Latin America S International Relations and Their Domestic Consequences War and Peace, Dependency and Autonomy, Integration... (Jorge I. Domínguez (Editor) ) (Z-Library) PDF

ESSAYS ON
MEXICO, CENTRAL
AND SOUTH AMERICA
Scholarly Debates from
the 19508 to the 19908
Series Editor
JORGE I. DOMINGUEZ
Harvard University
SERIES CONTENTS
1. ECONOMIC STRATEGIES
AND POLICIES IN LATIN AMERICA
2. AUTHORITARIAN AND DEMOCRATIC

REGIMES IN LATIN AMERICA
3. THE ROMAN CATHOLIC CHURCH

IN LATIN AMERICA
4. SOCIAL MOVEMENTS IN LATIN AMERICA

The Experience of Peasants, Workers, Women,
the Urban Poor, and the Middle Sectors
5. PARTIES, ELECTIONS, AND POLITICAL

PARTICIPATION IN LATIN AMERICA
6. LATIN AMERICA'S INTERNATIONAL RELATIONS

AND THEIR DOMESTIC CONSEQUENCES
War and Peace, Dependency and Autonomy,
Integration and Disintegration
7. RACE AND ETHNICITY IN LATIN AMERICA

VOLUME
6
LATIN AMERICA'S
INTERNATIONAL
RELATIONS AND
THEIR DOMESTIC
CONSEQUENCES
WAR AND PEACE,
DEPENDENCY AND
AUTONOMY, INTEGRATION
AND DISINTEGRATION
Edited with an introduction by

JORGE I. DOMINGUEZ
~l Routledge
~~ Taylor & Francis Group
NEW YORK AND LONDON

First published 1994 by Garland Publishing, Inc.
This edition published 2013 by Routledge

711 Third Avenue, New York, NY 10017, USA
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Routledge is an imprint of the Taylor & Francis Group, an informa business
Introduction copyright © 1994 Jorge I. Dominguez

All rights reserved
Library of Congress Cataloging-in-Publication Data
Latin America's international relations and their domestic

consequences: war and peace, dependency and autonomy,
integration and disintegration I edited with an introduction by
Jorge I. Dominguez.
p. cm. - (Essays on Mexico, Central and South
America; v. 6)
ISBN 0-8153-1490-6 (alk. paper)
1. Latin America-Foreign relations-1948- 2. Latin
America-Dependency on foreign countries. 3. Latin America-
Economic integration. 4. Debts, External-Latin America.
5. Latin America-Relations-United States. 6. United States-
Relations-Latin America. I. Dominguez, Jorge I., 1945-
II. Series.
FI414.2.L3275 1994
327.8-dc20 93-45524
CIP
CONTENTS
Introduction vii
The Balance of Power in Nineteenth-Century South
America: An Exploratory Essay
Robert N. Burr 1
Economics and Differential Patterns of Political
Integration: Projections about Unity in Latin America
Ernest B. Haas and Philippe C. Schmitter 25
The Structure of Dependence
Theotonio Dos Santos 59
The Rise and the Decline of Latin American Economic
Integration
Miguel S. Wionczek 65
Manipulating International Commodity Markets: Brazilian
Coffee Policy 1906 to 1962
Stephen D. Krasner 83
Dependency: A Critical Synthesis of the Literature
Ronald H. Chilcote 114
Petroleum Policy in Venezuela: Lessons in the Politics
of Dependence Management
Franklin Tugwell 140
Multinationals, State-owned Corporations, and the
Transformation of Imperialism: A Brazilian Case Study
Peter Evans 177
Consensus and Divergence: The State of the Literature
on Inter-American Relations in the 1970s
Jorge I. Dominguez 199
Interstate Conflict Behavior and Regional Potential
for Conflict in Latin America
Wolf Grabendorff 239
State Institutions, Ideology, and Autonomous Tech-
nological Development: Computers and Nuclear Energy
in Argentina and Brazil
Emanuel Adler 267
vi Contents
The Debt Crisis: Structural Explanations of Country

Performance
Andrew Berg and Jeffrey Sachs 299
Classes, Sectors, and Foreign Debt in Latin America
Jeff Frieden 335
The United States and Latin America in the 1960s
Joseph S. Tulchin 355
World Economic Cycles and Central American Political
Instability
Marc Lindenberg 391
Preempting Revolutions: The Boundaries of U.S. Influence
Robert A. Pastor 416
Acknowledgments 449
INTRODUCTION
Of all of the world's regions in the twentieth century, Latin

America has been freest from conventional interstate war. Thus
scholars have paid more attention to international economics.
Latin American and Latin Americanist scholars pioneered much
research on international dependency, but also on bargaining
between governments and multinational firms, on the prospects
for regional integration, and on the extensive debt crisis of the
1980s. The role ofthe United States and its international interven-
tions has also received scholarly scrutiny.
Latin America's interstate relations had not always been
peaceful. Robert Burr traced the development of an equilibrium of
power among South America's states in the nineteenth century.
Such a "balance of power" occurred only after states had consoli-
dated their internal dominion, extra-continental influence on
South America had been curtailed, and channels of communica-
tion among the governments had reached the point where each
actor understood "that its interests could be affected by the activi-
ties of others." Several "balance of power" relationships developed
separately at first. The earliest emerged in the 1820s among the
states crossed by the River Plate; the second took shape in the
1830s along South America's west coast. Only in the 1860s did a
continental system become consolidated when the River Plate
states fought the Paraguayan war at the same time that the west
coast states fought against Spain. After the 1880s, this balance of
power became increasingly effective in managing continuing con-
flicts without interstate war.
Wolf Grabendorff examined similar issues in the years after
1945. From the mid-1940s to the mid-1960s, he argued, U.S.
hegemony, the attention to Cold War issues, and the concerns with
domestic security problems dampened the likelihood of interstate
conflict. From the 1960s to the early 1980s, however, military
governments increased the level of interstate conflict, though
generally short of war. Grabendorff identified five kinds of con-
flicts: some focused on ideological issues (communism, democracy,
human rights), some on the scope of U.S. or British hegemony, yet
others on territorial and border disputes, a fourth set centered on
v 1,1,
viii Introduction
disputed access to natural resources, and, finally, there were

conflicts over illegal migration. All five had led to acts of war, and
some to actual war. And yet the region's frequency of interstate
war remained below that of the rest of the world.
Governments and scholars turned their attention mainly to
international economic issues. In the 1960s, regional integration
efforts received special attention. Ernst Haas and Philippe Schmitter
examined the prospects for integration in Latin America. They
analyzed background conditions, conditions at the time of eco-
nomic union, and integration process conditions for the Central
American Common Market (CACM) and the Latin American Free
Trade Association (LAFTA) in the light of comparative evidence.
They were especially interested in the "chances of automatic
politization," that is, the likelihood that the process of initially
"technical" and "non-controversial" economic integration would
"spillover" to foster political integration. Despite some favorable
trends, they concluded against such prospects in the case of the
LAFTA; in the case of the CACM, though cautious, they believed
that the prospects for political integration were the best outside of
the European Economic Community.
By the end of the 1960s, Miguel Wionczek had written an
epitaph for Latin American integration. Though regional integra-
tion schemes continued to prosper, regional integration did not. In
1969, EI Salvador and Honduras went to war over territorial and
migration disputes, deeply hurting the CACM. -The CACM had
fostered intra-regional trade especially in manufactured products,
but at substantial economic and social costs because of high
protectionist barriers set up around the region. The LAFTA suc-
ceeded even less, as Haas and Schmitter had expected, because
governments were unprepared to launch a genuine integration
process. The unevenness of economic development at the outset of
the integration process made the LAFTA task formidable and, in
the end, unachievable.
In the mid-1960s, Latin American scholars turned to analyze
the structure ofinternational dependence to understand the insuf-
ficiencies and distortions of development. Theotonio dos Santos
argued that these economies were "conditioned by the develop-
ment and expansion of another economy to which the former is
subjected." Dependent countries, therefore, could develop only "as
a reflection" of the industrial countries. Underdevelopment was a
"consequence and part of the process of the world expansion of
capitalism" and "integrally linked to it."
Soon many branches of dependency analyses sprouted. Ronald
Chilcote critically assessed this literature. He identified four sub-
Introduction ix
schools of thought. For some, such as Andre Gunder Frank,

dependency was mainly an international phenomenon, with little
attention to internal variations. For a second group, such as
Benjamin Cohen and Anibal Quijano, dependency was a way to
discuss imperialism and class struggle. For others, such as Theotonio
dos Santos, dependency focused on the role of multinational firms,
not trade as such. Finally, for scholars such as Fernando Henrique
Cardoso, dependency distorted development but did not prevent it;
dependent economies remained dynamic and participants in "as-
sociated dependent development."
A somewhat contrary view of international economic relations
emphasized the relative bargaining opportunities and skills of
Latin American governments. Stephen Krasner analyzed the com-
petence and success of Brazilian governments early in the twenti-
eth century in defending the international price of coffee in con-
trast with their much lessened success in mid-century. He called
attention to three clusters of variables: international product
market share and price elasticities for products, the governmental
and market response in consuming countries, and the capacity of
producing country governments to control their own private pro-
ducers. Bargaining could change the terms of dependency.
In the same vein, Franklin Tugwell explored the politics of
dependence management in Venezuela's petroleum industry. He
showed that Venezuela's elites learned and acquired strategic
information to improve their bargaining position over time rela-
tive to multinational oil firms. The learning occurred during the
interdependent bargaining itself; conflict and experimentation
were essential to this process. Ideology proved valuable as "a filter
for information, a source of new bargaining positions" and as an
"over-arching guide and justification for policy as a whole."
In response to these bargaining arguments, some scholars
sympathetic to dependency perspectives shifted their own. Peter
Evans called attention to the new role of state enterprises as a
"necessary partner in the implantation of capitalism." A "triple
alliance" ofmultinational, state, and domestic private firms was at
the core of the new model of development. Thus imperialism had
been transformed and, Evans argued, was "not necessarily incom-
patible with industrialization."
Jorge Dominguez summarized much of this scholarship, point-
ing to elements of consensus and divergence in the study of inter-
American relations by the end ofthe 1970s. He also identified eight
scholarly perspectives. Liberals emphasized the harmony of inter-
ests between the United States and Latin America; "orthodox
dependency" focused on the consistently negative external condi-
x Introduction
tioning of Latin America's economies. Scholars of bureaucratic

