THESE are decisive years for Latin America's economic, social and political future and for its relationships with the great powers. Time is running out, and much of it has already been lost, especially by those in Latin America who have been hoping vainly for external solutions to our problems; it has been lost, too, by those who advised us from abroad to ensure the free play of economic forces so that our development could be strongly supported by foreign private enterprise. It is not that a clear vision of the problem has been lacking. There is a growing conviction in Latin America that, while we do need ample international coöperation, development has to be brought about by our own efforts and our own determination to introduce fundamental changes in the economic and social structure of our countries.

Certainly some people in the United States have been thinking along the same lines, but no common language has been agreed upon. The days of Franklin D. Roosevelt have long been left behind. Now, however, the urgent need to find such a common language has been recognized, as is evident from the high-level pronouncements recently made in Washington. Already there is apparent agreement on one fundamental point: a policy of international coöperation cannot be inspired by the desire to favor privileged groups within our countries or to preserve the present order of things; its objective should be to help Latin American countries to change the existing order so that economic development will be speeded up and its fruits enjoyed by the broad masses of the population.

A very significant change in attitudes is involved. Until now, the typical nineteenth century concept has prevailed. This was that the industrialized countries were interested in the development of peripheral countries when it involved the exploitation of superior natural resources or provided a favorable opportunity for expanding trade. This concept was entirely consistent with the old order, which was characterized by export-oriented economies; no superficial political change could alter the favorable conditions for economic exploitation.

Entirely different concepts are necessary in Latin America today. They must be responsive to the deep currents of desire for economic and social reform. I do not say that these currents are widespread in governing circles, although there are individual leaders of stature toward whom our hopes are anxiously turned. If opportunities are lost by those who could now undertake these changes, they will be made by others who are swept into power on the rising tide of popular aspirations. It is no longer a question of whether or not such changes will take place, but of who will make them, by what methods and under what political philosophies. In the great majority of cases, these changes will be brought about by men who believe in personal and political liberties and are willing to defend them, but who are not content with these alone. They believe fundamentally in individual initiative but frankly disagree with some of the forms it takes in Latin America. They are not convinced that development problems can be left entirely to the free play of economic forces. They do believe in energetic action by the state, and in the need for the planning of development. At a time when man is reaching unsuspected heights in his dominion over natural forces, they are convinced of the need for conscious and deliberate action with regard to economic forces, if their development goals are to be achieved.

The most profound convictions, however, may be shaken in the face of adverse circumstances. Development cannot be accelerated simply by transforming the economic and social structure. There must also be a rapid assimilation of new technology. This requires a prodigious effort to train the masses of the population and to increase the relatively scanty productive capital available in our countries. Although our own resources are limited, there is no doubt that they could be substantially increased if consumption were restricted--not only among those of high income where much could be done in this regard, but also among the rest of the population where the possibilities are very much less because of the low average per capita income. The farther one wants to go in this direction, the greater will be the need to resort to various kinds of coercive measures; and the more these are employed, the greater the danger to the democratic process.

International resources can play a decisive role here. If they are used with other measures to bring about a rapid rise in the average per capita income over the next few years, then we can not only raise standards of living but also increase the amount of our own resources available for capital investment. I am convinced that if this policy were continued steadfastly over a number of years--not too many in most Latin American countries--it could generate the savings required to maintain a satisfactory rate of economic growth, without any need for drastic measures having dangerous implications. Herein lies the most important political key to the entire process.

But that is not all. It is not just a question of increasing the scope of international coöperation for development but of changing its orientation. The desire of foreigners to find new fields for private capital investment in Latin America is a legitimate one, but it cannot be the principal aim nor the one which most influences policy. The basic objective must be to enable the Latin Americans gradually to do for themselves what the more advanced countries can already do. One of the things that has most fired the imagination and enthusiasm of our people, particularly the younger generation, has been the very significant lesson to be learned from the Soviet method of economic development: No matter how rudimentary the technology in underdeveloped countries, no matter how high the rate of illiteracy, there is nothing which in time these countries cannot learn and practice--from the exploitation of their natural resources to the most complex industrial techniques.

