Raúl Prebisch Essay ⋆ Political Science Essay Examples ⋆ EssayEmpire

Raúl Prebisch (1901–1986) was an Argentine economist and politician. His seminal contributions to structural economics provided the inspiration for dependency theory and import substitution industrialization (ISI) in Latin America. As president of Argentina’s Central Bank, director of the Economic Commission for Latin America and the Caribbean (ECLAC), and secretary-general of the United Nations Conference on Trade and Development (UNCTAD), Prebisch was instrumental in the formulation of Latin America’s innovative trade and development policies during the mid-twentieth century.

Prebisch was born on April 17, 1901, in Tucumán, Argentina. He studied economics at the University of Buenos Aires from 1918 to 1922, and in 1923 began teaching political economics at the university, a post he held until 1948. During these early years, he demonstrated a strict adherence to free trade orthodoxy, a position supported by the booming Argentine export sector during the 1920s. However, with the devastation of Argentine economy during the Great Depression, Prebisch changed his position and became an advocate of Keynesian economics.

In 1935 Prebisch was appointed president of the Central Bank in Argentina. In this position, he and his colleagues began wrestling with the economic effects of the Great Depression. By reexamining British economist David Ricardo’s theory of comparative advantage, Prebisch noticed that supply conditions for primary products—those produced through farming, fishing, and forestry—were significantly different from those conditions that characterized secondary, or manufactured, products. The income elasticity of demand for secondary, or manufactured, products was greater than that for primary products. Specifically, as incomes rose, the demand for manufactured goods increased more rapidly than the demand for primary products. This notion is best expressed in the famous anecdote that as incomes rise, people will buy more cars, televisions, and stereos, but “they can only drink so much coffee.” Consequently, countries exporting primary products and importing secondary, or manufactured, products would experience declining terms of trade. For Prebisch, this situation appeared to define the trade sectors of most Latin American countries.

In 1950, while serving as executive secretary of ECLAC, Prebisch made his significant breakthrough on the problem of declining terms of trade, in The Economic Development of Latin America and its Principal Problems (1950). The thesis argued that there was a growing gap between the incomes of less developed countries and advanced industrial societies because of a long-term decline in the prices of primary products, which happened to define the export sectors of developing countries. The reason for this long-term decline was due, in large part, to the difference between the income elasticity of demand for secondary products versus primary products. Consequently, countries exporting manufactured products and importing primary products (the advanced industrial core) were able to retain and reinvest savings from manufactured production in unions, higher wages for value-added production, and commercial institutions. In contrast, countries exporting primary products and importing manufactured products (the less developed periphery) had fewer and fewer savings from primary production to reinvest in wages and commercial development. In fact, peripheral countries were required to export more primary products in order to get the same relative value over time.

The implication of this idea was that peripheral states were being drawn into an increasing state of underdevelopment and dependency upon the core states through participation in international trade, where the peripheral states became the producers of raw materials for the core’s lucrative manufacturing sector. Over time, the benefits of this international trading relationship would increasingly accrue to the core. Han Singer, a German economist, also independently arrived at a similar conclusion and, as such, this theory of declining terms of trade became known as the Prebish-Singer thesis. After this finding, ECLAC and Prebisch became the center of Latin American economic activism and the Latin American school of structural economics.

Although he still advocated continued trade with advanced industrial societies, Prebisch sought to encourage Latin American governments to stimulate domestic manufacturing in order to reduce their reliance on manufactured imports and primary exports. This idea was later used to justify a policy that became known as import substitution industrialization (ISI). He also advocated for regional economic integration, land reform, and political reform to reduce the income inequalities and overcome the structural impediments to the development of domestic markets. By July 1963, however, as ECLAC and the policy of ISI began to show serious flaws, Prebisch left the organization.

Between 1964 and 1969, Prebisch served as the secretary-general of UNCTAD. In this role, he molded the organization into an advocacy body for development. Specifically, he adopted a trade-focused approach to development, with particular emphasis on regional integration and preferential access to markets for developing states. He also publicly criticized ISI for having failed to bring about proper development. Disillusioned with the bureaucracy and failures of UNCTAD, Prebisch resigned in 1969. In 1984 he returned to Argentina to work with the newly elected democratic government of President Raúl Alfonsín. Prebisch died on April 29, 1986, in Las Vertientes, Chile.

Bibliography:

Di Marco, Luis Eugenio, ed. International Economics and Development: Essays in Honor of Raúl Prebisch. New York: Academic Press, 1972.
Prebisch, Raúl. The Economic Development of Latin America and Its Principal Problems. New York: United Nations Department of Economic Affairs, 1950.
Street, James. “Raúl Prebisch, 1901–1986: An Appreciation.” Journal of Economic Issues 21, no. 2: (1987): 649–659.

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