politics, on the contrary, focused principally on the internal work-
ings of governments. Strategic perspectives emphasized the ratio-
nal calculations of cost-and-benefit conscious states. Unorthodox
dependency called attention to the possibilities of development
within a framework of dependency. Organizational ideology ap-
proaches took note of the shared values of decision makers, which
set boundaries to disagreements among them. Scholars of the
presidency underlined the centrality of presidential power and
style; others focused on the wider interactions of the political
system to explain foreign policies as their result.
In the 1980s, a central research topic was Latin America's
response to the debt crisis. Andrew Berg and Jeffrey Sachs ex-
plained countries' vulnerability to the international debt crisis as
a function of several domestic structural conditions. The most
striking finding was that higher income inequality was a signifi-
cant predictor of the higher probability of a need for debt resched-
uling; the greater the inequality, the greater the political pres-
sures, and thus the more difficult to sustain effective macroeconomic
policies. Countries with an inward-oriented trade regime and low
shares of agriculture in gross domestic product were also more
likely to have to reschedule their debts.
Jeff Frieden looked at the impact ofthe international economic
crisis on domestic politics, arguing that it was mediated by class
and sectoral forces. In all countries, liquid asset holders were
favored by market-oriented policies, while fixed asset holders by
the state's sectoral intervention. Under the external economic
shocks in the 1980s, fixed asset holders (mainly industrialists)
resisted paying for the costs of adjustment. They contributed to the
overthrow of authoritarian governments in Argentina and Brazil;
they forced the Mexican and Venezuelan governments to "jettison
much of their public spending," thus imposing the costs of adjust-
ment upon the poor. Only when the threat from labor and the left
was perceived to be high, as in Chile, did business elites agree to
bear many of the costs of adjustment.
The importance over time of global and regional economic
factors was especially high in the small Central American coun-
tries. Marc Lindenberg showed that such external factors ex-
plained much more of the variation in political instability in
Central American countries than did such domestic factors as the
proportion of the population that is indigenous, population den-
sity, the relative degree of urbanization, the severity of govern-
mental repression, or the intensity of social discontent. The only
domestic factor that mattered was whether the initial regime type
Introduction xi
was authoritarian or democratic. Lindenberg also demonstrated

that, though internationally vulnerable, Central American econo-
mies at various times outperformed the world economy.
Why did some governments succeed while others failed, given
comparable structural conditions? Emanuel Adler paired some
structurally similar cases: why was Argentina more successful in
the development of the nuclear energy industry than Brazil, and
why did Argentina's nuclear energy industry perform well even
though other high technology industries in Argentina did not? He
also paired cases with surprising outcomes: why was Brazil's
computer development policy more effective than Argentina's
despite the latter's higher technological development? He argued
that the role of state institutions, ideology, and political leader-
ship explained the differences. "Pragmatic anti-dependency guer-
rillas" (idea-carrying leaders, nested in public institutions) could
"breed the quest for autonomy." Institutions served as "reposito-
ries of a constellation of consciousness and collective understand-
ing," thereby "creating space to maneuver." Ideas and human
agency explained varying outcomes better than structural factors.
One of the oldest topics in inter-American relations is U.S.
policy toward the region. Joseph Tulchin has argued that three
factors shaped the evolution and eventual failure of U.S. policy in
the 1960s. First, the policy was the result of a shift from a regional
to a global perspective which, nonetheless, retained the expecta-
tion that U.S. political values were exportable. Second, the region
had low priority for U.S. global concerns. And third, there was an
unresolved debate within the U.S. government about relative
priorities for security, development, and democracy. Those factors
would persist for the next three decades.
Robert Pastor focused on the narrower topic ofU.S. response to
revolutionary regimes. Typically, the U.S. government first sided
with a dictator, then dissociated from him and, when moderates
legitimized the left, tried to identify and support a moderate third
force. Anti-U.S. revolutions (Cuba, Nicaragua, Iran) succeeded
when moderate sectors, given no or fraudulent elections, allied
with friendly regional governments and with a revolutionary
movement while the military remained united until the dictator
fled. Military coups succeeded (Dominican Republic, Haiti) where
there was no revolutionary movement but the military divided
nonetheless. Democratic outcomes (Chile, the Philippines) were
most likely where, if there was a revolutionary movement, the
middle sector supported elections and the military divided but did
not collapse. The key was the middle sector's size and orientation.
xii Introduction
The central scholarly concerns in the 1990s remained the same

as in the 1950s and 1960s: interstate peace along with a U.S.
propensity to intervene, and international structural vulnerabili-
ties and economic asymmetries along with the significance of elite
skills and choices.
The Balance of Power in
Nineteenth-Century South
America: An Exploratory Essay
ROBERT N. BURR *
UMEROUS ARTICLES, monographs and books have been
N written about the foreign relations of Latin America

during the nineteenth and twentieth centuries.! The
bulk of this work has been concerned with the relations of the Great
Powers with Latin America, or with the legal aspects of boundary
disputes among the Latin American nations or with topics related to
international cooperation. Relatively few of these writings have at-
tempted to define the changing national interests of individual Latin
American nations or to relate these interests to internal economic and
social conditions. Few, if any, writers have sought to provide an
integrated pattern for the relations of the Latin American nations
among themselves. Both of these deficiencies might be lessened by an
investigation into the operation of the balance-of-power principle
in Latin America.
A balance of power may be defined as an equilibrium in power
among a group of sovereign nations. Individual nations may follow
a policy of maintaining a balance of power within a group to prevent
any nation from becoming sufficiently strong to enforce its will upon
the others or to threaten their independence. It would appear that
a perfect balance of power has never for long existed within any
group of nations. The desired equilibrium is continuously being dis-
* The author is assistant professor of history, University of California, Los
Angeles.
1 The author wishes to thank the Doherty Foundation of New York and the
University of California for financial assistance which made it possible for him
to spend nearly ten months in Chile and Colombia during 1951-52 doing research
which has been helpful in the preparation of this article. The author is also
grateful to Professor Roland D. Hussey for a critical reading of the article, the
first version of which was given as a paper at the 1953 meeting of the Pacific
Coast Branch of the AHA, and to Professors Russell H. Fitzgibbon, John J.
J ohnson, James F. King and Sanford Mosk for their helpful comments during
a panel discussion of the paper at that meeting.
1
38 HAHR I FEBRUARY I ROBERT N. BURR
turbed by the uneven development in nations of such elements of na-

tional power as population, production, technology, armaments, and
governmental and political stability. If a nation somehow manages to
attain power superiority in its group, it may attempt to perpetuate
its hegemony by seeking to maintain a balance of power among the
other members of the group. However, the normal tendency is for
these less potent nations to set about restoring the balance of power. 2
A well defined concept of a balance of power among the Latin
American nations did not exist when they emerged as independent
states in the first quarter of the nineteenth century. Three basic con-
ditions were necessary to the maturing of such a concept: first, that
the nations of Latin America should have certain minimum essen-
tials of sovereignty such as definite territorial limits and effective
government; second, that their relations with each other should be
subject to a minimum of non-Latin American influence; and third,
that channels of communications and points of contact among the
Latin American nations should be sufficiently well developed to
make each nation aware that its interests could be affected by the
activities of the others.
Many of the Latin American nations were slow to acquire the
essential characteristics of sovereign nation-states. In the early years
of their independence they had but a vague notion of what the terri-
torial limits of their new nations should be. Some ideas concerning
the territorial divisions of independent Latin America were more or
less generally accepted, for instance, that Portuguese America would
constitute a separate state and that the former centers of power in
the Spanish empire, as represented by the viceregal capitals at
Mexico City, Lima, Bogota and Buenos Aires and the captaincies at
Santiago de Chile and Caracas would become nuclei of independent
sovereign nations. But disagreements arose over the status of the
lesser administrative units of the former Spanish empire such as
those which centered around Montevideo, Asuncion, Chuquisaca and
Quito. Should they become independent nations or should they be
absorbed into older and more powerful centers? Because these lesser
administrative units often had economic and strategic importance,
because they were generally weak in terms of power a~d because
2 More detailed discussions of the theory of the balance of power, based
largely on European experience, and bibliographical information, can be found in:

Sidney B. Fay, "Balance of Power," Encyclopaedia of the Social Sciences, 15
vols. (New York, 1930-35), I, pp. 395-399; Harold D. Lasswell, Charles E. Mer-
riam and T. V. Smith, .A Study of Power (Glencoe, Ill., 1950), pp. 52-74 and
Arnold J. Toynbee, .A Study of History, 6 vols. (London, 1934- ), III, pp.
301-302.
2
BALANCE OF POWER IN NINETEENTH-CENTURY SOUTH AMERICA 39
they were often situated between two or more larger centers of power
they became areas of contention among their larger neighbors. These
areas were power vacuums into which more powerful nations tended
to expand, but where they generally encountered resistance either of
a local nature or from other powers with interests at stake.
Many Latin American nations were slow not only in acquiring
their definite territorial limits but also in establishing stable govern-
ment. It was only when a modicum of stability had been attained that
a given nation could effectively defend itself from outside pressures
and at the same time expand economically and territorially. And it
might be noted that a small nation with political stability could hold
a power position superior to that of a larger nation afflicted with
internal disorders.
For the growth of a balance of power in Latin America it was
necessary that the nations of the area be left free to adjust rela-
tionships among themselves with a minimum of interference from
Europe or the United States. That condition was not to be fulfilled
in the Caribbean region where British-United States rivalry and the
eventual achievement of a dominant position by the latter combined
with geographic factors to differentiate this area from the power
system which developed in South America. Consequently, this paper
will deal with South America. Nevertheless, two attributes of the
Caribbean area should be cited: (1) that the inter-relations of the
Central American states provided a classic example of the operation
of the balance-of-power principle and (2) that the Caribbean area
tended to be "linked to the power system of South America by com-
mon opposition to European intervention, by a common interest in the
development of Isthmian transit routes and by the fact that both
Venezuela and Colombia were not only South American but also
Caribbean powers.
South Aluerica, obviously, did not develop a balance-of-power
system hermutically sealed off from the rest of the world. Sporadic
outside interference in the affairs of the nations of South America
was common during much of the nineteenth century but its effect
proved neither as permanent nor as decisive as in the Caribbean
region. Such outside interference as was felt in South America
affected the power relationships of the nations of that area in at least
two ways. In some cases it prompted international cooperation among
them which tended, at least momentarily, to reduce their rivalries and
lessen the importance of their power relationships. In other cases
outside interference tended to strengthen nationalism and the affected
3
nation's determination to become more powerfu1. 3 But during most

