Question

Discuss the reasons behind the “export pessimism” of the dependency writers. Outline what are a country’s barter terms-of-trade and what may be the factors affecting their decline or increase, referring to the ideas of Raul Prebisch. Note which periods of economic history were the most problematic for Latin American terms-of-trade. Finally, discuss two other forms of dependency or international economic factors possibly hurting Latin America.

Answer 1

Export Pessimism:
During 1950's economists like Prebisch, Myrdal, Singer and Nurkse recognized that the exports of LDC’s during the 20th century were quite weak in contrast to buoyancy of exports during the 19th century.The view that efforts to expand exports by developing countries will lead to a decline in their terms of trade because of an inability (due to weak demand) or unwillingness (expressed via protection) of developed countries to absorb these exports. The pessimism about demand for the exports of the LDC’s in the markets of the developed countries is termed as export pessimism.In this early period there were three different types of elasticity pessimists; Nurkse's inward-looking balanced growth;Rosenstein-Rodan's argument for co-ordinated investments in a balanced growth pattern; and Mahalanobis's case for heavy sectorimport substitution industrialisation.In the 1950s and 1960s many newly developing countries embraceda strategy of import-substituting industrialisation (lSI). In large part, the lSI strategy was based on a pessimistic view regarding primary product exports - stemming from the dismal interwar experienceand the allegations of low price elasticity, low income elasticity,fluctuation in export receipts, and deterioration in the commodity and double factoral terms of trade.The adverse results of lSI have been chronicled in detail for numerous countries (Little, Scitovsky, and Scott, 1970; Bhagwati, 1978; Krueger, 1978; Balassa, 1982). Given the government's use of 'nth best' policy instruments, such as overvalued exchange rates combined with direct quantitative controls and high effective rates of protection, it is not surprising that lSI was not targeted according to systematic economic criteria but was pursued in a chaotic, inefficient manner and for too long a time. The lSI syndrome imposed dynamic losses on the entire economy that were far greater than simply the loss of
neoclassical static allocative efficiency.

The ideas of Raúl Prebisch, appeared under the UN’s imprint. In the samemonth Hans Singer published an article, “The Distribution of Gains be-tween Investing and Borrowing Countries,”in the American EconomicReview. The continuing significance of the “Prebisch-Singer thesis” isthat it implies that, barring major changes in the structure of the worldeconomy, the gains from trade will continue to be distributed unequally(and, some would add, unfairly) between nations exporting mainly pri-mary products and those exporting mainly manufactures. Further, in-equality of per capita income between these two types of countries will be increased by the growth of trade, rather than reduced. This could be,and has been, taken as an indicator of the need for both industrializationand tariff protection.The Prebisch-Singer thesis contradicted a long tradition of contrarybelief among economists. The nineteenth-century English political econ-omists believed that the terms of trade of industrial manufactures relative to agricultural produce would tend to decline. This belief underpinnedtheir pessimism about the sustainability of rapid population growth.

Periods of economic history were the most problematic for Latin American terms-of-trade:
Challenges to the political order:
The economic and social changes taking place in Latin America inevitably triggered demands for political change as well; political change in turn affected the course of socioeconomic development. As the 20th century opened, the most prevalent regime types were military dictatorship—exemplified by that of Porfirio Díaz in Mexico and after 1908 Juan Vicente Gómez in Venezuela—and civilian oligarchy—as in Chile, Argentina, Brazil, or Colombia. Even in Díaz’s Mexico the constitution was not entirely meaningless, while civilian governments commonly used some combination of electoral manipulation and restricted suffrage to keep control in the hands of a small minority of political leaders allied with landed and commercial elites. Neither dictatorial nor oligarchic regimes gave due representation to the majority of inhabitants.
The Mexican Revolution
The immediate challenge to existing regimes in country after country usually came from disaffected members of the traditional ruling groups and from the expanding middle sectors resentful of their exclusion from a fair share of power and privilege. This was evident at the outset of Latin America’s bloodiest 20th-century civil conflict, the Mexican Revolution of 1910, when a dissident member of the large landowning class, Francisco Madero, challenged Díaz for reelection, lost, and rose in rebellion, promising to bring genuine political democracy to Mexico. The dictatorship, decaying from within, collapsed, but it was many years before the country settled down, since Madero’s uprising unleashed forces that neither he nor anyone else could control. Miners, urban workers, and peasants saw an opportunity to seek redress of their own grievances, while rival revolutionaries bitterly fought against each other. The end result was a system built around an all-powerful political party—the Institutional Revolutionary Party(Partido Revolucionario Institucional; PRI), as it ultimately called itself—that skillfully co-opted labour and peasant organizations. More benefits accrued to labour leaders than to the rank and file, and implementation of the land reform proclaimed by the new constitution of 1917 was mostly halfhearted until the presidency of Lázaro Cárdenas (1934–40). But it superficially appeared that almost everybody received something, and after Cárdenas Mexico became a model of political stability in Latin America.
Socialism, communism, fascism
Latin America in the first half of the 20th century was feeling the impact of outside events not only on its economy but also politically, by the spread of imported ideologies and through the examples both of President Franklin D. Roosevelt’s New Deal in the United States and of emerging totalitarianisms of the left and right in Europe. The European anarcho-syndicalism that had provided a model for many of Latin America’s earliest radical cadres declined sharply in importance after World War I. Henceforth, the left consisted of socialist parties of generally moderate bent, inspired in large part by European social democracy; breakaway socialists who admired the Russian Revolution of 1917 and proceeded to found communist parties in their own countries; and, not least, such strictly Latin American expressions as the Mexican agrarian reform movement. Socialist parties were strongest in the Southern Cone, the Chilean briefly gaining a share of national power as a member of a Popular Front government elected in 1938.