The Story of Raul Prebisch, Implacable Foe for First World Power
The Great Heretic
By VIJAY PRASHAD
Raul Prebisch was not born in Buenos Aires. His father was a German immigrant who married into a declasse branch of a prominent Argentine family. Advantages did not come to him by the accident of birth. He had to make his own career, pushing against insuperable odds in a society given over to the bloodlines of the haute bourgeoisie. Coming to the capital from provincial Tucuman, Prebisch studied hard, avoiding all society for the library. He caught the eye of liberal intellectuals who hailed from among the privileged but were in search of talent among those who had few connections. They took him up and pushed him into their circles.
Prebisch’s own difficult ascent up the ladder of Argentine society taught this young man an important lesson: that his country’s backwardness could be traced to the insularity of its elite. He had other ideas for his country, and himself. Influenced by the Italian intellectual Vilfredo Pareto, Prebisch withdrew from the partisan disputes that wracked inter-war Argentina and hoped instead for the emergence of a technocratic, modernizing elite to take charge of things.
Prebisch was only 21 when he came to this view. It would not change for his entire career, taking him from being the pioneer banker of his native land to be the most revered United Nations’ economist as the first head of the United Nations Conference on Trade and Development (UNCTAD). As he put it to his godson in 1934, “I am not a politician, Marucho. I am a technocrat and believe in technocracy, and technicians are politically neutral.” The remarkable thing is that Prebisch never had any advanced degrees. He liked to be called “Dr Prebisch”, but his enemies taunted him with lesser titles (“Prebisch the public accountant”). He was not born into privilege, and without the traditional authority of descent or degrees he rose to Olympian heights.
Finally, two decades after his death, Edgar Dosman has given us a biography worthy of this man, the “great heretic” of international political economy. Prebisch went to Buenos Aires in 1914. He burrowed in his lodgings, taking his books with him everywhere, reading everything he could lay his hands on. He enrolled in the Faculty of Economic Sciences, but nothing there impressed him. The scholarship was decidedly pro-British, which is to say it had taken the logic of David Ricardo’s theory of comparative advantage as dogma. Argentina, they felt, must remain a producer of agricultural goods and meat products because it is this that the country excels in producing. Sold to England, the unprocessed beef in particular brought Argentina its foreign exchange. England, in turn, sold Argentina manufactured goods. There was a deadened refusal to engage with reality and, so, to take things as they were.
Prebisch found this incomprehensible. The Great War, which took England’s market off-line, forced Argentina to develop some industry. One result of this industrialization was that meat began to be processed in Argentina, and this itself quickly made up 17 per cent of the country’s gross domestic product (GDP). Prebisch sat in the seminar run by Alejandro Bunge, who used these facts to lodge a sustained critique of Ricardo’s theory. He gave Prebisch the tools to think about alternatives to laissez faire or at least to contemplate the conundrum of places like Argentina, stuck producing raw materials and buying finished products.
Prebisch took Bunje’s insights and his own thirst for reality to his new job at the Argentine Rural Society, a lobby of the largest cattle ranchers who were basically Argentina’s oligarchy. The Argentine cattle barons wanted to know whether the British and United States meat-packers were manipulating them. This gave Prebisch the perfect opportunity to study the data on trade and to open him up to a lifelong fascination with good statistical data as the basis for analysis and policy. For the next several years, Prebisch would work on the problem of the beef trade, first for the cattle lobby and after they fired him, for the government. He displayed his independence when he refused to provide the ranchers the conclusion they wanted, but even they remained impressed with his research. It was this commitment to research and to the truth that kept Prebisch in the halls of power for a decade after he began to rub the oligarchy the wrong way.
Taken into Argentina’s main bank to run its research wing, Prebisch brought together the best talent around. They had to sort out Argentina’s statistics, as well as produce the Revista Económica (Economic Journal). Their active work coincided with the Great Depression so that Prebisch and his team had to conceptualize the problems of the Argentine economy at a time of great planetary financial turbulence. Prebisch wrote explanatory essays in the journal, providing his readers with a map to navigate the crisis. The government saw his skills and brought him into the Finance Ministry. Here Prebisch proposed orthodox means to shield Argentina from the worst of the problems, although when Britain abandoned the gold standard in 1931, Prebisch convinced his government to introduce exchange controls and insulate Argentina from the wave of competitive devaluations that struck many countries.