of the nineteenth century rivalries among the nations of Europe and
between them and the United States protected South America from
any decisive foreign interference and made possible the development
of a system of power relationships in the area.
Adequate channels of communication and points of contact among
the South American nations were also slow in developing. It was in
areas already linked at the time of independence by communications
-primarily waterways-that the idea of a balance of power first
took root on a regional scale. As the century progressed and com-
munications and contacts became more widespread 4 these regional
systems tended to interlock into a continental South American bal-
ance of power.
The earliest regional balance-of-power system in South America
developed in the area dependent upon the Rio de la Plata. There,
before the revolutions for independence, Spanish-Portuguese rivalry
over control of the Banda Oriental and the fluvial system emptying
into the Plata had moved Spain to create a viceroyalty with its capital
at Buenos Aires in order to contain Portuguese expansion. The
leaders of the porteno independence movement planned to maintain
3 An example of this was the Argentine reaction to the French intervention
of 1838. See Roberto O. Frabaschi, "Rosas y las relaciones exteriores con

Francia e Inglaterra" in Ricardo Levene, ed., Historia de la naci6n argentina,
Vol. III, Rosas y su Epoca (Buenos Aires, 1951), pp. 165-181 and John F. Cady,
Foreign Intervention in the Rio de la Plata 1838-50 (Philadelphia, 1929), p. 35.
Another example was the reaction in New Granada to the Russell incident of
1836-37 with Great Britain. See Gustavo Arboleda, Historia Contempordnea de
Colomb'a (Bogota, 1933-35), I, pp. 269-271.
, A few examples of increasing contracts and communications during the nine-
teenth century are the following: Beginning in the 1840 's the nations of the
west coast were more closely linked by the steam navigation line serving the area.
See John H. Kemble, "Mail Steamers Link the Americas 1840-1890" in Greater
America (Berkeley and Los Angeles, 1945), pp. 475-497. Beginning in the 1850 's
the nations with territory in the Amazon basin were brought into closer contact
with one another as a result of the interest in the Amazon area which was aroused
by the attempts of the United States to open the river to navigation, the develop-
ment of the Amazon River Navigation Co. and the steady growth of the rubber
industry. Colombia came to be of increasing strategic importance to Chile, Peru
and Bolivia after the 1850 's when the completion of the Panama Railroad pro-
vided the west coast powers with an alternate route by which they could obtain
war materiel from Europe and the United States. For a conflict between Chile
and Colombia over the neutrality of this route during the War of the Pacific
see Chile, Ministerio de Relaciones Exteriores, Memoria . .. 1880 (Santiago de
Chile, 1880), pp. 18-27 and Antonio J os~ Uribe,. ed., Anales diplomaticos y con·
sulares de Colombia, 6 vols. (Bogota, 1900-1920), IV, pp. 19-21. Finally, Chile
and Argentina were brought into much closer contact by the completion of
telegraphic communications installations between Santiago and Buenos Aires in
1872.
4
BALANCE OF POWER IN NINETEENTH-CENTURY. SOUTH AMERIOA 41
this area intact, but their insistence that Buenos Aires should domi-
nate the new nation aroused opposition among provincial leaders, in-
cluding those in the Banda O.riental. Internal strife thus caused the
fragmentation of the power structure which Spain had created to
contain the Portuguese. In 1816 the relatively strong Portuguese
monarchy, now resident in Brazil, took advantage of this situation
to move troops into the Banda Oriental where they were to remain
for more than a decade. The Buenos Aires government was so handi-
capped by domestic difficulties that it was unable to oppose Brazilian
expansion until the return of a measure of stability following the
"afio terrible" of 1820. But then steps were taken to drive out the
Portuguese. In 1823 an Argentine representative was sent to Rio
de Janeiro to protest Brazil's annexation of Uruguay and he made
it clear that the Banda Oriental was of supreme economic and stra-
tegic importance to his government. 5 When Brazil failed to heed the
Argentine protest a demand for war grew in Argentina. The govern-
ment of Buenos Aires then made an unsuccessful attempt to obtain
help from Simon Bolivar who was then at the peak of his power. This
portefio gesture may be seen as an attempt to establish a balance of
power in the Plata through a coalition of Spanish American powers
against Brazil.
Argentina's failure to obtain aid from Bolivar forced it to carry
on war against Brazil alone. British mediation helped bring this war
to an end in 1828-in a manner unsatisfactory to the ambitions either
of Brazil or of Argentina-and the peace treaty which resulted was
the cornerstone of the future regional balance of power in the Rio de
la Plata area. Uruguay was now to become an independent nation.
Any attempt by either large power to dominate Uruguay would
henceforth threaten the equilibrium. between them. Paraguay, com-
mercially and culturally isolated under the Francia regime, was as
yet scarcely a part of this regional power system.
The sense of a balance of power was slower in taking shape on
South America's west coast. There, in the early 1820's, the need for
cooperation against Spain and its potential allies had overshadowed
questions of power relationships among nations which had hardly
acquired form. Yet even in the various plans for Spanish American
confederation which were being discussed at that time it was recog-
nized that cooperation had to be based upon guarantees of the terri-
torial integrity and independence of the cooperating nations. These
5 Universidad de Buenos Aires, Estudios Editados por la Facultad de Derecho
y Ciencias Sociales, XIX, La Politica Exterior de Za RepUblica .Argentina,

(Buenos Aires, 1931), pp. 34-36.
5
proposed guarantees of the status quo were in a sense the recognition

of a need for a balance of power among the new nations.
When the idea of Spanish American cooperation began to decline
and when the influence of Bolivar waned, northern and western
Spanish South America disintegrated into a number of impoverished
and disorderly nations, no one of which was strong enough to domi-
nate its neighbors. Neither Peru nor New Granada was able to effect
the annexation of Guayaquil and the resolution of their rivalry lay
in the establishment of a new nation, Ecuador, the independence of
which was guaranteed by the formerly contending powers. 6
In the 1830's two nations on the west coast of South America
succeeded in pulling themselves out of the prevailing disorder. Chile,
under the guidance of Diego Portales, achieved relative political sta-
bility and was able to intensify its economic and commercial ex-
pansion. In Bolivia, Andres Santa Cruz welded conflicting elements
into a strong and orderly state with a sound economic base. 7 Both
Chile and Bolivia proceeded to turn their attention to Peru where
intense, sometimes violent, political conflict had created a power
vacuum. Chile sought to expand its commerce with Peru and to
prevent the port of Callao from regaining the hegemony of the Pa-
cific trade which it had enjoyed during the colonial period; the goal
of Santa Cruz was the reconstruction of the old Viceroyalty of Peru.
A crisis developed when he intervened in Peru in 1835 and established
the Peru-Bolivian Confederation.
Farsighted Chileans feared that the power concentration repre-
sented by the Peru-Bolivian Confederation might stifle Chile's grow-
ing economy and that an attempt might even be made to bring Chile
under control of the Confederation. The balance of power on the
Pacific coast had been disturbed and the Chilean government reacted
by declaring war. Among the reasons given for this action was that
, 'General Santa Cruz . . . menaces the independence of the other
South American republics. "8
Chile attempted to develop a counterpoise to the power of the
Peru-Bolivian Confederation by bringing other South American re-
8 Uribe, VI, pp. 71-73; PerU, Ministerio de Relaciones Exteriores, ColeccWn
de los tratados, convenciones, capitulaciones • • • , 14 Vols. (Lima, 1890-1911),

V, pp 15-19.
'1 Jorge Basadre, Chile, PeriJ, y Bolivia independientes (Barcelona, Buenos
Aires, 1948), pp. 153-56.
8 Sesiones de los cuerpos legislativos de la Republica de Chile, 1811 a 1845,
ed. by Valentin Letelier, 37 vols. (Santiago de Chile, 1887-1908), XXV, pp.

350-351.
6
publics into a coalition against this" common threat." When Argen-
tina, duly encouraged by a Chilean agent, declared war on the Con-
federation it included among its reasons that "the increase of the
power of Santa Cruz by means of the abuse of force upsets the bal-
ance of power for peace in the republics bordering on Peru and
Bolivia.' '9 President Francisco Santander of New Granada was also
concerned. " ... We all see," Santander wrote, "that [Santa Cruz]
is raising a great power ... which if it were consolidated would be
a power menacing to the peace of neighboring peoples. . . .' '10 But
Santander felt that Santa Cruz would not be able to consolidate this
power and he counseled peace. The administration which succeeded
Santander appears to have been more concerned. In the spring of
1838 it sent a diplomatic representative to Ecuador whose mission,
according to the Chilean agent there, was" ... to agree with Ecuador
on measures for dealing with the power of Santa Cruz if, unfor-
tunately, ... [Chile's] undertaking fails. "11
It was in Chile, however, that we find the most clearly defined
concept of a balance of power. In instructions to his agent in Ecuador
the Chilean foreign minister wrote, "The security of the states of
the South, founded on the equilibrium of their forces, is a base
which we cannot abandon. . . .' '12 And in another note he stated
"This Republic is ever firm in its purpose of reestablishing the former
political equilibrium of the South American States.' '13
By 1838, when Santa Cruz had been defeated and Peru and Bo-
livia had been reestablished as independent nations, a balance of
power on the Pacific coast had begun to assume form. Although
Argentina had been brought temporarily into the balance-of-power
system surrounding Bolivia, it had taken no effective part in the war
because it was faced at the same time with French intervention in the
Plata region. After the war Argentina was to concentrate on Platine
affairs for the next thirty years. Because of Argentina's preoccupa-
tion with the Plata region and Bolivia's westward orientation there
8 As quoted in Alfonso Crespo, Santa Cruz; EZ condor indio (Mexico, 1941), p.
250.
10 F. de P. Santander to V. Lavalle, charge d'affaires of Chile in Ecuador,
Bogota, Jan. 31, 1837, MS., Chile, Archivo del Ministerio de Relae.iones Ex-
teriores (subsequently to be cited as CHRE), Legaci6n de Chile en el Ecuador,
1836-1840.
11 V. Lavalle to the Foreign Minister of Chile, Ecuador, No. 27, April 10, 1838,
MS., CHRE, Leg. en el Ecuador, 1836-1840.

