that this
unfolding of production linkages is making headway, this qualifies Prebisch’s
judgements about the need to diversify out of the resource sector into industry. It
is also necessary to observe that even when Prebisch was developing his schema,
many of the developed economies in which industrial capabilities were strong had
developed, and were continuing to develop, industry in tandem with and closely
linked to resource extraction. In particular, in both the US and Canada, not only did
the industrial sector develop through production linkages to the resource sector,
but these industrial capabilities then fed back into improving productivity in the
resource sector (Wright and Czelusta 2004). In those and other recent cases (such
as North Sea oil and fracking in the US), the industrial and resource sectors devel-
oped symbiotically rather than exclusively. Moreover, the econometric conven-
tional wisdom of the resource curse – in which resource-intensive economies are
said to have grown less rapidly than their non-resource-intensive counterparts –
has been challenged. Changing the indicator of resource intensity in fact leads to
an outcome in which resource-intensive economies have grown more rapidly than
non-resource-intensive economies (Lederman and Maloney 2007). Nevertheless,
resource-intensive economies do continue to be more vulnerable to growth vola-
tility, since commodity prices have continued to be much more variable than the
prices of manufactures.

How does the disruption in the terms of trade affect the Prebisch
schema?
Raúl Prebisch’s seminal contributions during the second half of the twentieth cen-
tury helped not only to shape our understanding of the historical evolution of
developing economies, but also to guide development policy and practice. The
intellectual architecture which he developed and which we have considered in this
chapter rested on two pillars. The first was the recognition that the terms of trade
had been moving against primary product-producing developing economies for
very many decades. Prebisch believed that this price trajectory would be sustained
in the future. The second pillar was that externalities in manufacturing were far
greater than those arising in the exploitation of natural resources, and that devel-
opment policy should therefore be guided towards the promotion of industry. In
the context of the forces driving the global division of labour at the time he was
writing, this required the development and implementation of policies designed to
promote import-substituting industrialisation.
In this chapter we have subjected Prebisch’s analysis to the test of time. We
have concluded that, while it offered a remarkably persuasive architecture for
analysis and policy during the second half of the twentieth century, a series of
structural changes question its relevance for future policy, in developing and
developed economies alike.
With regard to the terms of trade, we have argued that the determinants of
price developments in both manufactures and the resource sector have altered
 Raúl Prebisch and the terms of trade 211

1.6

1.4

1.2
Terms of trade

1.0

0.8

0.6

0.4

0.2

0.0
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
Figure 10.7  Recent changes in the terms of trade.
Source: Pfaffenzeller (2015), personal correspondence.

irretrievably. This has arrested the long-term decline in the commodities–­

manufactures terms of trade (Figure 10.7) and, we believe, will continue to do
so in the future. These changes in relative price trajectories, we argue, cannot be
described as a short-term price hike. They more accurately suggest the develop-
ment of a commodities supercycle, and perhaps even a long-term structural break
in the terms of trade.
We have also concluded that, with the extension of GVCs across a range of sec-
tors, there have been important changes in the terms of trade within manufactures.
So, while some types of industrialisation do indeed – as Prebisch argued – ­provide
the possibility for sustained income growth, in other cases they offer a slippery
path towards the same trajectory of immiserising growth which Prebisch had
argued to characterise the resource sector during the 1950s and the four decades
which followed. Moreover, we argue that because Prebisch (and Singer) assumed
the UK (which, after the eighteenth century, did not have a comparative advantage
in primary products) was a proxy for all developed economies, he (they) failed
to recognise the synergistic development of the industrial and resource sectors in
much of the developed world.
The challenge for development policy in the twenty-first century is thus no
longer the introduction of industrial policies per se, but rather that of a set of
productive sector policies which favour the exploitation, generation and appro-
priation of rents across a range of sectors, including manufacturing, services
and commodities (Kaplinsky and Morris 2016). We do not believe that Prebisch
would have been surprised by this development in policy itself, but he might have
raised his eyebrows at the recognition that not all rents in the contemporary world
are Schumpeterian in nature (that is, resulting from systematic investments in
212  Raphael Kaplinsky and Masuma Farooki
knowledge and technology), but also include resource rents in an era of resource
scarcity.

Acknowledgements
We are grateful to Matias Margulis and John Toye for comments on an earlier draft
of this chapter. We thank Polity Press for permission to reproduce Figure 10.5.

