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Raul Prebisch’ Contributions on Economic Development

Raul Prebisch was an Argentinean economist who contributed greatly to the international debates on economic development in the period between the 1940s and the 1970s. Although he was a theorist, he is known more as an economic diplomat who contributed significantly to debates in regards to development and international trade (Myrdal 9)

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His appointment as the head of the United Nations Economic Commission on Latin America (ECLA) was from 1948 until 1962, and he used this position to develop his structuralism views. His theories tried to explain why poor countries continued to become poor and why developed countries continued to develop. He was mainly concerned with issues that were connected with inward development, import substitution, industrialization as well as regional integration (Amin 24).

He was a firm believer of neoclassical theories, he supported them assuming that economic growth was beneficial to all but the two world wars and the Great depression. These factors led to his change of view and contempt towards capitalism. He had firsthand experience on the suffering caused by the Great Depression and the two world wars as he was the director of Argentina’s central bank at those times. He contributed a lot to the economic development of Latin America and his views are still useful in determining ways of improving economic development in the developing countries (Myrdal 12)

When appointed as the Director of the United Nations Economic Commission for Latin America (ECLA), Raul Prebisch together with his colleagues worked out and came up with the dependency theory. According to this theory suggested, the economic developments in the developed countries did not necessarily lead to growth in developing countries. Their studies conducted even suggested that in fact, economic development in the developed countries is the reason and one of the main causes which led to serious and rather crucial economic problems in the developing countries (Sen 48)

Prebisch and his colleagues developed a theory that argued that the world economy consisted of countries in the “center’ and the ‘periphery’. Countries in the center are composed of the developed and rich countries like the United States of America and Europe, for instance, while those at the periphery consist of the developing and poorer countries like Latin America and African countries, for example (Myrdal 17).

They argued that as a result of this classification, there were inequalities that were observed in international trade. They argued that international trade favored richer countries however, it, unfortunately, disadvantaged peripheral countries. The developed countries always exploited and used the poor countries who were the producers of raw materials, and to them, international trade was a way through which rich countries could become richer and poorer countries would become poorer. They argued that the terms of trade in the international arena were always unfair and, as a result, the center consistently continued to exploit countries at the periphery who are the producers of raw materials. As a result of it, the developed countries used international trade to exploit and further rob the poorer countries (Sen 54)

Prebisch, therefore, suggested that instead of the developing countries exporting commodities to the developed countries and importing finished goods from them, they should adopt what was known as, “import-substituting” industrialization (ISI) (Sen 54) This was a situation where the countries at the periphery broke away from the unfair policies of international trade and established their trade by imposing high tariffs and other forms of protectionism to develop their markets.

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Prebisch’s theory of economic development contended that poverty among the poor countries of the world is a result of them exporting primary commodities to the rich countries who then manufacture products out of the raw materials then sell them back to them expensively. The vicious circle of poverty according to Raul Prebisch resulted from the fact that developed countries bought the exports from developing countries at cheaper prices and this leads to the fact that poor countries are never earning enough money they get from their exports for them to be able to pay for the imported goods coming from abroad.

For Prebisch, the solution to this was very simple. Instead of purchasing manufactured goods from the rich countries, countries in the periphery should embark on programs of import substitution so that even if they still take part in international trade they would not have to use their foreign exchange reserves to buy their manufactured goods from abroad (Prasad 87)

Prebisch theory was however very difficult to apply to real-world experiences. This was because first, the internal markets of the developing countries were weak and could not support the economies of scale used by the developed countries to be able to keep prices of their goods low. Secondly, countries in the periphery lacked the political will to move from being primary product producers to manufacturers. Lastly, the development theories of Prebisch got undermined by the fact that poorer countries had no control of their primary products in the international markets (Prasad 119)

Raul Prebisch headed The Economic Commission for Latin America (ECLA) which got established by the United Nations in 1948 from 1948 to 1962. Its main mandate was to help to contribute to the economic development of Latin America by fostering economic relationships between Latin American countries and other nations of the world (Cardoso and Enzo 33).

ECLA theories and approaches ere coined by Prebisch and his colleagues and they adopted what was known as ‘historical structuralism’. This theory has continued to influence economic and development issues to the present day (Cardoso and Enzo 33)

The approach adopted by The Economic Commission for Latin America (ECLA) focused on the analysis of how Latin America’s institutions that were inherited from the colonial times, influenced their economic development.

The Economic Commission for Latin America (ECLA) identified five phases through which countries went through before becoming developed. These included

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  • 1950s: industrialization through import substitution (ISI);
  • 1960s: reforms to ease industrialization;
  • 1970s: re-orientation of development ‘styles’ towards greater social homogeneity and diversification as a means of promoting exports;
  • 1980s: overcoming the external debt crisis through ‘adjustment with growth’;
  • 1990s: changing production patterns with social equity (Cardoso and Enzo 34)

In conclusion, one must point out the idea of Prebisch who proposed the fact that for Latin American countries to develop and, therefore, escape their disadvantaged position they have presently found themselves in, they had to reform their structures by building industries and moving away from primary production of commodities (Cardoso and Enzo 33).

Works Cited

Amin, Sanjay. Unequal Development: An Essay on the Social Formations of Peripheral Capitalism, New York: Monthly Review Press.1976. Print

Cardoso, Fernardo H. and Enzo Faletto , Dependency and Development in Latin America, Berkeley CA, California University Press,1979. Print.

Myrdal, Gunnar, Challenges of World Poverty, New York, Vintage Books, 1970. Print.

Prasad, Michael, The Politics of Free Markets: The Rise of Neoliberal economic Policies, Chicago: University of Chicago Press, 2006. Print

Sen, Amartya. Development as Freedom, Oxford, Oxford University Press,1999. Print

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