12 J. Tocornal to the charge d'affaires of Chile in Ecuador, Santiago, Aug. 4,
1837, MS., CHRE, Agentes de Chile en el extranjero, 1826-39.
18 J. Tocornal to the charge d'affaires of Chile in Ecuador, Apr. 27, 1838,
MS., CHRE, Agentes . . . , 1826-39.
7
44 RARR I FEBRUARY I ROBERT N. BURR
existed two relatively dissociated balance-of-power systems in South

America.
On the Pacific coast the Chilean government emerged from the war
against Santa Cruz strong and unified, with a sharpened sense of
nationalism14 and in a position to expand and grow while its peigh-
bors lapsed temporarily into internal disorder. Chile's efforts to
maintain a balance of power were at first confined to preventing Peru
and Bolivia from reuniting. 15 However, as Chilean west coast com-
merce expanded and as a revived Peru began to challenge Chile's
hegemony, the Chilean government began more and more to play
the role of regulator of the balance of power on the Pacific.
It was in the late 1840's that Peru, made rich by its guano
monopoly and stabilized politically by Ramon Castilla, attempted to
use its increased power to regain leadership on the Pacific coast. 16
One result of Peru's increasing power was its active sponsorship of
the movement for Latin American cooperation; another was mount-
ing friction with both Chile and New Granada. 17 The evils of this
friction were somewhat mitigated during the 1840 's and 1850 's by a
series of threats-real and imagined-to the Pacific coast nations
from the Flores expedition and expansionist sentiment in the United
States. 18 In the face of these outside threats considerations of the
power relationships among the west coast countries were sometimes
subordinated to the need for cooperation.
But the balance of power was not forgotten. This was clearly
shown in the Treaty of Union and Confederation signed by the
representatives of Bolivia, Chile, Colombia, Ecuador and Peru at
the Lima Congress in 1848. Although the chief purpose of this treaty
was to organize the signatory powers for common defense, Article 8
indicated that stable power relationships among the west coast powers
were considered essential as a basis for cooperation. In this article
they agreed that" if it is attempted to join two or more of the Con-
l ' Francisco A. Encina, Historia de Chile. .. , 20 vola. (Santiago, 1949-52),
XI, pp. 492-496.

lIS Encina, XII, pp. 548-556.
18 Alberto Ulloa, PosiciOn internacionaZ del Peru (Lima, 1941). Pages 365-
84 discuss periods in the international position of Peru.
11 Encina, XII, pp. 586-597 analyzes origins of anti-Chilean sentiment in Peru.
18South America's fears that United States expansion might directly affect
ita nations were shown by South American protests against a convention signed
on Nov. 20, 1854 in Quito by representatives of the United States and Ecuador
concerning the Galapagos Islands. For the Chilean reaction see the circular sent
by the Chilean government to the other governments of South America on J an.-
30, 1855 in Alberto Cruchaga Ossa, ed., Correspondencia de Don Antonio Varas,
cuestiones americanas (Santiago, 1929), pp. 131-35.
8
BALANCE OF POWERIN NINETEENTH-CENTURY SOUTH AMERICA 45
federated Republics into one single state or to divide into several
states any of said Republics, or to detach from one in order to add to
another of the same republics, or to a foreign power one or more
ports, cities, or provinces, it will be necessary ... that the Govern-
ments of the other Confederated Republics declare, expressly, that
such change be not prejudicial to the interests and the security of the
Confederation. "19 The delegates to the Lima Congress had not for-
gotten Santa Cruz or the interest of both Peru and New Granada in
Ecuador.
In fact, international rivalries in Ecuador during the early 1850 's
brought consideration of the balance of power clearly to the fore.
In Ecuador a power vacuum had been created by the political dis-
order which overtook the country in 1850 and which was to last until
Gabriel Garcia Moreno assumed power in the early 1860 'so The situ-
ation which developed was far too complicated to describe here in any
detail, but its main outlines bring into focus the role of Chile as the
regulator of the Pacific coast balance of power. In early 1850 the
Quito chancellery reported to that of New Granada that a revolu-
tion had broken out which aimed at separating Guayaquil from Ecua-
dor and annexing it to Peru. The Ecuadorean foreign minister
pointed out that this would be prejudicial not only to Ecuador but
also to the maintenance of political equilibrium among the Spanish
American states. 20 The foreign minister of New Granada replied that
"far from regarding such a plan ,vith indifference, the Granadine
government would look upon it with profound distrust and suspicion
. . . as a precedent of lamentable consequences for the welfare and
security of the states neighboring on Ecuador.... "21 If Guayaquil
were annexed to Peru, New Granada would live up to its duty to
maintain the territorial integrity of Ecuador.
At the same time that New Granada was interesting itself in the
threat to Ecuador, so too was Chile. Foreign Minister Varas, ap-
parently suspecting Peruvian complicity, asked his minister in Lima
to investigate that country's role in encouraging the annexationist
movement in Guayaqui1.22 But then events took place which placed
1. Peru, Ministerio de Relaciones Exteriores, Congresos y conferencias inter-
nacionales (Lima, 1909), I, p. 176. This treaty was not ratified but is evidence
of the thinking of those attending the conference.
10 Foreign Minister of New Granada to the Foreign Minister of Ecuador,
Bogota, May 29, 1850, MS., CHRE, Gobierno y Agentes de Colombia en Chile,
1851-76.
11 Ibid.
A. Varas to the charge d'affaires of Chile in Peru, June 26, 1850, MS.,
II
CHRE, Indice, 1847-51.
9
the Chilean administration in a dilemma. These events stemmed

from the influence of the European revolutions of 1848 upon the west
coast of South America. In Chile, agitation led by Francisco Bilbao
resulted, early in 1851, in a revolution which although 'suppressed
left the government of Chile fearful of the radical ideas which had
inspired it. In New Granada and Ecuador the radicals had gained
control and in 1851 began to carry out the democratic leveling and
the anti-clerical ideas which the Chilean government so profoundly
distrusted. In Peru, however, conservative President Jose Rufino
Echenique supported an expedition led by Juan Jose Flores which
aimed at overthrowing the radical govenlment of Ecuador and re-
placing it with a more conservative regime. 23 The government of
New Granada then threatened to declare war if Peru persisted in its
support of the Flores expedition. 24
Chile, while not eager to see the extension of Peruvian influence,
was equally averse to the extension of the radical concepts of New
Granada. Some Chileans feared that a coalition of New Granada and
Ecuador might resort to force to extend its radical principles to
Peru and even to Bolivia.25 In an effort to prevent this the Chilean
government adopted a variety of measures, including an implied
threat that it would come to the aid of Peru in case that country were
attacked. But Chile's basic policy in this dilemma was to play both
ends against the middle in an effort to maintain the balance of power.
This was made clear in instructions dated July, 1852 to Chile's agent
in Peru. He was told that it was difficult to predict the course of
the Ecuadorean question but that the objectives which should direct
his efforts in all events were " ... the peace of the continent; [and]
the stability of the present order of things, with neither dismember-
ments nor annexations.' '26
While a balance of power was taking form on the Pacific coast,
the one already established in the Plata region was being disturbed.
The first serious threat to the equilibrium based upon Uruguayan
23Basadre, pp. 265-6.
U Minister of Foreign Relations of New Granada to Minister of Foreign
Relations of Chile, Bogota, Oct. 9, 1852, MS., CHRE, Gob. y Ag. de Col., 1851-56.
25 B. J. de Toro, Chilean Agent in Peru, to the For. Min. of Peru, Lima,
June 2, 1852, MS., CHRE, Ag. de Chile en el Peru, 1849-52, suggests this idea
to the home government. Antonio Varas to charge d'affaires of Chile in Lima,
Santiago, Aug. 14, 1852, considered the danger of a coalition of New Granada,
Ecuador and Bolivia attacking Peru and pointed out· that "the influence of the
present Government of New Granada in the affairs of the Continent would be
very dangerous for the political and social institutions of all these peoples.... "
28 A.Varas to C. Bello, Santiago, July 14, 1852, MS., CHRE, Leg. en el Peru,
1826-53.
10
independence commenced in the late 1830 's when Juan Manuel de
Rosas, who had forged a strong government in Buenos Aires, sought
to extend his power to revolution-torn Uruguay. Then, when Para-
guay emerged from isolation following Francia's death and made
its entrance into the Plata power system, Dictator Rosas' threatening
posture made it appear that Argentina sought to dominate not only
Uruguay but also Paraguay.27
Brazil clearly recognized the implications of such an Argentine
policy. As a Brazilian diplomat in Europe explained, in 1846, " ...
if the independence of the State of Montevideo, established by the
Convention of August 27, 1828, was a condition or guarantee neces-
sary for the equilibrium between Brazil and the Argentine Confedera-
tion, the independence of the Republic of Paraguay also is evidently
necessary to complete said equilibrium. The annexation of Paraguay
to the [Argentine] Confederation would give to the latter, in addition
to pride of conquest, an increase of territory and forces such that
the equilibrium would cease to exist, and all of the sacrifices made by
Brazil when it adhered to the independence of Montevideo would be
entirely fruitless.' '28
From the early 1840 's the Brazilian government moved to con-
tain Argentine expansion, and as the disorders of the Regency period
were quelled following the ascension of Dom Pedro II, and as the
Empire '8 economy began to flourish, Brazilian opposition to Argen-
tina mounted. This opposition culminated in 1851 when Brazil united
anti-Rosas forces in Argentina and Uruguay to form an alliance which
succeeded in overthrowing the Rosas dictatorship by force in the
following year.
With the fall of Rosas the balance tipped in the other direction.
Argentina, split into two separate and rival jurisdictions during
most of the period between 1852 and 1861, was too weak to play a
dominant role in the Plata region and Brazil, with its relative power
position thus strengthened, assumed hegemony.
Brazilian dominance and Argentine debility had consequences
both outside and inside the Plata power system. They contributed to
the development of closer contacts between the Plata and the Pacific
coast systems. This was particularly true in two areas. One was the
Amazon region, which began to arouse heightened interest in the
1850 'so Brazil, freed from preoccupation with PIatine affairs by
!1 General discussions of international polities in the Plata area are found in
Pelham Box, The 'Origins of the Paraguayan War (Urbana, 1929) and Efraim
Cardozo, Paraguay independiente (Barcelona, 1949).
!8 As quoted in Cardozo, pp. 101.
11
Argentina's weakened condition, was able to focus its attention on the

