World
Across the world, parties governing amid the post-pandemic rise in prices have found themselves punished at the ballot box. The seeming ubiquity of this voter reflex, which has transcended the left-right divide, translates to a political cry for help: just do something. The question, though, is what to do. The answer to this question today is unusually constrained in historical terms: interest rate increases and public-sector austerity. The example of Javier Milei is a case in point: the Argentine president took office in December of 2023 amid triple digit inflation and slashed public spending. While inflation in the country has dropped in response, the country’s poverty rate has climbed to 50 percent.
But persistent and accelerating rising prices were not unusual during the decades after World War II, and how governments should understand their cause was a central problem of politics and economic theory. The newly created United Nations understood the stakes of inflation, and in 1948 established a commission to study the roots of rising prices in Latin America and the Caribbean. Amid the birth of a Latin American school of critical economics in the years after World War II, “structuralist” economists associated with the UN’s Economic Commission for Latin America and the Caribbean (Comisión Económica para América Latina or CEPAL), argued that inflation accompanied development occurring within an imbalanced system of global trade. “Monetarist” economists, associated with the International Monetary Fund (IMF), instead blamed inflation in developing South American countries on excessive monetary expansion and fiscal mismanagement. The diverging political implications of these two interpretations were stark, lending themselves to distinct policy programs which would shape the trajectory of the region.
Margarita Fajardo, professor of history at Sarah Lawrence College, examines CEPAL and its contributions to the knowledge and theory of inflation in her 2022 book The World That Latin America Created. Her current follow-up book project considers the history of inflation (alongside commodity regulations) and its importance to the transition to a neoliberal order in Latin America. For Phenomenal World, geographer Sammy Feldblum spoke with Fajardo to understand the hemispheric history of how inflation might be mobilized for a different sort of political-economic project. The following conversation has been edited for length and clarity.
An interview with Margarita Fajardo
sammy feldblum: One of the major themes of your book is institutional personalities: how institutions of knowledge production like CEPAL came to shape Latin American economics, including the interpretation of inflation.
What is CEPAL? How did the economists employed by CEPAL come to collect and analyze data in a different way from those working on macroeconomic theory in the US in the 1950s? And what historical circumstances gave rise to CEPAL’s critiques of the global economy and the economic science developed to explain it?
margarita fajardo: Although CEPAL became eventually known as a Latin Americanized institution, we must remember that it is a UN-affiliated body. That global aspect is often forgotten, but it’s important because it gives a sense of CEPAL’s potential resources, leverage, and ideological diffusion.
Intellectually, CEPAL is best known for a few key notions that are often packed together under the umbrella term of “dependency theory.” The main contribution of the cepalino understanding of development was to place development in the context of a global political economy of countries divided between center and periphery: the industrialized centers producing manufactured goods and the periphery producing raw materials for the world markets. That international division of labor gives rise to specific political economies, specific labor struggles, and specific monetary policies. These specificities are what cepalinos identify as the source of a long-term decline in the terms of trade, impeding Latin America’s development in the long run. Given that diagnosis, cepalinos proposed two different strategies: first, industrialization that substitutes those goods previously imported from the world’s economic centers, and second, international cooperation between those centers and peripheries to make trade fairer and more conducive to the economic development of the periphery.
The book tries to unpack the notion of “dependency” and give each of the ideas within that framework its time, place, and trajectory. It’s important to really understand the differences between these concepts—and the politics behind each of them—because they emerged during distinct periods. CEPAL is known for the center-periphery framework, the structuralist approach to inflation, and then dependency theory. The center-periphery framework was rooted in the post-World War II context. The structuralist approach to inflation, which I will explain in a moment, rose in the 1950s in relation to the politics of inflation in Chile and Brazil. Full-fledged dependency theory emerged in the mid 1960s and 1970s in response to the early theory of the center-periphery structure of world production and trade, and also in response to the changing political economy in Latin America, which was considering the role of international capital and of the political forces of development at the local, national, and global levels.
