The World That Latin America Created

The United Nations Economic Commission for Latin America in the Development Era

Margarita Fajardo

• Publisher: Harvard University Press
• Year: 2022
• ISBN:
  9780674270022
• Topic: History
• Subtopic: Latin American & Caribbean History
• Index: History

How a group of intellectuals and policymakers transformed development economics and gave Latin America a new position in the world. After the Second World War demolished the old order, a group of economists and policymakers from across Latin America imagined a new global economy and launched an intellectual movement that would eventually capture the world. They charged that the systems of trade and finance that bound the world's nations together were frustrating the economic prospects of Latin America and other regions of the world. Through the UN Economic Commission for Latin America, or CEPAL, the Spanish and Portuguese acronym, cepalinos challenged the orthodoxies of development theory and policy. Simultaneously, they demanded more not less trade, more not less aid, and offered a development agenda to transform both the developed and the developing world. Eventually, cepalinos established their own form of hegemony, outpacing the United States and the International Monetary Fund as the agenda setters for a region traditionally held under the orbit of Washington and its institutions. By doing so, cepalinos reshaped both regional and international governance and set an intellectual agenda that still resonates today.Drawing on unexplored sources from the Americas and Europe, Margarita Fajardo retells the history of dependency theory, revealing the diversity of an often-oversimplified movement and the fraught relationship between cepalinos, their dependentista critics, and the regional and global Left. By examining the political ventures of dependentistas and cepalinos, The World That Latin America Created is a story of ideas that brought about real change.

ONE

Latin America and the Postwar Global Order

The world that Latin America and cepalinos created began to take shape as the Second World War came to an end. In Latin America and across the world, visions of a postwar global order multiplied. Some of those visions rekindled the language of self-determination and national sovereignty that arose as the First World War struck a blow to the world of empires. Others reimagined the meaning and scope of terms such as “class struggle” and “communism” outside the European context in which they emerged. Others reinvented notions of liberalism and democracy after what appeared to be the collapse of both principles in the interwar and war years. As many across the world mobilized old and new concepts to imagine a new global order after the war, Latin Americans coalesced around the notion of a world divided between “center and periphery” and a new geography of world economic power, as proposed by Argentine economist Raúl Prebisch and cepalinos.

The vocabulary of “center-periphery” to characterize the world economy found a home in a new global institution. As the war came to an end, international organizations designed to safeguard postwar peace and prosperity emerged as the cornerstone of a new world order. Backed by the war victors and raising the hopes of solidarity between old and new nations, the United Nations and parallel institutions such as the International Monetary Fund (IMF) and International Bank for Reconstruction and Development (IBRD), also known as the World Bank, became the space for voicing the myriad and often conflicting visions about the future of the world’s political and economic order. Invested in the remaking of the world economy, Latin Americans strove to institutionalize their concerns in both the rising IMF and the aborted International Trade Organization (ITO) until they procured an institution of their own that put the problem of global trade front and center. Sidestepping Argentina, Brazil, and Mexico, the traditional contenders for regional leadership, Chile, in the hands of Hernán Santa Cruz (who would become a highly influential human rights diplomat in the following decades), spearheaded the creation of the UN Economic Commission for Latin America (CEPAL, acronym in Spanish and Portuguese). Headquartered in Santiago, Chile, CEPAL rapidly began to move the center of gravity for worldmaking projects from the North to the South within the emerging global institutional landscape.

The worldmaking project of cepalinos was forged as CEPAL, the Santiago-based global institution, and the idea of center and periphery coalesced. This chapter looks at the origins of that project: the diplomatic efforts, the intellectual exchanges, and the policymaking goals that during the end of the Second World War and in the early postwar years brought together the United Nations, Prebisch, and the center-periphery manifesto. CEPAL and cepalinos not only put international trade front and center after it had been postponed or watered down in previous forums of global economic debate. Competing with New York and Washington, CEPAL and cepalinos also seized the problem of the inequality in the gains from trade that multiple international organizations were grappling with and made it the foundation of an ambitious global institution situated in the world’s periphery.