Potentially very powerful elements of social dynamics are involved in this desire to activate our own vital forces; some might describe it as nationalism. Whatever the name, it represents our determination to find our own solutions to Latin America's great economic and social problems and to implement them by our own hands and our own free will.


Although there is a growing conviction that major changes in the economic and social structure of our countries cannot long be postponed, there are formidable obstacles to be overcome. Entrenched social and economic forces opposing change are very strong in some countries. Traditionally, these forces have drawn their strength from the unequal system of land tenure, but they have recently been reinforced by others which have emerged in the process of industrialization. Industrialization is an inescapable requirement of economic development and it will not only have to be speeded up but will also have to assume increasingly more elaborate and complex form. This requires a firmly managed policy of protection. But instead, the series of measures that have been taken have usually been haphazard and improvised and therefore furnished incentives that in many cases were clearly exaggerated and damaging. High tariff walls, restrictions and prohibitions, together with relatively small markets, have all led to business practices stifling competition.

The high commercial and industrial profits which are typical in many of our countries are therefore only partly due to technical improvements in production methods. They are frequently due to the conditions just described, or to inflation which, in Latin America as everywhere else, is a powerful instrument for regressive income redistribution. The role of the Latin American businessman is generally a useful one but he expects--and usually gets--a disproportionate return. If to all this we add the consequences of certain perverse forms of state intervention in economic life, then we have the principal causes of the great disparities in income so common in Latin America. Even in the few countries where the rate of economic development has recently been satisfactory, these disparities have increased rather than lessened.

It is clear that taxation could be a useful instrument for reducing such disparities; but one must go to the root of the problem and attack the sources from which these disparities arise. This must be done not only to correct inequalities but also because these disparities cause the serious misuse of productive resources and thereby retard economic development.

First of all there is the problem of land tenure. On the one hand there is a limited number of large estates covering a high proportion of the productive land, while on the other there is a large number of small holdings covering a very small proportion. The vast estates tend to be inefficiently cultivated, since their size gives the owners a substantial income without great effort; the other holdings are too tiny for efficient operation. Hence there is a great waste of land and manpower.

Sound redistribution, then, has to be the starting point for technical progress in agriculture, where productivity is at present exceedingly low. However, in the urgent effort to find solutions, no general formulas can be applied because the problem is different in each country. Strong forces are opposed to any solution. Governments which have been willing to face the problem have often had to confine their efforts to the costly opening up of new and distant land, leaving untouched vast tracts of easily accessible land; or they have had to be content with expropriating only such land as could be paid for on a cash basis out of current budgets. These are simple palliatives which do not lead very far. Yet, in dealing with this problem there is a need to go very far in Latin America!

In addition, great care has to be taken with regard to farm mechanization. In many of our countries the density of population on the land is very heavy and, if mechanization were carried beyond certain limits, it could cause serious problems of surplus labor. The same is true in other areas of the economy. Modern technology has been developed in countries having a great capacity for capital formation and a variety of reasons for wanting to save labor. It is this same technology which our countries have to absorb, notwithstanding the fact that capital is relatively scarce and labor abundant. Hence capital must be used rationally so that investments resulting in labor saving may bear a sound relationship to investments which will absorb excess labor. In the developing countries this certainly is not a problem that can be solved entirely by the free play of economic forces.

The degree of mechanization of agriculture that can be encouraged, then, depends on the rate of industrial development, not only because industry absorbs labor but also because of the influence which it exerts on the development of other productive activities. But the problem is difficult; even in those Latin American countries where industrial growth is greatest, relatively little surplus labor from the land has been absorbed; it has come instead from small crafts and other urban occupations having a low productivity.