Institutions, individuals, and ideas—that is the tripod in which I conceptualize CEPAL and its role. In the book, I focus on individuals that shaped the trajectory of the institution, and also how the institution and the individuals clashed and altered each other’s trajectories. Those particular individuals include Argentinian Raúl Prebisch, long-time head of CEPAL and prime mover of the center-periphery framework. Then the “structuralist approach to inflation” connected many different cepalinos, including Mexican Juan Noyola, Brazilian Celso Furtado, and Chileans Anibal Pinto and Oswaldo Sunkel. Dependency theory brought in German-American Andre Gunder Frank and Brazilian Fernando Henrique Cardoso, just to name a few.
There are also those who participate in the dependency framework and are not linked to CEPAL. The confluence of these institutions, ideas, and individuals is what led to the rise and transformation of what I call the cepalino project.
sF: You note that the structuralist approach to inflation arose in the 1950s, but earlier, in the case of Chile for example, there was a policy of tolerance to inflation. Why and when does inflation come to be seen as a threat to economic development and social peace, and how does that figure into the initial period of cepalino thinking?
MF: The structuralist approach to inflation rescued and redeployed that foundational framework of CEPAL. Chile, the headquarters of CEPAL, greatly influenced the institution. The country had experienced long-term double-digit inflation, though not hyperinflation, for decades. In that context, inflation came to be assumed as the cost of development, or the accompaniment to growth. But there was a point in the 1950s when that consensus started to break. Why? Perhaps it has to do in part with the stagnation of development. When development and inflation coexisted, the latter was tolerated. But once development started faltering while inflation persisted, the search for new explanations for inflation began.
Cepalinos, like everyone else, initially thought of inflation as driven by costs: wages that increase above price levels that then are translated into prices. This creates a wage-price spiral that is transmitted to the rest of the economy. As development faltered and labor struggles over real wages intensified, some cepalinos worried that the wage-price spiral was not only unable to explain the rise in prices, but that it also fueled the fire of conservatives, who did not want to concede on those labor struggles by lowering profits or engaging in some form of redistribution. As cepalinos debated the sources of inflation in Chile among themselves, they were also thinking in relation to another big institutional actor in Latin America, the IMF. There, we can see the growing split between the structuralist and monetarist approach to inflation.
Cepalinos considered not only the amount of money in circulation, but also the structural factors affecting inflation, including the international economic structure, land tenure regimes, and balance between the different sectors of the domestic economy, among others. They argued that the international division of labor between raw-material producing peripheries and the industrial center—and the falling terms of trade for the former—made imported goods costlier, both hindering development and promoting rising prices. Similarly, the land tenure system, with its large, idle landholdings, made foodstuffs and agricultural products expensive or unavailable, turning countries towards imports amid a shortage of foreign exchange. As cepalinos debated the causes of inflation, they gave rise to the structuralist approach to inflation in the 1950s, which was eventually recast as the antithesis of the monetarist approach to inflation ascribed to the IMF.
sF: Can you elaborate more on these distinct approaches to inflation? What kind of policy program does each approach put forward?
MF: The structuralist approach tries to understand inflation as a product of development, meaning that the economic development in this postwar context was driven by demand for imported capital goods required for industrialization. This meant that development, the industrialization process, required imported capital goods which—given the shortage of foreign exchange and falling prices of exportable commodities—created inflationary pressures. This approach differentiates between the structural causes of inflation and inflationary pressures like wages.
The response required sustainable and accelerated development to break the bottlenecks that lead to inflation. If there’s not enough food, and food needs to be imported, then prices can rise. If we need to import capital goods, then we can either develop the capacities to manufacture goods ourselves, or we can create stable foreign exchange flows by stabilizing the prices of commodities to lower those inflationary pressures. The toolkit of the cepalinos, or the structuralists, sought to foment development through international cooperation in order to manage inflationary cycles. This would prevent the rapid adjustments in income required to control inflation, instead using international cooperation to soften those effects and have a less detrimental impact on the population.
The monetarist explanation of inflation has to do with the quantity of money available in the market, the source of which is private banks, the central bank, and the government treasury. The solution has to do with controlling that money supply: central bank regulations and cutting fiscal expenditure.