Amazon River system and its attempts to control its navigation in
the 1850 's brought it into greater contact and conflict with those
west coast powers interested in the region. 29 The other area of Pla-
tine-Pacific contact was Patagonia. Chile, strong and expanding, had
already established a colony on the Straits of Magellan in the 1840 's
and in the next decade it broadened its claims to include Patagonia.
Argentina had protested what it considered Chilean encroachments
but divided, weak and concentrating on Platine affairs, had been
able to do no more than sign an agreement with Chile, in 1856, to
arbitrate their territorial differences in the future. 3o
Within the Plata area Brazil intervened frequently in the affairs
of Uruguay, came into increasing conflict with Paraguay and attained
its objectives in the Rio de la Plata region through a series of treaties
which guaranteed the independence of Uruguay and Paraguay, the
free navigation of the fluvial system and the neutralization of the
strategic island of Martin Garcia. But two events, both of which were
in part a reaction to Brazilian power, were to alter the situation of
the Plata region. One was the union of Buenos Aires with the other
provinces of Argentina in 1862 which resulted in a strengthened
Argentina. The other was the creation of Paraguayan military might.
Paraguayan militarism, nurtured and driven on by ambitious
Francisco Solano Lopez, was to burst into the disastrous Paraguayan
·War. In 1864, when Brazil threatened to send troops into Uruguay
to obtain satisfaction for certain claims, Lopez issued a dramatic ulti-
matum. In it he stated that the occupation of Uruguay by Brazilian
forces would be regarded " ... as an attack upon the equilibrium of
the states of the Plata which Paraguay considers as a guarantee of
its peace, security and prosperity. . . . "31 When Brazil disregarded
this ultimatum and sent its forces into Uruguay, Lopez declared war.
Argentina, where strong sentiment against Brazil prevailed in the
provinces, at first determined to follow a neutral course. Argentina
was soon forced into the war, however, when Paraguayan forces
invaded and occupied the province of Corrientes in spite of President
Mitre's previous denial of permission to Lopez' troops to pass through
Argentine territory in order to attack the Brazilians. In May, 1865,
Argentina, Brazil and Uruguay, the latter with a new government
friendly to Brazil, signed a Treaty of Triple Alliance which bound
21 German Cavelier, Politica internacionaZ de Colombia . . . (Bogota, 1949),
pp. 250-258; Ulloa, pp. 220-229.
30 Encina, XIV, pp. 110-19.
31 Cardozo, p. 181.
12
them to fight together to overthrow dictator Lopez-he who claimed
to be the defender of the equilibrium of the Plata.
Whether or not Lopez was sincere in his appeal for the mainte-
nance of the balance of power the mere fact that he issued his appeal
serves to indicate the strength which the concept had by this time
achieved. As Domingo F. Sarmiento explained, "The \vord equi-
librium of the Rio de la Plata has appeared in the first rank among
the ostensible motives for the present [Paraguayan] war. As vicious
as the present application may appear, no one will deny that it was
born of ... necessity when it is applied to the influence of Brazil.
It will always exist between a state of nine million inhabitants and
others of one, a half and a quarter million. "32 Sarmiento's solution to
the problem of Brazil's power was ". . . to form a federation of the
three Spanish republics of the Plata. . . . "33 He realized, however,
that the creation of such a federation would produce continental
complications. ' 'The Republics of the pacific," he predicted, "above
all Chile, would offer great resistance, in virtue of the prevalent idea
of the equilibrium of political nullities with Republics of one or
two million inhabitants incapable of defending themselves against
foreign aggression. . .. Crying against imperial preponderance they
will [nevertheless] be opposed to the Republic in the Rio de la Plata
acquiring robustness, the only effective counterweight to that pre-
ponderance. ' '34
Brazilian preponderance in the Plata area also troubled another
Argentinian, Juan B. Alberdi, who considered the Paraguayan War
as one more manifestation of Brazilian imperialism. Alberdi's ap-
proach to the threat of an imperialist Brazil was to have the Ar-
gentine provinces and the Spanish American nations of the Pacific
coast form an alliance. "The permanent aim of this league," Alberdi
stated, "will be that of containing the annexationist efforts of the
Brazilian Empire ... in defense of the equilibrium which protects the
Republics of Spanish American nationality.' '35
While the Paraguayan War was in the making, the powers of the
west coast had become involved in difficulties with Spain after Spanish
naval forces had seized the Chincha Islands from Peru in the spring
of 1864. These difficulties led to the outbreak of war a few months
82 D. F. Sarmiento, Obras. • . . , 52 vols. (Buenos Aires, 1900), XXXIV,
p.251.
as Ibid., p. 239.
34 Ibid., p. 241.
n Juan B. Alberdi, "Intereses, peligros y garantias de los estados del Pa-

cifio en las regiones orientales de la America del Sur," Sept., 1866, in Juan B.
Alberdi, Obras selectas (Buenos Aires, 1920), VII, p. 222.
13
after the powers of the Plata region had signed the Treaty of Triple
Alliance against Paraguay. To provide for cooperation in waging
war against Spain, a quadruple alliance was formed by Chile, Peru,
Ecuador and Bolivia in late 1865 and early 1866. The simultaneous
prosecution of these two distinct wars, one against an American
nation and the other against a foreign power was, paradoxically, to
focus the attention of the west coast nations on the Plata, to bring
increasing contact between the governments of the two areas and to
point up the fact that the interests of the nations of these two areas
were inter-related.36 Thus a basis was laid for the later fusion of the
power systems of the Plata and the Pacific into a continental balance
of power.
The attention of the Pacific coast powers to the Plata area was
initially attracted by their wish to obtain PIatine cooperation in their
war against Spain. Argentina, Brazil and Uruguay had, however,
little interest in joining an alliance against Spain while they were in-
volved in their own war and the Pacific coast countries therefore
tried to end the Paraguayan War through mediation. 37 When such
efforts failed and Argentina, Brazil and Uruguay persisted in their
refusal to cooperate against Spain, a spirit of recrimination and ill
feeling arose between the two regions.
Bad feeling was increased by the revelation of hitherto secret
clauses in the Treaty of Triple Alliance-clauses which provided for
the partial dismemberment of Paraguay and for the imposition of
limitations upon its sovereignty. All of the nations of the west coast
seemed to feel that Paraguay's dismemberment would disturb the
status quo in the continent and all of them protested. The government
of Peru told the Triple Alliance that " ... to make an American Po-
land of Paraguay would be a scandal which Americans could not wit-
ness without being covered with shame.' '38
The Peruvian envoy to the Plata region protested to the Argentine
foreign minister that" .. '. the treaty of alliance against Paraguay
seems to demonstrate that the final aim of the war ... is no other than
that of carrying out overt attacks against the Law of Nations which
would be at the same time a threat to the continental equilibrium and
an injury to the principles which constitute the Public I.Jaw of the
American States. . . . ' '39 Colombia's foreign minister, in his report
Eneina, XV, pp. 44-50.
38
Chile, Min. de ReI. Ext., Memoria . .. 1866, p. 29; Memorta . . . 1867,

ST
pp. 15-17.
38 Peru, Tratados, X, pp. 467-475.
3~ Ibid., p. 535.
14
to Congress of 1868 claimed that, " ... The dearest interests of the
nations of the continent impel them to stop the consummation of
the acts projected [against Paraguay] and ... the establishment of
lamentable precedents."40 Although a continental balance of power
was specifically mentioned in only one of these protests, all of them
serve to indicate that the leaders of the west coast nations realized
that their own national interests could be affected by threats to the
independence of a nation in the Plata power system.
The embryonic sense of a continental balance of power which was
evident in the thought of Alberdi and Sarmiento and implicit in the
protests of the west coast nations was to become more clearly defined
in the decade following the conclusion of the two wars. Contributing
to this definition of a continental equilibrium was the resurgence of
rivalries among the nations of the Pacific after their victory over
Spain. Two major factors were responsible for these renewed rival-
ries. The first was the expansion of Chilean economic interests into
the sparsely populated but valuable desert coastal region of Bolivia.
The Chilean government's overt support of this expansion aroused
suspicion in both Peru and Bolivia and laid the basis for an entente
between them. As Julio Mendez, a Bolivian, wrote in 1872, with
Chile obviously in mind, "The absorbent attitude which some South
American States have assumed completely disturbs the international
equilibrium of those which make up the system of the half-con-
tinent. ' '41
The second factor which led to the resurgence of international
conflicts on the Pacific coast was the superior power position, in terms
of navy and defensive installations which Peru had achieved by the
end of the war against Spain-a war in which Chile had suffered
losses far more severe than had Peru. Peru's recognized superiority
had three important consequences: it encouraged Peru to resist Chil-
ean expansionism; it encouraged Bolivia to look to Peru for support;
and it encouraged the Chilean Congress to authorize the purchase of
two new warships in January, 1872. Finally, in February of 1873
~o Uribe, III, p. 562. It should be remembered that Colombia had a disagree-
ment with Brazil over a boundary and over the question of the navigation of the
'Amazon. In dealing with a Brazilian decree of 1867 opening the Amazon River
to commerce, the Colombian foreign minister hinted that Brazil's motive might
h~ve been that of diverting attention from the Plata where Brazil's real in-
terest lay and he warned, "No debemos perder de vista que instalado en Brasil
comodueiio en el Plata, se colocaria en una ventajosisima posicion respecto a las
naciones del Pacifico, en la cual podria 8uscitar embarazos al gran trafico que
estas sostienen con la Europa comercial por Magallanes y el Cabo de Hornos."
n Julio Mendez, ReaUdad del equilibrio americano y neceswad de la neu-
tralizaci6n perpetua de Bolivia . .• (Lima, 1874), p. 1.
15
Peru and Bolivia signed a secret Treaty of Alliance which they