Latin American Postwar Planning

The global powers’ commitment to reorganize the postwar world economic order was welcomed in Latin America.¹ The Anglo-American plans that resulted in the creation of the IMF and the IBRD at the Bretton Woods meeting in 1944 had a Latin American imprint: some crucial components of the American plan had grown from US-Latin American partnerships in the previous decade.² Inspired by Keynesian ideas, Latin American economists and both future cepalino allies and opponents saw the potential in what could be a global countercyclical policy embedded in the functions of the future IMF. Unlike the old order and its rigid golden rules that forced money out of embattled countries during economic depressions, the new monetary institution provided credit to offset short-term downturns that were common for those producers of coffee, sugar, and other commodities whose prices shifted widely in the global market. Prebisch considered the “organization of an international system of credit an excellent idea” and so did Brazilian economist Octávio Gouvêa de Bulhões and Mexican economist Víctor Urquidi.³ Similarly, the World Bank’s charter gave equal consideration to development and reconstruction, and thus it represented the fulfillment of long-held aspirations to diversify export-oriented economies through industrialization.⁴ Because of, not despite, their concerns with the region’s specialization in the production of primary products and raw materials, Latin American economists were invested in the Bretton Woods institutions and the new order.

However, drawing from the lessons in international economic cooperation of the 1930s, the US and UK postwar planners opted to focus the discussion on financial stability and economic reconstruction, leaving the question of trade for a future moment and another institution. Although seen as a crucial mechanism for growth, international trade was the most contentious area of postwar economic reconstruction, given the nationalist and protectionist trends of the interwar years and the fear of another depression.⁵ Like their Northern counterparts, Latin Americans learned many lessons from the Depression years. Despite Latin America’s comparatively fast and export-driven recovery from the Great Depression, regional economists from Mexico to Argentina were struck by the detrimental effects on growth and stability of the existing pattern of international trade.⁶

Invested as they were in their principles, Latin Americans had also insisted on what was purposefully absent from the Bretton Woods institutions. They urged global attention to the particular challenges of commodity exporters and the inequality in the prevailing pattern of international trade. As “producers of primary products and raw materials,” Latin American countries were “subject to more cyclical and seasonal fluctuations” than the producers of manufactures, Bulhões, a consultant for the Brazilian delegation, explained.⁷ Not only were Latin American economies more prone to the fluctuations of the global economy but their effects were “deeper” and of “different character” than those experienced by the large industrialized nations, Jorge Chávez, Peruvian delegate to the Bretton Woods conference, declared in an effort to put the inequality in the pattern of international trade front and center. What countries in Latin America “needed [were] markets on which they can count, capable of absorbing sufficient amounts at reasonable prices,” Chávez explained, insisting on a discussion on a reorganization of trade patterns.⁸ By focusing on the monetary system, the Bretton Woods plans had “begun with [the] end,” Urquidi claimed, postponing the fundamental postwar problems connected to international trade and leaving wobbly what was initially conceived as a tripartite structure.⁹ Despite these reservations of Latin Americans, the debate about the economic order advanced swiftly at Bretton Woods under the assumption of an eventual forum on trade, and of a potential international trade organization that complemented the fund and the bank.

A latecomer in the postwar institutional building process, the ITO failed to materialize. At the 1947 Havana meeting where the ITO charter was to be finalized and signed, amendments and exceptions were presented to almost every single point of the draft, demanding more discretion, fewer rules, and more autonomy for each nation. The US government, the key market on whose reduction of trade barriers the rest of the world hinged, began to lose interest in the organization. Yet, as the ITO collapsed amid world dissent and American disinterest, the rounds of negotiations for the reduction of tariffs on products that amounted to half of the world’s trade led to the establishment of the General Agreement on Tariffs and Trade (GATT). Although the impact of those agreements was meager given the modest reductions, they did establish a mechanism, a legal international agreement, for the liberalization of trade, which became the privileged platform for tariff reduction in the postwar era, displacing the unborn ITO.¹⁰ The failure of the ITO deprived the world, especially Latin Americans, who then amounted to the majority of the developing world, of a forum to discuss the inequalities and restoration of imbalances in global trade. Within a few years, another international organization headquartered in Latin America filled that vacuum.

