Celso Furtado: Structuralist Development Paradigm

Furtado draws a distinction between growth and development. Growth means rising levels of output, while development implies steady incorporation of labour force into lines of production in which the most advanced technologies are applied, and potential labour productivity is maximised.

Economic development of developed countries was based on continuing technological revolution in domestic production. As improved technology in capital goods production lowered prices of these goods, it resulted in a higher demand for capital goods by producers of consumer goods. This expanded the supply of consumer goods as well, as production became cheap. Prices were lowered and a greater percentage of population could afford them. The demand picked up. Meanwhile use of technology created an excess supply of labour, which was employed in the rapidly expanding consumer and capital goods production. Output expanded for foreign markets as well. Soon, this supply of cheap labour was completely employed in various industries and wages rose, squeezing profits and lowering investment rates. This might have threatened the entire economy, which would have grown at the rate of growth of labour force.

But, continuous technological innovation kept creating excess labour and the economy continued its forward march.

But the same expansion has not occurred in developing world. According to Furtado, the expansion of modern capitalist conclave depends on two key factors

1. Relative importance of the income to which it gives rise.

2. The extent to which this income remains within underdeveloped economy.

The latter factor depends on the incentive to invest in domestic economy. As, under-developed economies are primary-sector oriented and their most lucrative sectors are resource exporting ones, this investment initially takes place in these sectors. But, this investment fails to create any kind of sufficient internal demand which can induce a process of sustained investment to supply an expanding domestic market. He uses tables and theorizes as follows:

The rate of demand growth depends on amount of labour, wage rate, tax rates, domestic demand created by resource export sectors, extent to which profits and salaries are spent inside the domestic economy.

In a underdeveloped economy, initial wage rate is low, tax revenues are low and local production of capital and luxury consumption goods cannot compete with imports. The internal demand will depend on the amount of population absorbed in modern industrial sector. If a large amount if absorbed, per capita incomes will rise. This will expand the demand for mass consumption goods and create the necessary inducement for further investment. Otherwise this surplus, profits and income, will flow out of the country.

But, this figure is around 5-10% for most of the underdeveloped economies, and hence the profit capital outflows. The capitalist growth does not take place in absence of any investment. Even if modern sector labour force involved in primary resource export sectors becomes large enough, it might not prefer domestically produced inferior quality of goods. This demand will be satisfied by imports, exporting capital out of the country.

Thus the domestic industries will fail to grow, and the entire economy will be dependent on exports of resources. The main dynamic of growth will rest with external demand for these resources. These exports will also be needed as the purveyor of foreign exchange to finance the purchase of imports.

In order to emerge out of this situation, Furtado suggested import substitution and large scale investments by state in industrial sector. He also argues for establishment of common markets of developing countries.

He uses following Data-tables in his analysis:

1. Latin America: Evolution of external trade (Composition break up and value)

2. External trade indicators for selected Latin American countries

3. Latin America: Annual growth rates of the GDP

4. Latin America: Indicators of social conditions

5. Agrarian Structure indicators in selected Latin American countries

6. Farm efficiency indicators

7. Income distribution in selected countries

8. Allocation of personal income

9. Allocation of public expenditure

10. Evolution of imports in selected countries

11. Evolution of industrialization coefficient in selected countries

12. Evolution of import substitution coefficient in selected countries

13. Intensity of industrialisation process in selected countries

14. Structural evolution of GDP in selected countries

15. Structure and growth of the GDP after second world war

16. Indicators of capital formation of select countries

17. Sectoral productivity rankings

18. Evolution of coefficient of imports

19. Growth of agricultural production and population in selected countries

20. Average yield of key crops in selected countries

21. Agricultural production (principal commodities ) in major producing countries

22. Structure of production in manufacturing sector

23. Manufacturing exports and their share in industrial production

24. Installed capacity in cotton textile industry

25. Recent evolution of textile production in selected countries

26. Production in selected sectors of chemical industry

27. Paper production in selected countries

28. Steel ingot production in selected countries

29. Motor vehicle production and assembly

30. Crude oil production and refinement figures for selected countries

31. Electric energy generation in selected countries

32. Current account of balance of payments

33. Financing of deficits of current balance of payments

34. Direct foreign aid investment and external debt

35. Growth in sales of North American subsidiaries in the manufacturing sector and in total industrial output

36. US investments in Latin American manufacturing industries

37. Latin America: Terms of trade and purchasing power of exports

38. Latin America: Prices of principal commodity exports

39. Contribution of selected countries to total value of Latin American exports

40. Central America: Evolution of exports and intra-area trade

41. Central America: Evolution of GDP since 1950

42. Central America: Growth of GDP per capita

43. Evolution of trade among LAFTA countries

44. Target (Development Plan) rates and actual rates of growth in selected countries

45. Indicators of evolution of public expenditure and taxation

46. indicators of the evolution of tax structure