Notes
1 An informed and insightful history of the relationship between Raúl Prebisch and Hans
Singer with respect to the terms-of-trade debatecan be found in Toye and Toye (2003).
2 For convenience, we will refer to the barter terms of trade as the ‘terms of trade’, aware
that the discussion does not address either the factor or income terms of trade.
3 Prebisch referred to the developed world as ‘the Centre’ and the developing world as
‘the periphery’, terminology which was adopted in the Dependency School. In this
chapter we will use the terms ‘developing’ and ‘developed’ economies to reflect the
wider debate about the terms of trade during the period in which Prebisch developed
his ideas.
4 Short-term price cycles, from boom to bust, will typically last for a ten-year period,
while commodity supercycles can extend over 30–50 years.
5 The extent of this China demand surge is all the more remarkable in the context of
China’s share of global production in the resource sector. In many commodities, China
is the world’s largest producer as well as the largest consumer.
6 These estimates are drawn from the SNL Metals & Mining Database, and only cover
non-ferrous metals.
7 It is striking that, presciently, Singer had not only been the first to document the declin-
ing terms of trade of commodities in 1949, but was also the first to observe a similar
phenomenon within manufactures (Sarkar and Singer 1991).

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Index
agricultural exports 157, 162–3
agriculture 12–13, 40, 73, 126, 129, 156–8,
159–62
agriculture in Brazil 18–19, 158–63
alter-globalization movement 17, 97,
109–12
Andean Pact 16, 68, 71
Argentina 71–3, 89–91, 136, 179–80, 184,
195
Argentine central bank 2, 46
Asia Pacific 69–70, 164
Asian Infrastructure Investment Bank
(AIIB) 14, 149
autarky 1, 7, 62, 75
Bello, Walden 107, 109
Brazil 12, 18–19, 54, 71–3, 84. 111, 135,
142, 155
Bretton Woods 2, 14, 16, 70, 72, 78–94,
101, 138–9
BRICS 14, 140, 149–50, 156, 166
Central America 16, 54, 63, 172, 175, 180,
186–7
Central American Common Market 54, 68
central banks 2, 4, 80, 88, 137, 148
China 11, 14, 19, 39, 54, 83, 85, 137, 140,
148–9, 164, 172, 174, 178, 198–201, 203,
205–6; China as emerging ‘centre’ 39
civil society 17, 97, 99, 118, 131, 141, 150,
167
Cohen, Benjamin 8
Cold War 5, 54, 92
Commodities 62, 84, 102–4, 155,
176–8, 180–1, 186, 208; commodities
supercycle 10–13, 39, 157–8, 172–4,
179, 196–202, 211
Continent Reserve Arrangement (CRA)
14, 149
core-periphery 3, 5, 7, 50–3, 102, 148,
155, 157
Cox, Robert 10
debt crisis 8, 66, 69, 84, 107, 117, 158
Dependency School 7, 52–3, 55, 195
Dependency theory 51, 54, 110, 155, 157
Doha Development Agenda (DDA)/Doha
Round see WTO Doha Round
East Asia 7, 137
East Asian Tigers 38, 204
Economic Commission for Latin America
(ECLA)/Economic Commission for
Latin America and the Caribbean
(ECLAC) 2, 5–6, 9, 47–8, 54–5, 51, 61,
63–5, 68, 70–3, 102, 194
economic development 3, 15–16, 32, 37,
48, 55, 61, 67, 71, 79, 81, 89, 97, 123,
136, 150, 158
European Union (EU) 18, 63, 73, 127, 128;
EU Everything but Arms 121, 137
export promotion 7, 30, 32–3, 38–41, 62,
64, 69, 74, 106, 159, 167–8, 173, 176,
179, 186, 204
financialization 11, 12–14, 39, 172–4, 200,
202–3
foreign direct investment 33–5, 39, 143,
204
General Agreement on Tariffs on Trade
(GATT) 3–5, 14, 72, 101, 109, 119–23,
139, 165, 204; GATT Kennedy Round
121–2; GATT Uruguay Round 36, 40,
71, 127
General System of Preferences (GSP) 116,
119–21
Geopolitics 45–6, 53–5, 150
216  Index
George, Susan 107, 109
Global Financial Crisis 11, 118, 137,
140–1, 172–4, 186–7
global political economy 1–2, 6–14, 45–6,
52, 57, 155–6
Global System of Trade Preferences
among Developing Countries (GSTP)
116, 119–22
