Facing Facts in Latin America
GAINES, THOMAS A.
Facing Facts in Latin America THE POLITICAL ECONO'MY OF LATIN AMERICA By Wendell C. Gordon Columbia University. 387 pp. $8.75. Reviewed by THOMAS A. GAINES Author, "Profits with Progress-Latin...
...This implicit interrelationship between economic institutions and political power is the leitmotif of Wendell Gordon's book, The Political Economy of Latin America...
...Important enterprises in Colombia, Brazil, Chile and many other republics will be surprised to learn this...
...Gordon speaks with particular authority in his discussion of trade and banking and, in the process, undoes some misconceptions...
...In subsequent years, small homes for farm workers sprouted on the land of hacendados...
...Reviewed by THOMAS A. GAINES Author, "Profits with Progress-Latin America's Bright Investment Future" THE LATIN American Establishment has just begun its long voyage into the realm of world involvement, and insecurity...
...and the lack of a useful statistical base on which to plan (though there is no shortage of aimless paper shuffling) . To demonstrate that technology is what is missing in Latin America, Gordon sets out to show that, assuming the presence of natural resources, the other major ingredient for development is present, namely capital...
...Finally, excessive protection blunts the spur of competition...
...To be sure, these forward steps are small and tentative, yet they have allowed progressive income taxes to partially replace regressive import tariffs as government sources of revenue...
...The realization that they were no longer insulated from world problems caused a quiet panic among the Latin American wealthy, marking the end of centuries of tranquility...
...tax rate...
...Then one day some gulls were found dead on a beach in Ecuador, and word went out that radiation from atomic testing had been the cause...
...He says that large Latin American corporations have sufficient capital, and that only the small ones are needy...
...He is limited by a shortage of working capital, not of knowledge...
...Progress, however slight, has come about because the Latin ruling class has learned that in a world of rising expectations, it must give a little...
...More subtle but serious modifications have been taking place in Latin America's institutions during the '60s...
...One of the most timely and practical subjects this volume takes up is the promotion of new industries by duty protection, on which there is current rethinking in Washington (if not in Latin America...
...They are in Brazil and Venezuela, where there are adequate deposits of iron...
...It does no good, for example, to be able to take aluminum from bauxite if a country has no bauxite deposits...
...and South American businessmen went to Washington for advice on redistributing the wealth...
...Resource deficiency is not the problem, he feels, nor are the more sophisticated hypotheses of Gunnar Myrdal, W. W. Rostow and...
...Fiscal mismanagement may be inevitable in a society short on planning techniques...
...For the same reason, Latin countries should scrap their efforts to establish shipping lines, because the capital investment per sailor is about $50,000 while in manufacturing, by contrast, the capital cost per worker ranges from $5,000-$20,000...
...large public expenditures for police, justice and finance with little emphasis on public works, education, agriculture and health...
...This would rule out showpiece industries like steel, which require enormous imports of iron and coal and where minimum economic plant size usually means overcapacity...
...In placing Latin American problems squarely at the door of the controlling wealthy groups, Gordon, in effect, rejects natural causes as the explanation for underdevelopment...
...Subsidies have the advantage of making for availability of goods during the transition period, whereas high tariffs make for scarcity Erudite vet practical, The Political Economy of Latin America brings us up to date on an important area at a time when we are concerning ourselves more and more with human welfare beyond our borders...
...Third, in placing the highest tariffs on luxury products, governments encourage the establishment of those industries least needed...
...Since the objective is to allow the new producer to price competitively, it is better to work directly at the production stage with subsidies than indirectly at the commercial stage with tariffs...
...If new industry is to be shown favoritism, Gordon prefers the production subsidy...
...Fact: Latin America is investing a larger percentage of gross national product than is the U.S...
...Alvin Hansen...
...The major industrial emphasis should be on consumer goods, but Gordon admits that planning cannot be totally effective when it comes to industrialization...
...investors in Latin America has little effect, since the composite tax burden equals the U.S...
...they build dams in the wrong places, for instance...
...The essential planning problem is the allocation of emphasis among consumer goods, capital goods, infrastructure and social overhead...
...Heavy chemicals should be limited to the Lake Maracaibo region of Venezuela and the Vera Cruz section of Mexico...
...Thus a Colombian engineer manufactures $100,000 worth of electric motors when the local market demand for these products is in the millions of dollars...
...they have permitted banks to make funds available to industry instead of only to the merchant class, and so on...
...This may be for the following reasons: First, these tariffs mean that there will be less goods at higher prices during a transition period of indeterminate length...
...He says, too, that there is no shortage of savings and that the various governments have sufficient revenues but do not use them correctly...
...Only two steel industrial centers should supply Latin America's needs...
...His views on planning and priorities are also most relevant...
...Fact: Less than one-half of Latin America's imports is composed of finished goods...
...If a country is more interested in raising living standards than in creating power, it must choose industries with the lowest capital-tooutput ratios-that is, it must purchase each unit of welfare at the cheapest price...
...Latin America, he says, had tariffs on new industry all through the 19th century, but nevertheless stagnated industrially...
...They in no way identified with the big-power struggle...
...Gordon has his doubts...
...The same is true for a chemist in Ecuador, a plastics manufacturer in Peru...
...Thus many of the decisions have already been made, Minor industries, on the other hand, must emerge not by planning but by the process of trial and error...
...Secondly, the industry which is benefiting from the protection almost invariably resorts to the low volume-high profit approach...
...Most planners have accepted the argument that new industries in poor countries need special advantages to compete with established concerns in developed parts of the world, and these advantages have taken the form of tariffs...
...Knowhow begets know-how, but, in order for this process to thrive, institutional flexibility must prevail and the knowledge gained must be appropriate to the resources available...
...Although he provides some arguments to sustain these points, Gordon's refreshing iconoclastic tendencies founder here...
...Gordon prefers the institutional theory of Thorstein Veblen and Clarence Ayres, which holds that the accumulation of technical knowledge is the sine qua non of a country's advancement...
...If these monetary resources were properly employed, there would be no need for foreign capital, which has not added appreciably to the local body of knowledge...
...Other barriers include the traditions of low volume production for high profit...
...But I would reverse Gordon's proposition and argue that on the contrary, Latin America's most underused resource is technical capability-underused for lack of capital...
...Man-made institutions cited as having inhibited development are dictatorship, the military, bureaucracy and Catholicism (the Church originally frowned on taking interest and thus discouraged saving...
...Fact: Double taxation of U.S...
...This is because medium-size industries already exist in the larger countries...
...During the first years of the cold war, Latins used to ask why the United States did not simply attack Soviet Russia and have done with it...
...These were visible signs of a new "concern...
Vol. 48 • October 1965 • No. 21
