Raúl Prebisch

Centre and periphery

The plight of Argentina forced Prebisch to reexamine the principle of comparative advantage described by David Ricardo, marking the creation of a new school of economic thought in the late 1940s. Prebisch separated out the purely theoretical aspects of economics from the actual practice of trade and the power structures that underlie trading institutions and agreements. His resulting division of the world into the economic "centre", consisting of industrialised nations such as the U.S., and the "periphery", consisting of primary producers, remains used to this day. As president of the Central Bank of Argentina he had noticed that during the Great Depression the prices of primary products, such as agricultural goods, fell much more than the prices of manufactured secondary products. However, he and his colleagues were unable to specify the exact mechanism for the difference, beyond hypothesizing that supply conditions of primary and secondary goods were different in that while farmers planted the same amount every year regardless of the price they would get, manufacturers were able to reduce or increase capacity to respond to expected changes in demand.

However, these ideas remained unformed until he was appointed executive director of the Economic Commission for Latin America (ECLA or CEPAL) in 1950. In 1950, he released a study The Economic Development of Latin America and its Principal Problems that stated what is now known as the Prebisch–Singer hypothesis. German economist Hans Singer had separately arrived at a similar conclusion as Prebisch at roughly the same time, although his paper used a more empirical approach based on analysis of world trade statistics. The hypothesis begins with the observation that in the present world system the periphery produces primary goods to export to the center, and the centre produces secondary goods for export to the periphery. According to the hypothesis, as technology improves, the centre is able to retain the savings made, since it can retain higher wages and profits through developed unions and commercial institutions. At the periphery, companies and workers are weaker, and have to pass on technical savings to their customers in the form of lower prices. Prebisch pointed to the decline in the terms of trade between industrialised and non-industrialised countries, which meant peripheral nations had to export more to get the same value of industrial imports. Through this system, all of the benefits of technology and international trade would accrue to the centre.

Due to Prebisch's influence the ECLA became the center of Third World activism in the UN, giving birth to the Latin American school of structuralist economics. While many scholars perceive Prebisch as supporting import substitution industrialization (ISI), in which a nation progressively changes its imports and internal production, focusing on industrialization, at the cost of imported "superfluous" goods in favor of capital and intermediate goods for a given period of time, Prebisch criticized protectionism, especially that practiced by Juan Perón in Argentina, since 1956 and ISI since at least 1963. He advocated industrialization and economic cooperation, including through trade, among developing countries.

The International Institute of Social Studies (ISS) awarded its Honorary Fellowship to Raúl Prebisch in 1977.

UNCTAD secretary-general

Between 1964 and 1969, he served as the founding secretary-general of the United Nations Conference on Trade and Development (UNCTAD). Selected for his unparalleled reputation, he tried to forge UNCTAD into a body advocating the case of the whole developing world. His approach to development took a more trade-focused approach, advocating preferential access to the markets of developed countries and regional integration, building up trade between peripheral countries. Increasingly he stressed the extent to which developing countries had to bring growth by internal reforms rather than through external help. He publicly condemned ISI as having failed to bring proper development. Prebisch found his years at UNCTAD frustrating and "sterile" as it became increasingly bureaucratic and failed to achieve its main objectives. His sudden resignation in 1969 signified his loss of patience with the organisation's failures.

Dependency theory

During the 1960s, economists at the United Nations Economic Commission for Latin America and the Caribbean (ECLA) developed an extension of Prebisch's thoughts on structuralism into dependency theory, in which economic development of the periphery is seen as a nearly impossible task. While dependency theory is often seen to be opposed to the ECLA's original purpose, Prebisch's original framework was reformist, focused on improving developing nations' terms of trade through industrialization and regional integration. Dependency theorists drew directly on his center-periphery model. Prebisch's own thinking changed over time; by the 1970s, particularly through his work at UNCTAD, where he was increasingly critical of the international economic order about dependency concerns. Throughout, he continued to criticize the neo-classical economic forces that he felt were victimizing the global poor.

Legacy

Prior to the takeover of Chile by the Augusto Pinochet regime, economic thought in the country, particularly the University of Chile, was dominated by his ideas.