claimed was designed to contain Chilean expansion but which the
Chileans, when they learned of its existence, claimed was for the
purpose of destroying Chilean power. 42
This falling out among the allies on the Pacific coast was one
factor which led to the definition of a continental balance of power.
A second was Chile's attempt, in the 1870 's, to make good its claim
to Patagonia. This would not have been so important in developing
a continental balance of power, however, had it not been for a third
factor-the remarkable upsurge of Argentine wealth, population and
political stability which followed the Paraguayan War. Under the
impact of this progress Argentina became less preoccupied with the
area immediate to the Plata and more intent upon developing its re-
sources in the south-an area part of which was disputed with Chile.
Argentine progress put the nation in a better position to contest
Chilean claims. The result was increasing tension between the two
countries in the years following the end of the Paraguayan War. 43
Chile's dispute with Argentina was another reason why the Chileans
felt it necessary to rebuild their naval strength and the existence of
the dispute made Argentinians receptive to the idea of cooperation
with Chile's Pacific coast competitors.
In mid-1873 the Peruvian government took steps to bring Ar-
gentina into the anti-Chilean, Peru-Bolivian alliance. The Peruvian
representative in Buenos Aires invited Argentina to adhere to the
alliance, pointing out" ... the tendency which Chile had shown ...
of enlarging its territory to the north and south at the expense of
its neighbors and of the South American equilibrium.... "44 Argen-
tine government circles received Peru's invitation most favorably.45
But at this point a fourth factor contributory to the definition of a
continental balance of power became an important consideration.
This ,vas the falling out of the allies which had waged war on
Paraguay.
Argentina and Brazil, ancient rivals for control of the Plata, had
been reluctant allies, each suspicious of the other's designs upon
Paraguay. When the war was ended conflict over peace terms had
Basadre, pp. 454-6; Encina, XV, pp. 170-184.
42
~3Incidents during this period of tension are discussed in Luis Barros Bor-
goiio, A. traves de una correspondencia; misiOn en el Plata, 1876-78; La cuestiOll
de Umites, Barros A. rana, diplomatico y perito (Santiago, 1936).
~'M. Irigoyen to the For. Min. of Peru, Buenos Aires, July 12, 1873, found
in Pedro Yrigoyen, La alianza Peru-Boliviana-Argentina y la declaratoria de
guerra de Chile (Lima, 1921), p. 67.
I
U Encina, XV, pp. 184-207; Basadre, p. 456. Discussions will be found here of
Argentina and the Peru-Bolivian alliance of 1873.
16
BALANCE OF PO'VER IN NINETEENTH-CENTURY SOUTH AMERICA 53
developed and came to a head in 1872 when Brazil violated the
terms of the Treaty of Triple Alliance by making separate peace with
Paraguay. War between Argentina and Brazil was indeed narrowly
averted but tension between them continued. 46 The fact that Argen-
tina was a potential enemy both of Brazil and Chile provided a basis
for a possible understanding between these two nations at the very
time when Argentina was considering the anti-Chilean alliance with
Peru and Boliv~a.47 Although Chile and Brazil concluded no formal
entente, Argentina's fears on this score were sufficient to make it
hesitate to adhere to the Peru-Bolivian alliance. 48 Peru also began to
fear that Argentina's inclusion in the alliance might precipitate a
Chilean-Brazilian pact which could compromise Peru's relations with
Brazil and endanger its growing Amazon interests. Peru therefore
tried to allay any possible Brazilian suspicions by specifically limit-
ing to Chile the application of the proposed Treaty of Alliance.
Negotiations lagged \vhile Peru attempted to overcome Argentina's
objections to such a restriction 49 and were further bogged down by
the injection of an Argentine-Bolivian boundary dispute into the
discussions. These delays, plus the delivery of one of Chile's brand
new warships, were important factors in preventing Argentine ad-
herence to the Peru-Bolivian Alliance. 5o Nevertheless, these attempts
at forming alliances and ententes on a diagonal and intersecting basis
as contrasted to a vertical and parallel basis had the effect of bringing
about a closer integration of the power systems of the Plata and the
Pacific. A majority of the nations of South America had become in-
volved in the balancing of power.
Balancing of power on a continental scale did not prevent the
outbreak of the War of the Pacific in 1879, but it was this war which
served to involve a larger number of the South American nations
(6 Cardozo, pp. 266-280.
47 In the fall of 1873, the Chilean representative. in Buenos Aires was in-
structed (1) to inform the Brazilian minister that Chile would remain neutral
in a war between Argentina and Brazil and (2) to study with the Brazilian
minister the situation being created for both countries by Argentina. See Adolfo
Ibanez to Gmo. Blest Gana, Santiago, Oct. 24, 1873, MS., CHRE, Correspondencia
a Agentes Diplomaticos de Chile, 1872-73. Again in June of 1875, when relations
between Chile and Argentina 'were poor, the Chilean minister in Buenos Aires
was ordered to go to Brazil in order to bring about closer relations between
Chile and Brazil. See J. Alfonso to Gmo. Blest Gana, Santiago, June 5, 1875,
MS., CHRE, Correspondencia a Agentes Diplomaticos de Chile, 1873-77.
(8 M. Yrigoyen, Peruvian minister in Buenos Aires, reported these Argentine
fears of a Chilean-Brazilian alliance to his home government. See Yrigoyen,
Alianza Pero-Boliviana-Argentina, pp. 72-82.
(9 Ibid., pp. 141-150.
50 For the significance of the delivery of the Chilean warships see Gonzalo
Bulnes, Guerra del pacifico (Valparaiso-La Paz, 1912-19), I, pp. 95-98.
17
54 BABR I FEBRUARY I ROBERT N. BURR
more deeply in a balan'ce-of-po,ver system. 51

When it became clear
that Chile would defeat its enemies in the War of the Pacific and
would demand territorial concessions as the price of peace, the other
nations of South America began to sense that the balance of power
was being seriously threatened. Colombia's minister in Chile warned
his government to prepare to defend itself by increasing its arma-
ments, by strengthening its relations with its neighbors and by se-
curing an alliance with Argentina, a country equally threatened by
the growth of Chilean power. 52 A pamphlet by Adriano Paez, pub-
lished in Bogota in 1881, was symptomatic of the reaction of many
Spanish Americans to Chilean victories over Bolivia and Peru and
indicated that Colombians now felt they had a role to play in the
continental balancing of power. Chile, Paez wrote, " '. . . has de-
stroyed the land and sea power of Peru ... and has won the predomi-
nance of the Pacific. . . . Chile will be master from the Straits to
Ecuador, for the present, and, ... as neither Ecuador nor Colombia
has a navy, Chile will rule from the Straits to the Isthmus of Panama.
. . . It will be master of the commerce of the Pacific and [will have]
more warships than any American nation except the United States.
• • . ' , '53 To meet the Chilean threat the Colombian pamphleteer ad-
vocated that Colombia cooperate with other nations of Latin America.
"The danger is common," he wrote. "Let diplomacy put itself into
the field and raise a unanimous and formidable protest a~ainst Chile's
pretentions and if that country does not heed the explicit will of
America then let there be formed a league of all the other Republics
iO that insane ambition may be returned to its natural bounds.' '54
Venezuelans, whether for reasons of principle or of national in-
terest~ were also indignant. The Congress of Venezuela officially pro-
tested Chile's conduct. It stated, in a resolution, that" ... we must
profoundly lament the terrible catastrophy of the Pacific. . . . In the
name of the Great Bolivar, liberator also of ... [Peru and Bolivia]
51 A valuable collection of printed documents on the war is Pascual Ahumada
Moreno, ed., Guerra del pacf,fico ... . , 9 vols. (Valparaiso, 1884-1890).

52 P. Arosemena to the For. Min. of Colombia, Santiago, June 11, 1880, MS.,
Colombia, Min. de ReI. Ext., Archivo Diplomatico y Consular, No. 174. Co-
lombia and Chile were at odds at this time over the question of the neutrality of
the Isthmus of Panama. Peru had been receiving arms shipments over the
Panama Railroad and Chile wished to stop them. This dispute was so serious
that the Colombian minister in Santiago was afraid that a rupture in relations
might result.
sa Adriano Paez, La guerra del pacifico i deberes de la .America (Bogota,
1881), pp. 2, 8-9. It would appear that Paez is quoting from El Mercurio of
Santiago, although this is not altogether clear.
5f Ibid., p. 13.
18
we solemnly protest against these iniquitous and scandalous usurpa-
tions of which they are the victims.' '55
Argentinians also feared the increase of power which victory and
the acquisition of valuable territories would give to Chile. The press
of Argentina began to advocate the reconstruction of the old Vice-
royalty of the Rio de la Plata, apparently as a counterpoise to grow-
ing Chilean power. 56 The government of Argentina was more prac-
tical. It undertook a diplomatic offensive aimed at depriving Chile
of its conquests. Among other moves, Argentina worked to obtain
the cooperation of Brazil in a joint mediation the specific terms of
which would have prohibited territorial conquest. 57 Argentina also
attempted to convert an Arbitration Congress sponsored by Colombia
into a meeting at which the American nations would condemn Chilean
conquests. 58 Moreover, Argentina sent a diplomatic agent to Caracas
and Bogota for the first time in its history, for the apparent purpose
of securing cooperation in the diplomatic offensive against Chile. 59
A Bolivian, Santiago V. Guzman, published a book in 1881 which
aimed at winning Spanish American support for maintaining the
territorial integrity of his defeated nation. One of his appeals was
the necessity of preserving the South American balance of power.
"One can say without fear of [error] ... ," he wrote,
that the Bolivian nation is called upon to fulfill in the international politics
of these countries the role of regulator which falls to France in the European
system; in resemblance to that nation, [which is] the center of equilibrium
in the opposition of the Slavic and German races with :the Latin and Saxon,
Bolivia not only is a necessary element between the Lusitanian race and the
Spanish, but it also is among countries of common origin whose territorial
sovereignty and whose rights it is destined to preserve....60
If in the vast system of South American nations the principle of
equilibrium must be one of the fundamentals of its public law, if the axis
of the political balance must be the Republic of Bolivia because of its in-
terior and coastal position, it is in the interests of the tranquility of America
to assure that nation the full enjoyment of its independence and sovereignty,
reestablishing its territorial limits. . . .61
55 Ibid., pp. 14-15.
66 Telegra.m from F. B. Echeverria to the For. Min. of Chile, Buenos Aires,
Nov. 10, 1881, MS., CHR.E, C6nsules ... en el extranjero, 188l.
57 Ahumada M., VI, pp. 152-155, contains Argentine documents on this at-
tempted mediation.
58 For. Min. of Argentina to the For. Min. of Colombia, Buenos Aires, Dec.
30, 1880, Colombia, Diario Oficial, No. 5001, Apr. 2, 1881, 9052-9053.
59 This purpose was reported to the Chilean government by its agents in
Buenos Aires and Bogota.