None of his good work protected Prebisch. His fate rested with the oligarchy and the military, and when it suited them he went into the political wilderness. Luckily for Prebisch, one of his exiles was in Geneva, where he was sent to help prepare the League of Nations. The advantage of this visit was that Prebisch not only got to interact with other innovators but he also found common company among a group of Swedish economists (such as Charles Rist and Gustav Cassel) who had been worried about the “terms of trade”. The prices of industrial and agricultural goods had widened over the years, they had found, with the “chief sufferers” being the agricultural-raw material producing countries. This insight would remain with Prebisch for his entire career, indeed becoming the foundation for the Prebisch-Singer thesis for which he is best known.
It was also in Geneva that Prebisch came to understand, as Dosman puts it, that “the currency of international trade was power, and the ‘market’ concealed the power relationships that stratified the global system into a core of dominant subjects with a band of heterogeneous peripheral objects.” From 1921, Prebisch began to use the metaphor of core and periphery to describe the geography of international trade, with the core being Europe and the U.S. and the periphery being the rest of the planet (what Marx called the “peasant nations”).
A brief stay in London, negotiating with the English over a new trade treaty, showed Prebisch real power: Montagu Norman, the Governor of the Bank of England, who answered neither to the political parties nor to the monarch. Prebisch wanted such a post in Argentina, one that would allow him to put his insights over monetary policy and international trade to work without the vacillation of electoral politics. He did get a sinecure at the Central Bank of Argentina after his plan (the Economy Recovery Plan of 1933) allowed his country to tread a middle ground between protectionism and “free trade”. As Dosman puts it, “Prebisch certainly cared less about textbooks than evolving a new balance between industry and agriculture in the uncharted waters of the Great Depression.”
From his perch as the Director of the Central Bank, Prebisch spent the next decade developing a monetary policy for the periphery, which was largely based on pragmatism rather than on any established theory. For this he earned few friends and many enemies, notably among the permanent bureaucracy in the U.S. Prebisch’s ferocious nationalism prevented him from allowing Argentina’s economy to bend its knee before either London or Washington, and this bothered the latter so greatly that Prebisch was barred from attending the Bretton Woods conference to set up the International Monetary Fund (IMF) and the World Bank.
He soldiered on, with new thinking on the merits and demerits of hacia adentro, or inward-directed growth. Enforced import substitution during the war years had resulted in the growth of an industrial sector, but this was low in productivity. Heavy industry had not taken root and the problem lay in how to move surplus capital into such productive investment. Prebisch saw a role for the Central Bank, drawing here from his reading of John Maynard Keynes. However, unrest in the political sphere threw him off. Before he could set his experiments in motion, Prebisch found himself without a job.
Fortunately for Prebisch, he had married a remarkable companion, Adelita Moll de Prebisch. She sorted out their finances at these times of distress and produced the social conditions necessary for Prebisch to go into a period of contemplation. Dosman lays out in great detail Adelita’s domestic labour, the thankless task of refreshing Prebisch so that he could go on with his own intellectual and political work. In Adelita’s arms, Prebisch began work on his major reconstruction of Keynes’ work, to be called “Money and the Rhythms of Economic Activity”. Prebisch’s magnum opus would never be completed, but this work set the stage for him to think about the role of the business cycle in the periphery (which is different from the business cycle in the core) and to redouble his efforts on the matter of trade in international development.
Prebisch had worked on the business cycle as early as 1921 (when he was only 20), coming to the conclusion 20 years later that “to resist subordination of the national economy to foreign movements and contingencies, we must strengthen our internal structure and achieve an autonomous functioning of our economy”. To create “inward development” (desarrollo hacia adentro), the country had to cease being a producer of low-value commodities. This of course raised the question of the terms of trade, of import substitution industrialization and of the reconfiguration of the world trade rules. All this did not preclude the matter of growth, for “one must bear in mind that the common denominator of social policy is the increase in production. Without this a stable increase in the level of income for the masses cannot be sustained.”
Keynes, for Prebisch, was of great interest, but the Englishman did not break from the premises of neoclassical economics. This was why Keynes did not raise the question of why there was “always disequilibrium” in the periphery, why the business cycle worked in a lopsided way there. These brilliant insights appear in Prebisch’s book proposal. The book itself was not written. To compensate for it, and to make some money, Prebisch travelled across Latin America, advising central bankers and meeting with economists. This was a tonic for him, but it also kept him away from his intellectual work. Or, indeed, his lack of formal training in economics stifled him, and he fled his writing desk for these consultations in Mexico City, Bogata, Rio de Janeiro, Montevideo and elsewhere.
