Neoclassical Development Theory and the Prebisch Doctrine: A Synthesis

By Thomas, Linus J. | American Economist, Spring 1994 | Go to article overview

Neoclassical Development Theory and the Prebisch Doctrine: A Synthesis


Thomas, Linus J., American Economist


Introduction

Raul Prebisch, the late Argentinean economist, is widely acclaimed to be the father of the Latin American School of Economic Thought (LASET), which argues for a shift in the commercial policy of the developed countries to favor the less developed. Prebisch exerted a profound influence on Latin American development policy, serving as Secretary General of the United Nations Conference on Trade and Development (UNCTAD), Director General of United Nations sponsored Latin American Institute for Economic and Social Planning, and Executive Secretary of the United Nations Economic Commission for Latin America and the Caribbean (ECLAC). His views were so dominant that LASET is usually known as the Prebisch Doctrine. As he questioned some of the basic postulates of traditional economic analysis of growth and development, especially with reference to LDCs and their interdependence in a diverse world economy, Prebisch developed an alternative framework of analysis which profoundly influenced international economic relationships.

This paper will argue that, although many economists tout the Prebisch Doctrine as revolutionary since it opposes certain canonistic views, it is in fact accommodationist and rooted in narrow nationalistic motives. Prebisch's views will be compared with the typical neoclassical Eurocentric outlook in the following areas: the concept of economic development; the terms of trade facing developing countries; the concept of import-substitution industrialization; the question of LDC integration and cooperation; the role of government; and the phenomenon of social inequality. An epilogue, summary and conclusion will follow.

Section

The Neoclassical Canon

A few days before his death on April 29, 1986, at the age of 85, Dr. Prebisch addressed the twenty-first session of ECLAC in Mexico City. His central theme was the re-examination of the general ideas of the body in light of changes in the international environment.(1) While reflecting on the origins of these ideas Prebisch said:

The formation of ideas in those years were greatly influenced by the world depression. Urged by the need to tackle the very adverse effects of that phenomenon, I gradually had to throw overboard neoclassical theories that nourished me in my university youth.(2)

Neoclassical economic theory leads to the basic conclusion that a perfectly competitive market system will lead to Pareto optimal outcomes. The theory embodies a defense of the social relation of private ownership of means of production, of the efficacy of Smith's invisible hand, and of the policy of minimum government intervention in the workings of the market process. Neoclassical theory generally posits a world in which individuals pursue their individual material interests, and in which the general welfare of the population will be promoted. The theory abstracts from internal societal conflicts (especially class conflicts) and postulates that any divergence from Pareto optimality is ephemeral and automatically corrected.

Neoclassical economists advocate free trade as a logical extension of this framework arguing that gains for all parties can be made from it as long as each country specializes in products in which it has comparative advantages. Planned industrialization by countries lacking comparative advantage in industrial production will result in inefficiency and loss of output.

Since the theory assumes Pareto-optimal equilibrium as a fundamental norm, the optimal role of government is minuscule. Neoclassical theorists however concede that in reality Pareto equilibrium may not be attained, because among other things, the selfish actions of some individuals may have negative effects on others. The usual proposals to address the externality problem, however, require a larger role for governments, creating tension over the postulate of minimal government proposition.

Neoclassical economic theory accepts as a given the existing distribution of wealth and income.

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