eo S. V. Guzman, El derecho de conquista en America y Za teona del equilibrio
sur-americano (Buenos Aires, 1881), p. 187.
81 Ibid., p. 193.
19
To counteract Spanish American hostility, the Chilean government

astutely played upon the antagonisms of the nations most likely to
cooperate against it. 62 Particularly important were Chilean efforts
to neutralize Argentine activity by working to assure the benevolent
neutrality of Brazil, or even to win its active- cooperation. One
Chilean minister in Brazil was instructed to remind the Emperor's
government" ... that between Brazil and our country there could be
formed a powerful league which might affirm our common preponder-
ance on the South American continent. "63
In spite of much hostility to its policies, Chile emerged from the
War of the Pacific stronger than ever and with undoubted hegemony
in South America, except for Brazil. It was inevitable, however, that
other American nations should attempt to redress the balance of
power. In maintaining its predominance Chile was faced with prob-
lems on several fronts. Peruvians; as they gradually recovered from
the impact of their defeat in the War of the Pacific and as their power
position improved, pressed for the return of the provinces of Tacna
and Arica, still occupied by Chilean forces. Bolivians insisted on an
outlet to the sea before amicable relations with Chile could be re-
established. But the major problem faced by Chilean statesmen was
expanding and prosperous Argentina. The two countries were tech-
nically still at odds over the question of the demarkation of their
boundary-a question which led to several crises and war scares be-
tween 1892 and 1902. But in reality, as one Argentinian saw it in
1902, "The Argentine-Chilean boundary question has never existed
as a serious motive for conflict. . . . The only question which has
agitated the two countries is that of the influence of each in the South
American equilibrium.' '64
To improve its position in the power contest with Chile, the Ar-
gentine government expanded its naval and armament programs. On
one occasion, when war with Chile seemed near, Argentina sought an
alliance with Uruguay and Brazil. 65 Moreover, the Argentinians
adopted a foreign policy which in the opinion of the Chilean govern..
ment showed a " ... tendency to interfere ... ' '66 in the solution of
62 For example, Chile waged a diplomatic campaign in 1881 to prevent the
meeting of the Panama Arbitration Congress which Colombia was promoting.

See Chile, Min. de ReI. Ext., Memoria . .. 1882 (Santiago, 1882), p. XVI.
83 For. Min. of Chile to the minister of Chile in Brazil, Nov. 23, 1880, MS.,
CHRE, Correspondencia, 1879-81.

64. Luis V. Varela, Defensa de los ultimos pactos internacionaZes (Buenos Aires,
1902), p. 9.
85 Fermin V. Arenas Luque, Enrique B. Moreno, un gran diplomatico argentino
(Buenos Aires, 1945), pp. 103-8.

8e Chile, Min. de Ret Ext., Memoria . .. (Santiago, 1902), p. 137.
20
Chile's problems on the Pacific coast by giving Peruvians and Bo-
livians hope that they would receive support from Argentina.
Chile, once more faced with the possibility of an unfriendly coali-
tion of its neighbors, attempted to preserve its position by exploiting
rivalries among the other South American nations. In effect, Chile
was attempting to maintain a balance of power among these nations
which would enable Chile to retain its hegemony. The Chilean gov-
ernment found potential allies to the north in Ecuador and Colombia.
Both nations had long been wrangling with Peru over disputed terri-
tory in the Amazon area and their conflicts were intensified at the
end of the nineteenth century by the rubber boom. Chile endeavored
to capitalize upon these sore spots to win the support of Ecuador and
Colombia and thus to create counterweights to growing Peruvian
power. To Ecuador, no longer needed Chilean arms and munitions
were sold,67 and arrangements were made for Ecuadorean cadets to
study at Chile's Military College 68 and for Chilean army officers to
serve as instructors at the military academy in Quito. 69 In Colombia
a Chilean legation was established in Bogota in 1901 which ". . .
initiated various efforts with the Governnlent of Colombia directed
not only toward creating a current of sympathies between the two
countries but also toward strengthening their political and commer-
cial relations. "70 Among other things discussed by the Chilean minis-
ter in Bogota was the sale to Colombia of a Chilean cruiser which, if
consummated, would give Columbia " . . . greater military influence
in the Pacific. . . .' '71
The Chilean government also tried to use its influence in northern
South America to settle a boundary dispute between Colombia and
Ecuador" ... not only to strengthen the close solidarity which today
exists among the three nations but also [because] Chile will thus take
one step more to recuperate the influence which legitimately corre-
sponds to it in America because of its organization and progress. "72
In the opinion of the Peruvians, however, "What Chile desired in
this matter was, first, that Colombia and Ecuador should reach a
peaceful agreement and unite their interests with those of Chile and,
8'1 V. Blanco, For. Min. of Chile, Circular confidencial al Cuerpo Diplomatico
Chileno, MS., CHRE, Santiago, Aug. 29, 1893, Diplomaticos chilenos, 1893-94.
(Subsequent citations: DCH.)
88 J. J. Latorre to D. Betran Mathiew, Min. of Chile in Ecuador, Santiago Apr.,
23, 1898, MS., CHRE, DCH, 1898, I.

8t V. Blanco, to the Min. of Chile in Ecuador, Santiago, Apr. 19, 1899, MS.,
CHRE, DCH, 1899.
'10 Chile, Min. de ReI. Ext., Memoria . . . (Santiago, 1902), p. 157.
n Ibid.
'12 Ibid., p. 161.
21
second, that Colombia and Ecuador should not reach any agreement
with Peru.' '73
Chilean activities were not confined to northwestern South
America. Efforts were made to bring both Paraguay and Bolivia into
its orbit. Paraguayan youths were encouraged to enter Chile's mili-
tary and naval academies74 and at the suggestion of the Asuncion
government the Chilean minister to Paraguay worked to induce
Chilean teachers to come to Paraguay "in order to counterbalance
the influence of Argentine teachers, who resist greatly any reform
in education which may tend to diminIsh their preponderance.... "75
To Bolivia there was held out the hope that it might receive part of
the former Peruvian provinces of Tacna and Arica as compensation
for the loss of its own seacoast to Chile. And finally, the Chilean
government continued to work to retain the friendship of the new
Republic of Brazil.
But by the beginning of the twentieth century it was becoming
increasingly difficult for Chile to maintain its hegemony in Spanish
America. One major reason for this was that the armaments race with
Argentina, and especially the expensive naval construction program,
was becoming a serious financial burden for the relatively small Chil-
ean nation. 76 Argentina also felt the economic strain of the arma-
ments contest and the result was the coming to terms of the two gov-
ernments. This was accomplished in the famous Pactas de Mayo of
1902 and a supplementary Act of July 10 of the same year. These
'I' Peru, Arbitration between Peru and Chile, The Case of Peru (Washing-
ton, D. C., 1923), p. 182. In the Appendix to this Case 01 Peru the Peruvian
government printed a series of protocols which were published in the New York
Sun on Oct. 19, 1902. These protocols, attributed to Colombian Foreign Minister
Abadia Mendez and the Chilean minister in Bogota, Francisco Herboso, were
supposedly signed in Bogota between Sept. 29, 1901 and Jan. 18, 1902. They
deal not only with the matter of the Colombian-Ecuadorean boundary dispute but
also with the sale of the Chilean cruiser. to Colombia, the shipment of arms and
munitions across the Isthmus of Panama and the policy to be adopted by the
Colombian delegation to the Pan American Congress (Mexico) on the question
of arbitration.
'1~ Adolfo Guerrero, For. Min. of Chile, to V. Santa Cruz, Chilean minister to
Uruguay and Paraguay, Santiago, Aug. 21 and Sept. 3, 1896, MS., CHRE, DeH,
1896.
'IS The For. Min. of Chile to the Chilean minister in Uruguay, Santiago, Nov.
4, 1898, MS., CHRE, DCH, 1898, I.