In 1949, the United Nations created a series of economic commissions, one for Europe (ECE), one for Asia (ECAFE) and one for Latin America (ECLA). The search for a leader of ECLA ended at Prebisch’s door. His journeys around Latin America had alerted the leading economists both to his intellectual talent and to his nationalist instincts. He was their man. Washington was unhappy with this choice (it had earlier prevented Prebisch from getting an IMF job). It could not get its way. He prevailed. ECLA took lodgings in Santiago, Chile. Prebisch cleverly selected a staff of brilliant economists whose own political affiliations ran the gamut from Christian Conservatives to Marxists (such as the Brazilians Celso Furtado and Fernando Henrique Cardoso).
To set ECLA’s agenda, Prebisch decided to write a synthesis of the work he had already accomplished. In three days, he wrote The Economic Development of Latin America and its Principal Problems, a text later known as the ECLA Manifesto. This essay summarised his experiences in government and his critique of Keynes. Prebisch laid out the fundamental asymmetry of international development, with the industrial countries gaining as a result of the unequal terms of trade that benefited them as against the agricultural countries. To break this cycle Prebisch recommended industrialization, with caution by central banks to avoid inflation and any structural distortions in the economy. “One of the conspicuous deficiencies of general economic theory, from the point of view of the periphery,” Prebisch wrote, “is its false sense of universality.” When Prebisch delivered this address at ECLA’s Havana conference it was a sensation. From then on, as the Brazilian newspaper O Estado do Såo Paulo put it, Prebisch was “a living symbol of Latin American industrialisation”.
The U.S. government tried its best to undermine ECLA, cutting its funding through pressure in the U.N. and by shifting its responsibilities to the U.S.-dominated Organisation of American States. But Prebisch was undaunted. He managed to hold onto his funds and set ECLA’s course to produce a viable Economic Survey of Latin American countries (which meant to collect data on each) to train economists from across the region, and to push a set of coherent policies that he had laid out in his 1949 address. Those ideas were extended in two more central ECLA documents, Theoretical and Practical Problems of Economic Growth (1951), which traced the mechanism by which Latin America might produce its own planning model, and International Cooperation for a Latin American Development Strategy (1951), which Dosman says is the “operational counterpoint to the Havana Manifesto”.
In this latter document, Prebisch’s team laid out a cocktail of means for Latin America’s development, including “the creation of a regional development bank; the strengthening of economic planning to avoid turbulence; stability for commodity exports; technical cooperation and training; taxation and agrarian reform; financing for development with a minimum target of one billion dollars a year in development assistance to accelerate industrialization; and the holding of the long-promised Inter-American Economic Conference in 1956”. Each individual element was not itself overly controversial, but the package was unthinkable to Washington.
Thomas Mann, a senior U.S. official, put Washington’s view of things plainly: “Latin Americans like a buck in their pocket and a kick in their ass. They don’t like us. Their thought processes are different. You have to be firm with them.” One can imagine the kind of disdain that greeted Prebisch’s ECLA. Everything that could be done was done to thwart it.
When John F. Kennedy came to the White House, he recognized that the U.S. government had made a hash of its Latin America policy. Vice-President Richard Nixon’s trip to Latin America in 1958 had resulted in street riots. To revise the impression, Kennedy’s liberals went South to search for reasonable allies. They found Prebisch. He was charmed by the Kennedy moment and came to Washington to advise them as they created the Alliance for Progress (Prebisch drafted a part of the document). But, without a blink of an eye, the U.S. set into motion the attack on Cuba (at the Bay of Pigs) and it began once more to favour military dictatorships. All this bode ill for ECLA and for Prebisch. He began to look for different work.
In 1962, Prebisch went to Cairo as U.N. Secretary-General U Thant’s representative at a Conference on the Problems of Economic Development. This conference was part of the Bandung and Non-Aligned Movement dynamic from which Prebisch had until now been absent. He was thrilled to be among the representatives from 36 non-aligned states, most of whom had ideas similar to those developed at ECLA. They saw things on the global scale, particularly the way in which the core countries had barricaded themselves into the GATT (General Agreement on Tariffs and Trade) since 1947, pretending that this body was international when it was in fact the representative of the core. When these countries pushed the U.N. to create the UNCTAD, Prebisch was their choice for Secretary-General. He accepted, with the mandate to make UNCTAD “a global version of ECLA in its diagnosis of structural inequality and global transformation, the need for planning and proposed remedies”.
Prebisch was helped along by some superb people, including Sidney Dell and R. Krishnamurti, whom Dosman rightly calls “infinitely discreet” and a “master of U.N. institutional intricacies”. In 1963, as UNCTAD was being formed, Prebisch went on the assault against what he called “a conspiracy against the laws of the market” by the GATT countries. A “new order in the international economy” had to be created “so that the market functions properly not only for the big countries but the developing countries in their relations with the developed”. No shortcuts, no gimmicks, but a genuine reconstruction of the global political economy. This was an enormous agenda.