Hence, there is a need to give the greatest possible impulse to industrialization, while at the same time correcting the serious deficiencies from which it has been suffering. It is not merely a question of finding a rational protection policy to promote competition but of seeking a basic solution which will cause the gradual disappearance of the 20 water-tight compartments into which Latin America has been divided.

Fortunately some good work has already been done; the Central American countries have decided to achieve a common market within a relatively short period and another seven Latin American countries, including several of those of greatest economic importance, have taken steps in the same direction. Nevertheless, the latter are proceeding with a parsimony which--even though it can be explained by circumstances--could limit the effectiveness of this great enterprise unless they resolve to demonstrate the audacity and determination which have been shown by the Western European countries. These efforts can help considerably to achieve more efficient production by expanding markets, encouraging specialization and facilitating competition.

The resulting reduction in industrial costs will have an important bearing on Latin America's position in the export market. Increased exports of industrial products are becoming imperative for the Latin American countries, particularly those which have made the greatest industrial progress. Under the pressure of circumstances, industrialization has been directed inwards and not outwards, so that emphasis has been on replacing imports with goods of local manufacture--first consumer goods, then intermediate products and more complex capital goods. The Latin American common market will facilitate this process by ensuring coördinated efforts. But the need to produce import substitutes would not be quite so acute if our countries could add industrial exports to their traditional primary ones, which tend to grow slowly.

This, then, is an opportune moment to seek new formulas for trade between Latin American countries and the great industrial centers. Upon this depends fundamentally whether our increased industrial effort continues to be directed towards the domestic market or whether it will also look towards export markets, with mutual advantages to all.


There are still those among us who believe that no great step forward to industrialization can take place without continuing the chronic inflation which has been so evident in many of our countries. This is certainly a serious mistake, but no more so than the opposite position frequently preached from abroad. According to this view, inflation is a phenomenon of purely monetary origin, quite independent of the serious structural obstacles which stand in the path of economic development.

This thesis has recently been put into practice in some Latin American countries with very adverse results. These failures have encouraged the belief that monetary stability is incompatible with economic development. Obviously, a vigorous effort had to be made to contain inflation, which was provoking ever more acute social tensions, but unfortunately this was followed by the more serious ones arising from contraction of the economy. Inflationary investments had to be stopped, but they should have been replaced by others covered by genuine savings so as to avoid interrupting economic development. This would have involved decisive use of the instruments of taxation in order to encourage private investment and provide the state with greater investment resources; but this either was not done at all, or was done with insufficient vigor. Foreign resources were also required, but almost always those who could have provided them preferred to await the outcome of the stabilization policy, when in fact such aid was essential for achieving economic stability. The same was true for attacking the structural obstacles to development, principally those which contribute to external disequilibrium. But why bother if the contraction in income had the virtue of restoring the equilibrium?

Once again orthodoxy showed its misunderstanding of the realities in Latin America and of the forces at work there. In order to break the inflationary spiral of prices and wages, the latter were stabilized--a necessary step, although the level was not always well chosen. But fixed wages generally mean a sacrifice by the mass of the people and, if this was to be accepted, reasonable measures should have been taken to see that the burden was shared by other social groups. However, profits and dividends continued to be distributed in the normal way and large rents were derived from the unequal distribution of the productive land.

In a rational policy of economic development, the instrument of taxation is of substantial importance, but as a rule it is not at all well used in the Latin American countries. On the one hand the tax system tends to be exceedingly inequitable; it neither moderates the excessive spending of powerful groups nor encourages them to realize the potential of their savings. On the other hand, even in those countries where the tax structure is adequate, its implementation frequently is not, allowing considerable opportunity for tax evasion. It would be a serious mistake, however, to assume that adequate administration of the tax instrument would reduce in any dramatic way the amount of international assistance that Latin America requires. Our needs are simply too vast. To take just one example, there is the need for investment in human resources, which have been so much neglected in our countries. First of all, illiteracy is still very high and an unrelenting attack on it must be made. Secondly, there must be an intensive and systematic endeavor to broaden the opportunities for technical training at all levels.

