The Latin American Structuralist Theory of Inflation

Inflation had bedeviled economic policy in most Latin American countries for many years, and structuralist-type arguments had been put forward by opponents of liberal economic policies from time to time, in Brazil as early as 1949. But it was primarily the experience of Chile, the most conspicuous case of chronic inflation, that gave rise to the formulation of a structuralist theory of inflation. The Chilean peso had depreciated externally and domestically in all but 15 of the preceding 80 years, at annual rates which rose from around 20% in the 1940s to well over 50% in the mid-1950s. In the latter half of 1955, the Chilean Government decided on yet another effort at stabilization and employed a group of American consultants, the Klein-Saks Mission, to prepare a stabilization program. It was this, reinforced by broadly ‘monetarist’ stabilization policies recommended by the IMF in Argentina and Chile in 1958/9, that sparked off the monetarist-structuralist controversy.

The crux of the argument (in the preceding paragraph) is that:

Item 2 - Chile had the most conspicuous case of chronic inflation in Latin America

A year later, the American economist, Hollis Chenery, was invited to Santiago to give the ECLA Lectures. His main concern was to stimulate interest in input-output analysis and linear programming for investment planning in developing countries. But he also made a spirited plea for structuralism:

“A central problem of development policy is the adequacy of free market forces in allocating investment resources.... The traditional view of economic policy in Western countries is derived from the classical theory of competitive equilibrium.... The main policy implication of this model is that, under static conditions of perfect competition, market forces will tend to bring about the best of a country’s resources.”

He pointed out that the Keynesian revolution, while successfully challenging classical theory in relation to short-term fluctuations in income and employment, had left its conclusions on longer-term resource allocation virtually unaffected. He identified departures from competition, dynamic causes and equity considerations as the ‘three kinds of defect in the free price-mechanism as an instrument for achieving the maximum social welfare and listed, under the first heading, such obstacles as inadequate information, restrictions on entry into occupations and limited access to capital.

“Theses factors combine to produce a rigid market structure, prevalent monopoly positions, immobile labor and capital, and consequently great inequalities in the returns to labor and capital in different uses... Serious structural disequilibrium in the use of labor, natural resources or foreign exchange represents one of the situations justifying state intervention in investment decisions.”

According to Chenery:

Item 2 - Inequalities in the returns to labor and capital in different uses stem from rigid market structures where monopoly prevails, and labor and capital lack mobility.

Interest in the subject reached its climax with a monster conference on ‘Inflation and Growth in Latin America’ held in Rio de Janeiro in January 1963.

The structuralist theory of inflation did not emerge unscathed from the intensive discussion. Arthur Lewis, in his summing up, stressed the need to distinguish between the original cause and the spiral mechanism. The structuralist argument about supply inelasticity related entirely to the former, but in this respect there was no difference between Chile and (say) India. Why then has inflation been so much more of a problem in Chile? ‘The difference is that Chile is in the grip of the spiral process to a much greater degree than India.’ Another participant, T.E. Davis, spelled this out. Inflation in Chile has been a ‘conscious policy that constitutes a common second best’ for powerful interest groups; conservatives that have the power to block any attempts to reduce real wages; and large private firms that have sufficient power to insist that bank credit to the private sector expands pari passu with that to government. ‘Stabilization programs are politically feasible only when it appears to these groups that inflation might conceivably “get out of hand”; but opposition reappears when the rate of inflation has been reduced to what historically seem to constitute “safe” levels’.

If this was the crux of the problem of inflation in Latin America, it had little if anything to do with all the arguments about inelastic supply, immobility of resources and the other alleged defects of the price mechanism. The problem of excess income claims by organized sectional interests had, after all, long been recognized as one form of ‘cost push’, although not always, it must be admitted, given its due by hard-line monetarists.

Oddly enough, the same conclusion was already implicit in the very first statement of the structuralist theory of inflation, by Noyola. While he attributed inflation in Chile and Mexico fundamentally to structural factors – chiefly instability of export earnings and capacity to import in Chile and inelastic supply of food due to earlier land reform and government agricultural policies in Mexico – he explained the much more severe inflation in Chile by the fact that the ‘propagating mechanism’ was much weaker in Mexico because its huge labor surplus in agriculture depressed real wages and weakened the trade unions. It was the strong organization in Chile of the major social groups with their competing income claims, in other words the ‘propagating mechanism’ rather than the initiating ‘structural factors’, that accounted for Chile’s much more serious inflation problem.

The structuralist theory of inflation was criticized at the 1963 Rio de Janeiro conference. According to the text, the chief criticisms leveled against it were:

Item 0 - Supply rigidities cannot account for differences in the inflation record of countries with similar structural problems

Assinale V (verdadeiro) ou F (falso):

Item 4 - !$ \{x \in \mathbb{R}|2\cdot x^2-9 < 6 \cdot x-x^2\}=(0,3) !$

É correto afirmar. Em modelos de equações simultâneas:

Item 2 - os estimadores de mínimos quadrados indiretos e os de mínimos quadrados de dois estágios são não-tendenciosas e consistentes.

A respeito da teoria da utilidade esperada, identifique a afirmativa:

Item 0 - O prêmio de risco de um indivíduo propenso ao risco é estritamente positivo.

Conforme a Teoria dos Jogos, é correto afirmar que:

Item 0 - Em um jogo não-cooperativo, a cooperação entre os jogadores é impossível.