UNCTAD’s role
As UNCTAD laid out its agenda, it pressured the core to respond. GATT began to absorb many of UNCTAD’s positions, including that of “special and differentiated responsibilities”, a standard that enabled the periphery to demand partial treatment in negotiations (this is also the phrase that appears in the current climate change negotiations, as a way for the low carbon emitters to demand concessions for their own development agenda). Prebisch and U Thant wanted UNCTAD to operate as the principal arena for trade negotiations, but the core countries would not have that. They preferred GATT, which had already been set up to their advantage. “Nothing important can come from the South,” said Henry Kissinger in 1964, and he meant it.
UNCTAD’s efforts led to the 1973 General Assembly call for the creation of a “new international economic order”, or NIEO, a proposal that would be countered by the core with vehemence (in 1974, the core would create the Library Group, a meeting of its foreign ministers to coordinate policy against the South; this association became the Group of 7, the G-7). Dosman does not go into the very significant role that UNCTAD played in and just after Prebisch’s tenure at its helm. For that, the interested reader might want to turn to the useful series, the United Nations Intellectual History Project, from which John and Richard Toye’s The UN and Global Political Economy: Trade, Finance and Development is a good introduction (as well, there is Karen Smith and Ian Taylor’s book on UNCTAD for the Routledge series on Global Institutions).
UNCTAD was Prebisch’s last hurrah. It is also the perch from which he began to reconsider his ECLA work. This part of Prebisch’s life is least known. In 1957, Prebisch’s colleague Celso Furtado looked at the Mexican economy and concluded that import substitution in a semi-feudal context had led to growing inequality in the country. Its proximity to the U.S., and close interrelation of the two economies, as well as its import substitution had provided Mexico with high growth rates. However, the upper classes enjoyed the fruits of the growth and Furtado recommended a government regulatory policy to prevent this distortion. Prebisch would not allow this report to be published because it displeased the Mexican government. The censorship did not mean that the idea had not become clear, that import substitution without a commitment to equality would not solve the developmental challenges. What was needed, Prebisch wrote in his own book on Latin America (Change and Development: Latin America’s Great Task, 1971) was not simply a high growth rate, “but profound changes in the economic and social structure and in attitudes toward the development process”.
How these changes would be brought about, Prebisch had little idea. He advocated land reforms but hastened to distance himself from the very regimes that would conduct these policies (such as his friend Salvador Allende’s short-lived government in Chile). In 1971, Prebisch told El Tiempo that he had no faith in the “masses” and indeed in politics because “the danger of social mobilisation in a capitalist society” is that “it destroys its leaders”. As a technocrat, Prebisch wanted the people to simply accept his Solomonic pronouncements. This was not to be.
By 1976, Prebisch became a sharp critic of debt-led growth. He found commonality with the fulminations of Cuba’s Fidel Castro, who also spent these years trying to raise awareness about the toxicity of the oncoming debt crisis. But while Castro urged the countries of the periphery to go on a global debt strike, Prebisch wanted to prescribe his own kind of economic medicine. Here Prebisch’s journey resembles that of other UNCTAD-ECLA stalwarts, such as Brazil’s Fernando Henrique Cardoso and India’s Manmohan Singh. Prebisch worried about the “elephantiasis of the state”, the growth of public-sector spending to almost half of the GDP.
“Thirty years of industrialization, accompanied by high rates of growth, have left 40 per cent of the population lagging behind. For them there has been no progress,” Prebisch wrote. “Inadequacies of state enterprises have not only contributed to leaving the masses behind but are also affecting the middle sectors of the social structure.” But he would not accept the sum total of the Washington Consensus. He did not have to govern a state. Prebisch had become a prophet. “Equitable distribution, vigorous economic growth and new institutional patterns in a genuinely participatory democracy: these are the major objectives.” This mantra remained with him until he slipped into the night in 1986.
Dosman has written a tour de force: its title correctly points out that Dosman will give us the story not only of this remarkable man but of the equally tumultuous times that produced him and that he helped shape. As well, one should consider the intellectual legacy that Prebisch left behind as one that could profit those who want to make sense of the current financial crisis.
Vijay Prashad is the George and Martha Kellner Chair of South Asian History and Director of International Studies at Trinity College, Hartford, CT His new book is The Darker Nations: A People's History of the Third World, New York: The New Press, 2007. He can be reached at: vijay.prashad@trincoll.edu
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