global value chain 19, 38, 74, 163, 205,
209
globalisation 6, 17, 27, 69, 71, 97, 99–101,
109–11, 117, 136
Good Neighbour Policy 78–81, 92
Great Depression 46, 61, 79, 136
Group of Eight (G8) 12, 14, 126, 188
Group of Seven (G7) 135, 148
Group of Seventy-Seven (G77) 117,
140–3, 148
Group of Twenty (G20) 14, 126, 135–6,
141–2, 148, 166
Gunder Frank, Andre 52, 55, 110
Hegemony 8, 48, 50–2, 73, 117–18, 138,
174, 196, 204
Hirschman, Albert O. 27, 47, 208
Import Substitution Industrialisation (ISI)
7–8, 27–31, 38–40, 47–8, 61–2, 64–5,
67, 79, 103, 119–20, 155, 158–9, 194–5,
204, 207
International Monetary Fund (IMF) 54,
81–4, 92, 107, 109, 111, 135, 137–9
international monetary system 49, 80, 142
international political economy see global
political economy
international relations 9, 45, 50
Latin America 2–3, 9, 30–1, 39–40, 46–50,
54–5, 61, 63–6, 69–74, 79–80, 83–9,
98, 102, 111, 146, 174–81, 185–7, 195,
201; Latin American Common Market
16, 31, 54–5, 63–6, 68; Latin American
economic boom 2003–2007 175–80;
Latin American Free Trade Association
16, 55, 68, 74; Latin American
“Manifesto” see The Economic
Development of Latin America and Its
Principal Problems
Least Developed Countries (LDCs) 17,
122, 127–9
manufacturing 31, 33–4, 62, 102–5, 156–7,
180, 194–6, 203–7
market access 36, 40, 110, 128–30
Marxism 7, 46, 52–3
Most Favoured Nation (MFN) 35, 70, 120–1
Neoliberalism 8, 27, 38–9, 69–73, 97, 103,
117–18, 139, 156–8
New International Economic Order
(NIEO) 4, 9–10, 53, 104–6, 109–10, 165
non-reciprocity 3, 5, 35, 116, 121
North American Free Trade Agreement
(NAFTA) 71, 72, 180
North–South relations 5–6, 10, 14, 40, 53,
74, 106, 111, 117–19, 141
policy space 6, 17, 34, 89, 116, 123–7,
130, 142–3
Prebisch, Raúl: and central banking 2, 47,
89–91; and ECLA/ECLAC 3, 48, 63–6,
102; and global political economy 4–10,
50–3, 136, 174; and ISI 3, 29–32, 62,
155, 194–5; and neoliberalism 8, 69–72;
Prebisch–Singer Thesis (PST) 3, 11,
27–8, 36–7, 196; and regionalism 53–5;
and state-led development 30, 34, 49;
and structuralism 4, 47, 55–7, 110, 155,
157, 196; and terms of trade 3, 36–8, 61,
102, 119, 155, 173, 194, 210, 211; and
UNCTAD 3, 62, 103, 116–17, 121–3,
138, 165
Realism 8, 10, 45, 51–2, 56
regionalism 16, 54, 67, 69–71, 73–4
remittances 181–5
reprimarization 12, 74, 174, 178
research and development (R&D) 18,
159–63, 207
Singer, Hans 18, 103, 194–5
South–South relations 31, 54, 116, 119–20,
122, 167
Southern Common Market (Mercosur) 68,
71–3
Special and Differential Treatment (SDT)
5–6, 35, 40, 116, 121–2, 128–30
structural adjustment 8, 71–2, 161
structuralism 9, 55, 70–2, 102–3, 107
supercycle 10–13, 39, 172, 196, 198, 200–3
technological densities 28, 30, 32–4
terms of trade 5, 12, 18, 27–8, 46, 62, 89,
102, 155, 172–3, 177, 186, 194–7
The Economic Development of Latin
America and Its Principal Problems 3,
28, 32, 47–9, 61, 70, 74, 173, 179–81,
210–11

Third World 13, 101, 103, 165
trade liberalization 38, 70–2, 110, 126,
164, 204
trade policy 62, 65, 72, 130, 163, 168
transnational corporations (TNCs) 4, 33,
97, 101–3, 105, 195
United Nations Conference on Trade and
Development (UNCTAD) 3–4, 6, 10,
14, 92, 117–19, 123–5, 128, 130–1, 138,
143, 165; UNCTAD III 129; UNCTAD
IV 129; UNCTAD X 128; UNCTAD
XIII 138–41
Uruguay Round see GATT Uruguay Round
Index 217
value-added 19, 71, 103, 106, 163, 205
Viner, Jacob 61, 66–7, 72
Washington Consensus 27, 38–9, 69, 71,
73, 97, 103, 143, 150, 185, 187
World Bank 6, 73, 101, 106–11, 129,
135, 138–9, 166, 204; World Bank
presidency campaign 2012 143–7
world system 47–8, 50–7, 135, 155
World Trade Organization (WTO) 6, 35,
72, 107, 111, 116–17, 125, 130–1, 135,
164, 205; WTO Brazilian leadership
125, 163–7; WTO Doha Round 17, 40,
116, 122–5, 129, 164–6