Celso Furtado (1920–2004) was one of the most influential Latin American
economists of the 20th century.
He was head of the development division of the
United Nations Commission for Latin America in the 1950s, where he helped to
formulate the structuralist approach to economics.
His Formação Economica do Brasil (1959) is the classic interpretation
of the economic history of Brazil. In 1961 he published a collection of essays
about the notion of underdevelopment and development as interdependent
phenomena.
Furtado's last contribution was his careful discussion in the 1970s of
the concept of cultural and economic dependence in underdeveloped countries.
Furtado was
born on 26 July 1920 in Pombal (state of Paraiba, northeast of Brazil), and
died on 20 November 2004 in Rio.
Together
with the Argentinean Raúl Prebisch, Furtado was the most widely read and
influential Latin American economist of the second half of the 20th century.
A prolific
writer, he published more than 20 books on the economic history of Brazil and
Latin America and on the theory of economic development, many of them
translated into English, French and other languages.
He
graduated at Universidade do Brasil (Rio) in 1944 and received his doctorate
from the Sorbonne (Paris) in 1948, with a thesis about the Brazilian colonial
economy. Maurice Byé was his supervisor, but it was François Perroux who
impressed him most at the time.
Upon his
return to Brazil in that same year, Furtado was invited by Prebisch to join the
staff of the new United Nations Economic Commission for Latin America (ECLA) in
Santiago.
From 1950 to 1957 he was head of the development division of ECLA,
when he left Santiago to spend the academic year at Cambridge University
working with Nicholas Kaldor and Joan Robinson under a Rockefeller Foundation
scholarship.
In 1958 he
was appointed director of the Brazilian National Development Bank, where he
conceived the project that led to the creation of SUDENE (Development Agency of
the Northeast of Brazil) in 1959, of which Furtado was the first director.
In 1962 he
also became Brazil’s first Minister of Planning, with the task of drafting a
national economic plan, a position he held until 1963. Deprived of his
political rights following the military coup in 1964, he left Brazil to take up
appointments at American and European universities.
Furtado
went back to Paris and became the first foreign professor to be appointed by
the Sorbonne, where he taught development economics from 1965 to 1985. After
the return of Brazil to democracy he was appointed Minister of Culture
(1986-88), and elected to the Brazilian Academy of Letters and to the Brazilian
Academy of Sciences in 1997 and 2003 respectively.
(Furtado’s
autobiography, originally published in 3 volumes between 1985 and 1991, was
collected in 1997; the first volume, with recollections from the 1950s, his
most productive period, was translated into French in 1987.)
Furtado,
together with Prebisch and other economists at ECLA in the 1950s, was one of
the formulators of structuralism in Latin American economics.
His main
contributions can be found in two books, both available in English. In his 1961
volume on economic development, which collected essays written during the
1950s, Furtado provided the most elaborate exposition of the structuralist
analysis in the literature at the time.
In his 1959
classic Formação Economica do Brasil, written in Cambridge in 1957-58 and based
on Furtado (1950, 1954), he applied for the first time the structuralist
approach to the interpretation of the economic history of a Latin American
country, an exercise he would expand to the whole region in his 1969 book.
Furtado’s
methodological innovation was the use of historical investigation to identify
factors that are specific to each structure through time: “bring history near
to economic analysis, get from the latter precise questions and find answers in
history”.
In Formação
he pioneered the use of modern income analysis to deal with historical
phenomena by introducing macroeconomic models into the analysis of each phase
of Brazilian economic development from the 16th century to the 1950s (see also
Furtado 1963 for a brief account).
Furtado’s
role in the historiography of the industrialization process of Brazil in
particular and Latin American in general may be compared to Alexander
Gerschenkron’s well-known interpretation of the late industrialization of
Russia and other continental countries.
Like
Gerschenkron, Furtado examined industrialization from the point of view of
history. Both rejected Walt Rostow’s view that the economic development of
different countries goes through a succession of phases to which a single analytical
framework can be applied.
The main
feature of the 1959 book is that the economic history of Brazil (and other
Latin American countries as well) must be based on an open growth model with
international trade treated as an endogenous variable, since these countries’
economies evolved as suppliers of raw materials to the world market.
Furtado
shows that throughout the four centuries from 1530 to 1930 the Brazilian
economy depended on external demand to provide stimulus to higher productivity
without previous capital accumulation, with three long-period cycles - sugar
exports (1530-1650), gold mining (1700-1780) and the expansion of the world
market for coffee (1840-1930) – and intervening periods of relative stagnation.
That phase
came to an end in the economic crisis of 1929, when the collapse of
export-commodity prices cut the country’s importpurchasing power in half.
According to Furtado, the policy adopted by the Brazilian government at the
time to maintain coffee price, by buying the unmarketable coffee and burning
it, had the effect of an unwitting “Keynesian” anti-cyclical deficit-financing
policy.
This
contributed to keep domestic demand and, together with the diminished capacity
to import, pushed up domestic prices of imported goods and stimulated
investments in import-substituting industrial consumers’ goods.
That
process marked the beginning of a new phase in the development of Brazil, based
on internal demand and import-substituting industrialization. Brazilian late
industrialization – as compared to the United States – is explained in part by
the differences between the productive structure of Brazil’s export agriculture
and the small agricultural properties in the English colonies of North America.
Brazilian
internal market was much thinner due to the concentration of income and
property, which served to maintain its stagnant colonial structure. Moreover,
whereas the United States participated in the first wave of the industrial
revolution as exporter of a key raw material (cotton), the main cause of the
relative backwardness of the Brazilian economy in the first half of the 19th
century, according to Furtado, was the damming up of its exports and the
increase of the subsistence sector with lower productivity.