A Space for Latin America

One month after assuming the Chilean presidency in November 1946, Gabriel González Videla appointed Hernán Santa Cruz, a lawyer he met in Rio de Janeiro in 1944 and with whom he had established a loyal friendship, as Chile’s permanent delegate to the United Nations.¹¹ While in Rio, González Videla had learned a valuable lesson from Getúlio Vargas, the Brazilian self-declared president. When González Videla asked for Vargas’s rationale behind the construction of the steel mill amid growing opposition from the financiers or the “eternal grave-diggers of the country,” Vargas’s response was, “What would Brazil gain by importing cheaper steel if doesn’t have the dollars to buy it?”¹² The scarcity of foreign exchange, in part caused by the long-term decline in, and the short-term instability of, the prices of primary products, was a prominent concern of prominent economists and future cepalinos, as well as regional statesmen. Like those at Bretton Woods, González Videla insisted on the need for international agreements and economic coordination to guarantee the stability of prices of raw materials, the rationalization of production, and the establishment of the capital goods industry in the region at the 1945 San Francisco conference in which the United Nations was established.¹³ By appointing Santa Cruz, González Videla prompted a move at the United Nations that would have enormous consequences for the region and the world.

FIGURE 1.1 At the house of Hernán Santa Cruz, Salvador Allende (left), Eduardo Frei (right), and Gabriel González Videla (center background), future presidents of Chile, gathered in 1944. With these rising Chileans and other politicians of Peru, Venezuela, and Cuba, Santa Cruz discussed the Latin American war dilemmas and the challenges of the postwar world that led to the establishment of CEPAL. (Archivo General Histórico del Ministerio de Relaciones Exteriores de Chile.)

Soon after he arrived in New York in the winter of 1947, Santa Cruz began to envision a path for Latin America in the emerging global system. A lawyer by training with experience in criminal and administrative law, Santa Cruz felt unfit for the job at the international organization. For Santa Cruz, who had worked primarily as a jurist in military courts and university lecturer but who belonged to the circles of rising political figures such as Salvador Allende and Eduardo Frei, the position at the United Nations transformed into a lifelong and fertile career in international diplomacy¹⁴ (figure 1.1). Chile had been elected one of the rotating members of the UN Economic and Social Council (ECOSOC) the year before, and participation in the fourth session was Santa Cruz’s first task. The physical devastation and economic dislocation caused by the war were the main subjects of discussion at the UN ECOSOC and the main reason behind the creation of two regional commissions, one for Europe and one for Asia. Although Latin America had been spared from physical devastation and military occupation, it had not been sheltered from economic dislocations, Santa Cruz believed. Furthermore, the standard of living of its population was probably below that of the people in the war-torn areas, he surmised. But the urgency of reconstruction and his own unfamiliarity with ECOSOC gave Santa Cruz pause.

The Foreign Ministry had offered Santa Cruz conflicting instructions about his mission in New York. According to the minister, small states should orient their interventions based on the notion that “cooperation between great powers” was the key to world peace. The instruction implied Santa Cruz should take a back seat and leave global matters to powerholders. But the government also asked Santa Cruz to “take a leadership position” in the pursuit of “union within the Americas” without disregarding proposals that would “transcend continental cooperation.” More specifically, the minister also asked Santa Cruz to “oppose any expansion in the entities, commissions, or specialized agencies already established and that could result in a rise of the [Chilean] quota.”¹⁵ For a small and distant country like Chile, the United Nations represented an enormous opportunity for global intervention, on the one hand, and an excessive burden and a reaffirmation of global power structures, on the other, making Santiago ambivalent about the emerging international system.

Given the contradicting instructions, Santa Cruz formulated a plan of action for the next meeting of the Council. “After testing the waters,” Santa Cruz wrote to Santiago six months later, “I believe it’s now time to submit the proposal for the creation of an economic commission for Latin America.” The terms of reference for the new commission, he explained, followed verbatim those of the commissions for Europe and Asia, but they made “explicit reference to the need to adopt measures for the industrialization and economic development in order to increase the world’s use of Latin America’s resources.” The only problem with Santa Cruz’s plan was that the deadline for submitting items for the agenda was too close for him to wait for instructions and confirmation from Santiago. He opted to fly solo. Santa Cruz made his case and justified his decision based on González Videla’s “statements on his tour ...

Table of contents

• Cover
• Series Page
• Title Page
• Copyright
• Dedication
• Contents
• Introduction
• 1. Latin America and the Postwar Global Order
• 2. Center and Periphery in
• 3. “Structuralism,” “Monetarism,” and the Politics of Inflation
• 4. Revolutions Left and Right
• 5. Toward Dependency Theory
• 6. The Many Lives of Dependency Theory
• Epilogue: Dependency Theory in the World and Back in Latin America
• Archives
• Abbreviations
• Notes
• Acknowledgments
• Index