This neglect of popular education, despite the many enlightened voices in our countries which clamor insistently for it, provides further evidence of the social forces hampering development. Reform of the system of land tenure and the technical training of the popular masses will free an enormous human potential that is today largely wasted. The system of individual initiative does not respond to a static conception, and where there is little social mobility it languishes. It can be restored by the initiative of new men, able men who will emerge in that process of liberating social forces which has been so slow in reaching Latin America.


All these changes in the economic and social structure will gradually eliminate those obstacles which at present form such an impressive barrier to the development of the Latin American countries. But this will not, of itself, result in an acceleration of the rate of development. If we are to avoid new tensions, even more serious perhaps than the present ones, the vital forces thus liberated must be effectively harnessed to expanding economic activity. To do this, investments have to be raised substantially and this objective can be achieved within the present institutional framework only by a considerable increase in the contribution of the international community.

Fortunately, there is already wide agreement on this point. Tentative estimates have been made as to the amount which should be provided from foreign sources over the next few years. But the time has come to set aside this kind of appraisal and to base calculations on concrete data. Each country will have to prepare its own development plan and estimate the international resources needed to complement its domestic savings. The need for planning has finally been recognized after years of dogmatic resistance and loss of valuable time. But to prepare a long-term plan takes time and therefore a start will have to be made with preliminary plans that can be drawn up in a few months. Such plans can determine the more urgent economic and social needs, particularly at those strategic points where investment is essential in order to halt inflation and at the same time step up rates of development.

For planning to succeed, each country must know with certainty that for the duration of the plan it can count on those international resources which are indispensable for putting it into practice. As a rule, international credit institutions have been reluctant to assume global obligations of this kind, but without them the plan would rest on a very uncertain foundation. It is clear that the obligations must be reciprocal; the intrinsic merit of a particular plan must be considered, in terms both of the magnitude of a country's own efforts towards capital formation, and of measures to remove obstacles to development. Although it is necessary for credit institutions to assume obligations on the basis of what is planned, these obligations are clearly conditional on the firm and effective application of the plan by the recipient country.

Once each country's needs have been determined, a global program for Latin America as a whole can be drawn up. This operation cannot be carried out at the political level. The decision as to how much each country is to receive must emerge from the technical examination of each plan by financial experts.

It is undoubtedly the responsibility of governments to discuss and reach agreement on fundamental principles of development policy, the direction of structural reforms and other measures essential to success. This process is part and parcel of the policy of international coöperation, if it is to be inspired by the fundamental objective of collaborating with the Latin American countries in changing the existing order, so as to speed the rate of development and ensure that the broad masses of the population participate adequately in the results.

If this objective is to be fulfilled, we shall need to reappraise and revise prevailing concepts about the respective roles of foreign and domestic private initiative in Latin American development. Great emphasis has often been placed on the former whereas the need for revitalizing Latin America's own private initiative has not been sufficiently stressed. After all, the strengthening of private enterprise depends less on arguments as to its abstract merits than on how effective it is in our own countries. International coöperation has a significant role to play here. As things stand, the Latin American industrialist finds himself at a disadvantage in trying to meet foreign private competition. Healthy competition must be based on equality of conditions; otherwise it leads to the destruction or subordination of the weaker part. The resulting conflicts then overflow into political fields, causing tensions and antagonisms.

I am far from denying the useful role of foreign private initiative, particularly when it stimulates the spread of technology. However, the more it participates in the internal development of our countries--to which it has so far contributed very little--the greater the need for intergovernmental assistance as a means of strengthening Latin American private enterprises through credit on reasonable terms and adequate technical assistance. The Chilean steel industry is a good example of what might be done on a larger scale. Starting as a state enterprise with the help of Export-Import Bank loans and technical assistance furnished by private United States concerns, it is today in private hands operating on a solid foundation and employing Chilean technicians who know their work and are obviously enthusiastic about it.

