This volume is the Spanish translation of several of Celso Furtado’s recent essays including “Um Projecto para o Brasil” (Rio de Janeiro, 1968). In the book one of Latin America’s best known “structuralists” expresses his thoughts and concerns after the import substitution era of the 1950s had drawn to a close. Despite the progress of that period Furtado is pessimistic about the future. He is unconvinced that growth can be sustained and preoccupied by the loss of autonomy implied by the massive entry of multinational enterprise into Brazilian manufacturing.
Interesting as Furtado’s thoughts and hypotheses about Latin America are, I was disappointed by his apparent disinterest in testing them against empirical observation. For example, he asserts that Brazil’s growth is not viable because it was “dependent,” that is, based on externally caused shifts in demand rather than internally generated technical change. This, he argues, led to increased capital intensity, income concentration and declining technical change, all of which contribute to declining growth possibilities. Unfortunately for Furtado, Brazil made a mockery of his forecast, which was written in 1967 just as Brazil was embarking on five years of uninterrupted growth. This fact makes the discussion of stagnation seem academic and somewhat far-fetched. While it is certainly possible that Brazil is the exception that proves Furtado’s rule, I, for one, wonder why the Latin American economies should be subject to a special set of forces making them stagnation-prone. An alternative explanation for those five years of slow growth in Brazil is that they were due to an extended period of orthodox stabilization carried out by governments determined to control inflation and correct balance of payment disequilibrium. It would be interesting to see someone try to test the structural stagnation hypothesis against more orthodox alternatives rather than state it as a self evident truth.
Aside from stagnation and the reasons for it, Furtado’s other main theme concerns the implications of the dependence of the Latin American economies on foreign enterprise. He favors a mixed economy with a planning apparatus of the French sort, as he has little faith in the ability of a fully centralized planning apparatus to produce welfare for the nation. The key problem is how to use the firm’s undoubted power of efficient decision-making and adoption of modern techniques without losing control of the economy or succumbing to a redistribution of income toward the owners of capital. In a country with as much foreign investment as Brazil this is an important question, but Furtado does not go much beyond clichés and doubtful theorizing in dealing with it.
He argues that the firm uses mark-up pricing to appropriate the saving of the consuming public. It is thus able to finance its expansion internally, free of the outside control which would be exercised by the capital market. This is serious in any case, but much more serious when the firm happens to be foreign. It is not obvious that mark-up pricing increases profitability, since the firm is still limited by public demand. A far more important factor tending to create supernormal profits is limiting potential competition. Ironically, it has often been Latin governments, following a pell-mell strategy of import substitution at any cost, which have guaranteed a protected domestic market in order to entice foreign and domestic investment into key sectors of the economy.
Furtado argues that firms are more controllable if they are financed externally. What does that mean? In the last analysis a firm is controlled by demand conditions, not the source of its financing. It expands in the most profitable direction, which means producing the products with the greatest demand. If it is forced to finance externally, that may slow down its rate of growth. It should not change the direction of its new investment.
Lastly, is it obvious that foreign firms are worse than domestic ones? True, they repatriate earnings; true, they imply foreign decision-making within the host country. But they also should raise the average wage level, and cause a redistribution of income away from domestic capitalists to domestic workers. If a host country brings in enough foreign firms, it may even cause a redistribution of income from other foreign firms to host country nationals. From a social justice point of view, these progressive redistributions should be viewed favorably.
Furtado, as always, raises provocative questions and interesting ideas. But in my opinion what we need now in studying the Latin American economies is hypothesis testing rather than hypothesis creation, detailed empirical analysis not more grand theories, more effort to see Latin America in the context of economic theory rather than as a special case requiring a new economics. The reader seeking ideas about Latin America will enjoy Furtado’s book. The economist seeking rigorous analysis and hypothesis testing will be disappointed.
