Diagnosis of the slow rate of economic development of Latin America PDF
Preview Diagnosis of the slow rate of economic development of Latin America
: ADIAGNOSISOFTHESLOWRATEOFECONOMIC DEVELOPMENTOFLATINAMERICA by ADANBARILLAS INGENIEROAGRONOMO,E.N.A.G., 1965 Managua, D.M., Nicaragua AMASTER'SREPORT submittedin partialfulfillm?ntof the requirements forthedegre .MASTEROFSCIENCE Department ofEconomics KANSASSTATE UNIVERSITY Manhattan, Kansas 1968 Approvedby MajorProfessor U 33 To: ANACAROLINA and ALCIDESJOSE ACKNOWLEDGMENT Thewriterwishes toexpresshis appreciation toDr. JohnH. McCoy forhisvaluable guidance and assistance asmajor instructorandforhishelpful suggestionsduringthe course ofthis study. Inthe samev;ay, thewriterwishestoexpressthanks tothe professors of Kansas State University andallother personswho, in onewayor another, have contributed tothecompletion ofthis report. TABLEOFCONTENTS Page •INTRODUCTION 1 CAPITALFORMATIONANDECONOMICDEVELOPMENT 5 TheMeaningofEconomicDevelopment ......... 5 TheMeaning andImplications ofCapital 10 TheProductionFunction 14 Resources 15 TSeoccihanlo,logpyolitical, andeconomicenvironment .... 1166 Entrepreneurship 17 TheBasicPrinciples forEconomicDevelopment .... 19 CAPITALFORMATIONINLATINAMERICA ..... 22 Importance 22 PotentialInvestmentCapacity 23 Distributionofincome 23 General categoriesforthewhole area 25 Consumptionof the different categories 27 CentralizedGovernmentAdministration 29 Historicalpoliticalbackground 29 Historical influence inlocal governments .... 31 The actual situation 32 Economic implications ofcentralization 34 Centralization ofthe economic activity 34 Lackofeconomicorganizations and lackof knowledge about the investmentopportunities . . 38 CONCLUSIONS . 46 SUMMARY 50 BIBLIOGRAPHY 52 INTRODUCTION Therehasbeen agreatSealofdisagreement indeter- miningthe truenature andcauses ofeconomicdevelopment. Years ago itwas populartoexplainnationalwealthoreconomic progressin terms of theextent andvariety ofanation's natural resources. But this approachdidnot account forthe high per capitaoutput ofa country like Switzerlandwhich is rather poorinresources. Othershavefoundthe reasonfor high levelsofpercapitaoutput in the UnitedStates and WesternEurope to lie intheexistence ofafree enterprise econony. But this approach scarcelyhelpsus in accounting for the veryhigh growth rates intheU.S.S.R. Cultural anthropologists,tend tostresssocial customsoreven religion. More recently ithasbeen popular amongeconomists torelate growth tothe levelofsavings andinvestment. The successful operationof theEuropeanMarshall'sPlan afterWorldWarII is an evident proofofthisstatement. But onthe otherhand, thefailure to obtainsimilar resultsinLatinAmericashows that savings and investmentby themselves are not asatis- factorysolution to achieve asteadyrate ofeconomic growth. This report is an attempt todeterminethe truenature andcauses ofeconomicdevelopment in ageneralview andto explainwhat thepain problems anddifficulties arewhich the LatinAmerican countrieshave toovercome in orderto achieve 2 asteadyrateofeconomicgrowth. Both topics imply abroad field andit is useful todevise some limitations. Inthis report, the formerisusedas thebasis toexplainthe latter andit can be limitedby sayingthat it is just ageneral framework. Putfor the latter, it is necessaryto provide some previous clarifications. In the first place, the treatment ofLatinAmericaas anentity and the attempt to characterize the countries of LatinAmericaas agroupinvolves adangerofmisrepresenta- tion and impropergeneralization. LatinAmericaisnot an economic region; it is rather ageographicexpression fora groupofcountrieshavingsimilar cultural characteristics and tiej- arisingoutofacommonhistoricalheritage. The area embraces regionswhich differ greatly in climate, topography, and resources, and theeconomiesofthe individual countries varywidely in thedegree ofeconomicdevelopment, the stage ofindustrialization, andthe level ofpercapitaincome. It should alsobenoted that the LatinAmericaneconomieshave achieved little in theway ofintegration. Naturalbarriers inthe formofmountains, deserts, andimpenetrable rain forests, togetherwith the politicalhistory ofLatinAmerica, have conspired toproduce an areaofisolated islands of economic activity. Lines ofcommunicationbetween centersof activityindifferent countrieshave failed todevelop. Never- theless, the report is concernedwith theLatin American economicdevelopment as awholebecause it is believedthai 3 the problems ofeconomic growthwhich are stressed inthis report are commonfor all countries