Latin American objections to a common market are frequently based on an awareness of the disadvantages under which the Latin American industrialist operates, and on the fear that foreign companies will take advantage of the new opportunities to the detriment of the local entrepreneur. This fear is not unfounded. In important manufacturing centers of Latin America, industries which were originally in national hands have passed to foreign ones. No doubt in most cases this has resulted in technical progress, but an extension of the process could create political complications which would adversely affect economic development and international coöperation itself. Furthermore, competition is not usually improved by such changes, since the foreign firms continue to enjoy the same excessive protection as did the former national ones, but with the aggravating factor that profits may now become a charge on the balance of payments. The problem is not simple and several solutions should be explored. One which warrants special consideration might be to define in the economic development plans those activities which would be open to foreign private enterprise and those which would preferably be left to national initiative.

A more difficult problem is that raised by foreign enterprises which exploit natural resources or operate public utilities. There is a strong feeling in Latin America that public utilities should be in national hands. From personal knowledge, I know that in 1940 President Roosevelt had decided to support this idea. Then the war came and this and other proposals were set aside. Two decades later there is even less justification for public utilities to be held in foreign hands; their technical operation is now well known and there is no reason at all why the Latin American countries cannot carry it on successfully.

If public utilities passed into national hands, there might open up new prospects for Latin American public enterprise. In the past this has generally been viewed unfavorably by international credit institutions. Public enterprise in some activities dates back a long time; sometimes this resulted from an effort by countries with relatively weak economies to avoid concentration of private economic power; in other cases, it seemed the best way of overcoming technical and economic backwardness; or again, public enterprise in some fields was necessary for economic development. Even those who believe in private initiative have often had to resort to public enterprise, despite its defects, because there was no other alternative. With assistance from abroad, private national initiative could fill this gap. But measures for encouraging private enterprise should be linked with others for encouraging competition or ensuring effective state control in cases where the very nature of the activity precludes genuine competition.

Enterprises exploiting national resources pose another problem, not only because they generally involve an elaborate technology, but because of the complexities of the international market. Nevertheless, I cannot accept the idea that there is no possible escape from the dilemma of continuing the present state of affairs, or nationalizing foreign-held corporations. Other formulas can be found. Of course, this is a controversial issue. On the one hand, there is admiration for the technology and organization of these enterprises, and for the higher wages which they frequently provide. On the other hand, their operations are geared to their own particular interests, even though the important decisions they make involve the nation as a whole. To allow this situation to continue is likely to lead to extremist solutions.

Let us not forget that economic development should be essentially a process of learning to do everything that other more advanced areas are already able to do. In some cases the process may be rapid, in others it may take rather long, but in every case we should look ahead and do what we can to make sure that development occurs with a minimum of disturbance. Our goal is by no means to close the door to foreign enterprise; far from it. We all can see how that monument of wisdom, the Marshall Plan, helped to raise the technology of Western Europe to the level of the United States, and how foreign private enterprise now lives harmoniously with its European counterpart. This has to be Latin America's final goal, too.

There must be positive evidence that a fundamental aim of the policy of international coöperation is not so much to open new fields of investment for foreign capital as to develop the capabilities and resources of the Latin Americans themselves within a system of private enterprise and individual initiative. Unless this can be accomplished in a dynamic way, the policy of international coöperation, no matter how vast the resources involved, will continue to lack an essential quality: the ability to reach the popular masses, to fire the imagination and encourage the constructive efforts of the younger generations in Latin America, particularly those who now tend to break impetuously out of the present restrictive environment.

You are reading a free article.

Subscribe to Foreign Affairs to get unlimited access.

  • Paywall-free reading of new articles and a century of archives
  • Unlock access to iOS/Android apps to save editions for offline reading
  • Six issues a year in print, online, and audio editions
Subscribe Now
  • RAUL PREBISCH, Under-Secretary of the United Nations in charge of the Economic Commission for Latin America, with headquarters in Santiago, Chile; organizer and first Director General of the Central Bank of Argentina
  • More By Raul Prebisch