Also in
contrast with the late industrialization of continental European countries in
the second half of the 19th century studied by Gerschenkron, the
import-substitution process in Latin America did not lead to an intensive
development of producers’ goods industries and changes in international trade
(exports of manufactured goods and imports of raw materials).
The
evolution of trade patterns in Latin American countries during their
industrialization period after 1930 was quite the opposite: exports were still
based on some few commodities and imports concentrated on goods whose
production required huge investments and/or advanced technology.
It was in
attempting to explain the backwardness of Brazil that Furtado hit upon the idea
that underdevelopment and development are two interdependent phenomena which
appear simultaneously as part of the evolution of industrial capitalism.
The theme
was elaborated in his 1961 book, where Furtado put forward concepts of economic
underdevelopment and development that have been largely accepted in the literature.
An underdeveloped structure is one in which “full utilization of available
capital is not a sufficient condition to complete absorption of the working
force at a level of productivity corresponding to the technology prevailing in
the dynamic sector of the economy”.
Underdeveloped
economies (as distinguished from simply backward ones) are hybrid structures
characterized by technological heterogeneity of the various sectors. This comes
from the historical fact that the import-substituting industrialization process
in those economies led entrepreneurs to adopt a technology compatible with a
cost and price structure similar to that prevailing abroad.
Technology
becomes, therefore, an independent variable in economies where
industrialization is induced from outside. Whereas industrialization in
underdeveloped economies was determined by demand, the formation process of
capitalist European economies in the 18th and 19th centuries was dominated by
supply factors, which led Furtado to define economic development as the
introduction of new combinations of production factors which increase labor
productivity.
Underdevelopment
is regarded as a permanent feature of the centreperiphery system, not as a
stage on the road to development. Those ideas originally appeared in an essay
written as the first critical comment on Ragnar Nurkse’s notion of “balanced
growth” (advanced in Nurkse’s 1950 Rio lectures), where Furtado pointed out
that the dynamics of demand (internal and external) in underdeveloped economies
should be studied in tandem with the process of accumulation.
According
to Furtado, underdeveloped countries lack incentives to save (because of the
consumer habits of higher income classes), not to invest.
The
accumulation process should be examined from the point of view of changes in
the process of generation, utilization and appropriation of the economic
surplus, especially as affected by foreign trade.
Furtado
first developed these ideas in an essay originally written in Portuguese in
1955 (two years before Paul Baran made the concept of surplus a central notion
of his own approach to development) and further elaborated it as part of a
comment about Paul Rosenstein-Rodan’s theory of “big push”, made at the
International Economic Association conference on economic development held in
Rio in 1957, and in his 1967 and 1980 textbooks.
One of the
main aspects of the industrialization process of Latin American countries, as
discussed by Furtado in 1958, is the persistent tendency towards balance of
payment crises.
Anticipating
some elements of the two-gap model later developed by Chenery and Bruno,
Furtado showed in a two-sector model featuring a modern and a backward sector
how balance of payment disequilibrium could constraint the economic growth
process under the assumption that the coefficient of import in the investment
sector is larger than in the consumption sector, as is typically the case in
underdeveloped countries.
Such
chronic disequilibrium is caused by structural (not monetary) reasons and may
lead to “strangulation” of economic growth. Another obstacle to growth is that,
after the end of the “easy” phase of the substitution of imported consumers’
goods, as industrialization advances to the production of intermediate and
capital goods, the rate of profit falls because of the higher capital/output
ratio accompanied by increasing income concentration and lower aggregate
demand.
This was an
essential element of Furtado’s (1965, 1970) interpretation of the slowdown of
economic growth in Latin America in the early 1960s, but, as the Brazilian
economy recovered in the late 1960s and early 1970s, Furtado’s stagnationist
argument was criticized by economists in Brazil (see Tavares and Serra 1973).
Furtado
(1972, 1974, 1978) eventually concluded that, after the two earlier periods of
economic growth – decided respectively by comparative advantages and
import-substitution - the Latin American economy had entered a new dynamic path
in which consumption demand by high income groups could under certain
conditions become the leading factor of the system.
This led
him to explore in detail a theme that had often come up in his writings in the
1950s: dependency theory.
Furtado
argued that underdeveloped economies feature cultural dependence, that is,
consumption patterns are historically transplanted from developed countries by
the upper strata of the underdeveloped areas as a result of their appropriation
of the economic surplus generated through comparative advantages in foreign
trade.
Such
modernized component of consumption brings dependence into the technological
sphere by making it part of the production structure.
Dependent
structures are also dualistic systems with unlimited supply of labor at a
subsistence wage, as first described by Furtado (1950) in his investigation of
the dynamics of the labor market in Brazilian economic history.
This is
close to Arthur Lewis’s classic model, but, in contrast with Lewis, Furtado’s
conclusion is that industrialization within a dualist dependent structure
reproduces this dualism and does not bring about a homogeneous system with real
wages increasing in tandem with the average productivity of the economy.
The
relationship between the centre and the periphery in the world economy is
defined not just by the unequal sharing of the benefits of development and
technical progress (as in Prebisch’s terms-of-trade argument), but by
dependence involving domination and control of access to modern technology by
transnational corporations.
In
Furtado’s view, economic growth does not entail economic development in
dependent and reflex economies, since it implies an aggravation of both
external and internal exploitation, and, by that, tends to make
underdevelopment even more acute.
Mauro Boianovsky