ofthe area. Secondly, it is important tounderstand that the problems oftheLatinAmericaneconomicdevelopment arequite differentfromthose ofthe otherareas oftheworld. This doesnotmean, ofcourse, that the analysisinterms ofthe aggregate characteristics oftheeconomic andsocial indicators ofthedevelopingnations isolates asituationwhichexists only inLatinAmerica. Nogreatermistake couldbemade ifit is concludedthatway. The same poverty, thesame lowproduc- tivity, the same low levelsofeducation, and in general the sameneed toincrease therate ofpercapitaincome can also befound asinthedevelopingcountries ofAsiaorAfrica. However, themeaningofthe initialstatementof thisparagraph is that the characteristicsofunderdevelopment inLatin Americahavedifferent causesthandothose in theotherde- velopingareasoftheworld. Thehuman, economic, andphysical resourceswithwhichLatinAmericaisfacingeconomicdevelop- ment aredifferent fromthose oftheotherareas. Therefore, theway of approachingtheproblems for economicgrowthin LatinAmericamustbedifferent fromthoseused indiscussing the otherdevelopingregions oftheworld. Finally, although theeconomic andpolitical integra- tionwithin theLatinAmerican countries is regarded as an important conditionforthe economicprogress ofthe area, attentionisdirected toothercommon problemsofthe countries 4 ofLatinAmericawhich areusually forgotten or ignored. This reportdoesnot attempt toprovide acomprehensivede- scriptionoftheLatinAmericaneconomiesnor to considerall theproblemswhichbeset them in theirefforts togrow„ The purpose is toshow the importance andpossibility ofeconomic development inthe countries ofLatinAmerica, basedon the organized andcoordinatedinvestmentsfromthehigh andmiddle income people ofthe agriculturalsectorthrough the rational decentralizationandsuitable leadershipofthe governmental institutionswhich are in charge ofthe actual strategyof development. CAPITALFORMATIONANDECONOMICDEVELOPMENT TheMeaningofEconomic Development In ordertounderstandthe problemswhichLatinAmerica isfacing toobtainasteadyeconomicgrowth, it isnecessary tohave aclea.-understandingofthemeaning and scope ofthe different conceptswhich are used in this report. Such aneed has risennot onlybecause itwas found that there are large differences inopinions about the conceptofeconomicdevelop- ment, but also because themeaningofeconomicdevelopment mightbedifferent for everyparticular country. Twoconcepts needfurtherexplanation and clarification: economicdevelop- ment andcapital. An adequatedefinitionofeconomicdevelopment isnot easy to construct. HarveyLeibenstein, inhisbookEconomic Backwardness andEconomicGrowth, explainedthat thevastdis- parities innaturalendowments, economic structure, cultural heritage, andsocial and political institutions that exist betweendifferent regions of theworld today are likelyto invalidate any attempt todevise asingle criterionfordis- tinguishingdevelopedfromunderdeveloped countries. He stated: Growth (HMaewrveYoyrkL:eibeWinlsetye,in,195E7c"o),nomppi"c. B33a-c4k5w.ardness andEconomic Evendefinitional approaches that combine anumberof indicators ofeconomicunderdevelopmenthave sofar provedintellectuallyunsatisfactorybecause theyin- clude somanyvariables that theybecomedescriptive rather than analytical in character. Leibenstein, in the prior statement, indicated the difficulty todefineeconomicdevelopment, but hedidnot give theneededdefinition. CharlesP. Kindleberger, inhisbookEconomicDevelop- ment, probablywasmorehelpfulwithhis explanations about the differencesbetweeneconomicgrowth andeconomicdevelopment. He stated: "Economicgrowthmeansmore output, andeconomic development impliesbothmore output and changes in the tech- nical and institutional arrangementsbywhich it is produced." AlthoughKindleberger isbecomingdescriptive ratherthan analytical, asLeibensteinwouldpoint out, it seemshe ismore explicit about the conceptofeconomicdevelopment. He con- tinued: "Growthmaywell implynot onlymore output, but also more inputs andmore efficiency. Development goesbeyond these to imply changes inthestructureofoutputs andinthe allocation ofinputsby sectors." Apparently, this statement contradicts the priorone. Donot"more inputs andmore effi- ciency,"whenKindleberger refers togrowth, meanthat there shouldbe "changes in thetechnicaland institutional arrange- ments"bywhichoutput is produced? If the answeris positive, Kindleberger ismakingeconomicdevelopment inhis first 2Charles P. Kindleberger, LconomicDevelopment (New York: McGraw-Hill CookCompany, I 65,>, p. 3.
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