The structuralists think of inflation as a cost of development. The monetarists think inflation impedes development. Monetarists think that if the problem of inflation can be solved, then development will follow.
sF: How important is this split in driving the dependency theorists’ criticism of CEPAL more generally? I’m thinking specifically of the structuralist criticism of Raúl Prebisch’s stabilization plan in Argentina in the 1950s.
MF: Initially, the structuralist and monetarist approaches were not exclusionary paradigms. They could concede points to the other side. But over the course of stabilization plans in both Chile and Brazil, the political debates became heated. The paradigms of CEPAL and the IMF became more polarized. CEPAL was the “International Monetary Fund of the left,” a toolkit and institutional fulcrum to challenge the policies of the IMF. Certain cepalinos like Prebisch would say that such an oppositional approach would actually undermine an understanding of the true social costs of inflation.
The confrontation between structuralists and monetarists positioned cepalinos on the left of the polarized political contests in Latin America, especially as a result of the Cuban revolution. But also, while some cepalinos sided with the Cuban revolution, others trusted the Alliance for Progress, the US counterrevolutionary response to Cuba, as a solution for accelerating development. The alignment of CEPAL vis-a-vis the Cuban Revolution and the Alliance for Progress led to criticism from dependency theorists, who, in response, sought a different model. For some dependentistas, CEPAL’s institutional rupture with Cuba signaled that the organization was complicit with imperialist forces and thus an agent of underdevelopment.
sF: In 1970, Salvador Allende gave dependency theory-adjacent Pedro Vuskovic wide leeway to implement a program of economic planning in Chile. How does Vuskovic approach inflation while in power? How does the resulting high inflation under Allende spark backlash to the regime?
MF: I don’t know if Vuskovic would call himself a dependentista, but I do think he was very much influenced by dependista ideas, and he was a member of the Socialist Party. He implemented a plan to accelerate development through granting subsidies, raising wages, and promoting industrial growth. That push towards development initially worked.
There were many different factors at play, so it’s hard to tell in the Chilean case why exactly that approach failed. Did it have to do with sanctions, or domestic and international sabotage, or the failure of these policies in and of themselves? In any case, production didn’t increase at the pace of demand. That resulted in a shortage of goods which eventually translated into rising prices and the emergence of a black market. It was hyperinflation that marked the failure of the Allende project.
sF: In thinking about the struggle between the contrasting interpretations of inflation, Fernando Henrique Cardoso presents an interesting case. He was straightforwardly a dependency theorist and to the left of CEPAL in the 1970s. By the time he came into power in Brazil the ‘80s and ‘90s, he implemented stabilization plans that were part of a broader neoliberalization of the Brazilian economy. What does this say about the trajectory of dependency theory more broadly?
MF: The case of Fernando Henrique Cardoso, one of the pioneers of dependency theory, allows us to see how we move from state-led development to the neoliberal state and the neoliberal order. I think there’s some consistency in his transition despite the drastic change. His critique of dependency theory emerges from his critique of the developmental state, which he saw as a populist alliance between workers, industrialists, and the state. That critique persists as Brazil turns from a developmental state under authoritarianism to a developmental state under democracy. Throughout his career, Cardoso tries to understand and unravel the state as an economic actor—the role it should and shouldn’t play. These are the main questions of his intellectual and political project.
sF: Because dependency theory has an anti-imperialist ethos, it remains popular among Marxist intellectual historians and much of the left. Yet the world economy it describes has evolved considerably in terms of industrial structure and the international division of labor. What do you think about the accomplishments, limitations, and legacy of Latin American structuralism and dependency theory today?
MF: One of the meanings of dependency theory that has perpetuated over time is its ability to point to the insertion of Latin America in the global economy as the reason for many of the economic, social, and political difficulties that the region faced in the mid-twentieth century. That critique was embedded in cepalino thinking from the start. The contribution of dependency theory is interrogating the relationship between the global economy and the internal structures of power, and the balance between those different social actors. I think that dependency theory could be used again to identify those local forces, the internal political structures of power that work with external global forces to perpetuate or challenge a specific model of development.
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