'Ie According to the minister of the United States in Chile, the President of
Chile was "of the opinion that the burden which Chile is carrying . . . is ab-
normal and beyond her capacity and that the hour has come to either make use
of her armaments or reduce them to the lowest level: compatible with the dignity
and safety of the country." Henry Lane Wilson to the Sec.- of State, No. 2042,
Aug. 5, 1901, United States Department of State, Diplomatic Despatches, Chilean
Legation, Vol. 48.
22
agreements sought, in effect, to establish a balance of the forces of
Argentina and Chile by providing for the limitation of naval arma-
ments. Equally important, it was agreed by implication that Ar-
gentina would not interfere in the affairs of the Pacific and that Chile
would keep out of Atlantic and Platine affairs. Even though these
ag.reements seemed to give Chile and Argentina a free hand on the
west and east coasts respectively, they in fact aimed at the mainte-
nance of the continental balance of power because in them each nation
explicitly promised not to expand territorially.77 Although the Ar-
gentine-Chilean agreements were not to stabilize for long the balance
of power in South America, they were a further indication that the
idea of a balance of power had become an accepted part of the in-
ternational life of South America by the beginning of the twentieth
century.
The preceding admittedly sketchy outline has brought together
evidence that the concept of a balance of power played a role in
the international relations of the South American nations during
the nineteenth century. Although space limitations have at times
made it necessary to oversimplify, the evidence presented would seem
sufficient to permit the formulation of the hypothesis which follows
and which is presented as a guide for more intensive investigation.
The concept of balance of power first assumed importance in South
America on a regional basis. In the 1820 's a regional balance-of-
power system developed in the Plata region when rivalry between
Argentina and Brazil over the Banda Oriental was resolved by the
creation of the independent Republic of Uruguay. This Platine power
system was expanded in the 1840 's when Paraguay emerged from its
isolation and developed contacts with the other nations of the Plata.
A second regional balance of power began to take form on the west
coast of South America in the 1830 's as a reaction to the powerful
Peru-Bolivian Confederation. The basic element In this west coast
power system was rivalry between Chile and Peru. The independence
of Bolivia and Ecuador was essential to the equilibrium between
these two powers. Colombia became involved in this west coast sys-
tem because of its interest in preserving the independence of Ecuador.
77 Territorial expansion resulting from treaties then in force or negotiated
thereafter was excepted. For the texts of the Pactos de Mayo see Varela, . . .
Losultimos pactos ... , pp. 65-73. The additional Acto of July 10, 1902 can be
found in Chile, Min. de ReI. Ext., Memoria . . . (Santiago, 1903), pp. iv-v.
German Riesco, Presidencia de Riesco, 1901-1906 (Santiago, 1950), pp. 172-
246, contains a. detailed discussion of the Pactos de Mayo. The views of an
Argentine opponent of the Pactos are forcefully expressed in E. S. Zeballos, tc Po-
l1tica continental pro Chile," Revista de Derecho, H istoria y Letras, XIII (Aug.,
1902), pp. 306-17.
23
While these two regional power systems were independently de-

veloping, the extension of Chilean influence toward the Atlantic, the
increasing importance of the Amazon area, the Paraguayan War and
the war of the west coast countries against Spain all resulted in in-
creasing contacts an10ng the individual nations of the two systems and
in the creation of a network of interlocking interests which laid the
foundation for the fusion of the two regional power systems. This
fusion actually began in 1873 when Peru, a major west coast power,
sought aid in its contest for power with Chile from Argentina, thus
encouraging an entente between Chile and Brazil and an interplay
of the power politics of the Platine and west coast systems. Thus
was the framework constructed for a continental balance-of-power
system involving a majority of the South American nations. Further
impulse was given to this development by the War of the Pacific.
Chilean victories aroused fears in most of the South American coun-
tries, excepting Brazil. Colombia was in particular made more aware
of the growing power of Chile following the collapse of that Peruvian
strength which had provided a bulwark between Colombia and Chile.
The disturbance of the South American equilibrium caused by the
growth of Chilean power resulted in an effort by the other South
American nations to restore the balance of power. Argentina took
the lead and was aided by a gradual revival of Peruvian power in
the 1890's and, probably, by the improvement in Argentine-Brazilian
relations which followed the overthrow of the Empire. Then, although
Chile tried to counteract mounting Argentine and Peruvian power
by developing closer relations with Paraguay, Bolivia, Brazil, Co-
lombia and Ecuador, it finally came to terms with Argentina in 1902.
The Pactos de Mayo of that year contributed to the stabilization,
however short-lived, of the balance of power among the nations of
South America.
Further elaboration and testing of this hypothesis, and its exten-
sion into the twentieth century, would require much investigation.
Such research should throw light upon the "national interests" of
the countries of South America and would contribute to the evolution
of a more integrated pattern for the study of the history of the inter-
national relations of the continent.
24
Economics and Differential Patterns
of Political Integration:
Projections About Unity in Latin America
ERNST B. HAAS AND PHILIPPE C. SCHMITIER
EcONOMICS AND POLITICS IN REGIONAL INTEGRATION
the economic integration of a group of nations

DOES
automaticall y trigger political unity? Must economic unions be perceived as
"successful" in order to lead to political unification? Or are the two processes
quite distinct, requiring deliberate political steps because purely economic ar-
rangements are generally inadequate for ushering in political unity?
There are no unambiguous historical answers. We find few examples of
political unity among two or more states antedating the creation of a common
market or customs union between them. l In most acts of federation the initia-
tion of political ties went on simultaneously with the establishment of an actual
ERNST B. HAAs is Professor of Political Science at the University of California (Berkeley). PHILIPPE C.
SCHMITrER, who is a doctoral candidate in political science at the University of California (Berkeley), is
currendy a Rockefeller Visiting Professor of Political Science at the Instituto de Ciencias Sociais, University
of Brazil, Rio de Janeiro. The authors wish to acknowledge their gratitude to the Rockefeller Foundation
and to the Institute of International Studies of the University of California (Berkeley) for financial support
in connection with this article.
1 The case of Austria-Hungary prior to 1850 is one of the few exceptions. The initiation of the cus-
toms union after that date gave rise to the complaint by Hungarians that the more industrialized Austria
was "exploiting" them by monopolizing the more profitable opportunities for investment, i.e., thus ob-
taining unequal benefits from the union. See Oscar Jaszi, The Dissolution of the Habsburg Monarchy
(Chicago: University of Chicago Press, 1929), pp. 185-2 I 2. This argument has become a standard one
in the contemporary setting. The Swedish-1Norwegian political union, on the other hand, never develOPed
into an economic union at all. See Raymond E. Lindgren, Norway-Sweden (Princeton, N.J.: Princeton
University Press, 1959), pp. 37-44.
25
7O"J INTERNATIONAL ORGANIZAnON
or potential economic union. The German Zollverein constitutes an exception

to this rule; but for other reasons it cannot serve as a guide to an answer.!
Recent history alone affords the instances in which voluntary economic inte-
gration preceded formal or informal steps toward political unity. And even
here there is sometimes an articulate political component in the minds of the
actors. In western Europe economic integration-to some of its partisans-is a
deliberate precursor of political unity. All the governments of Central America,
with the exception of Costa Rica, take the same position with respect to the
Central American Common Market (CACM). But the members of the Euro-
pean Free Trade Association (EFTA) eschew any overt political ambitions.
Commentators on the east European Council for Mutual Economic Assistance
(COMECON) diller on whether the arrangement has a purely economic func-
tion or whether it is part of a larger scheme for a cooperative communist com-
monwealth. Kenya, Uganda, and Tanganyika have been united in a common
market for 37 years and have maintained a common services organization for
a number of costly and important administrative functions for almost as long;
yet there is evidence of political disintegration in their relations since they
achieved independence I Similarly, efforts at sustaining the economic unity of
former French West Africa after 1958 resulted in political fragmentation,
largely because of the perception of unequal economic benefits and burdens
among the units. This negative experience, however, did not prevent these
states from attempting a new step toward some measure of pan-African eco-
nomic unity through the medium of the Organisation Africaine et Malgache de
Cooperation Economique (OAMCE). The West Indian Federation broke apart
for the same reasons as did French West Africa despite the precedence of a
certain amount of economic and administrative unity over political union.
If the recent history of the priority of economic ties over the formation of
political unions seems inconclusive, what can we say about the Latin American
Free Trade Association (LAFTA)? Here the members seem more or less
united on the proposition that national economic development and industriali-
zation will be advanced in a mutually beneficial manner through the medium
2 It is true that the Zollverein was gradually "politicized" as it came to encompass more member
states and additional and more complex economic tasks. It is also true that not even its Prussian initiators
had "planned" this deliberately in order to unite Germany and expel Aus~a from the Confederation,
even though they added this purpose to their earlier economic objec-tives after 1850. But the success of
the Zollverein as an economic precursor to political union was due essentially to the special position that
Prussia occupied within it, the enormity of the Prussian market as compared with the other members,
and the fine administrative and political sensitivity with which the Prussian managers of the Zollverein
wooed and satisfied their partners, sometimes at the expense of short-run Prussian losses. Further, a short
war was still required to drive home the lesson of interdependence. See W.O. Henderson, The Zollverein
(2nd ed., Chicago: Quadrangle Books, 1959); Arnold H. Price, The Evolution of the Zo//va'"ein (Ann
Arbor: University of Michigan Press, 1949); Heinrich -Bechtel, W;rtschaftsg~sch;chte Deutsch/ands (~funjch:
Callwey, 1956), Vol. 3.
26
ECONOMICS AND DIFFERENTIAL PATIERNS OF POLmCAL INTEGRATION 7O"J
of a free trade area, tending gradually toward a common market. Yet the senti-
ment that this trend should be considered a precursor for a post-Bolivarian
pan-Latin Americanism is only rarely encountered. Can we, nevertheless, dis-
cern a political thrust in the economic effort at union? The remainder of this
article will be devoted to the thesis that under modern conditions the relation-
ship between economic and political union had best be treated as a continuum.
Hence definite political implications can be associated with most movements
toward economic integration even when the chief actors themselves do not
entertaIn such notIons at the time of adopting their new constitutive charter.
LAP rA is no exception.
The considerations which lead us to this formulation require some explana-
tion. Linkages between economic objectives and policies, on the one hand,
and political consequences of a disintegrative or integrative nature, on the
other, are of a "functional" character: they rest very often on indirection, on
unplanned and accidental convergences in ou·tlook and aspiration among the
actors, on dialectical relations between antagonistic purposes. They also fre-
quently contain elements of creative personal action by administrators who
seize upon crises, the solution of which upgrades common interests among
the actors; hence they include an organizational.component which may, de-
pending on the organization, be of dominant significance. Integration can be
conceived as involving the gradual politization of the actor~t purposes which
were initially considered "technical" or "noncontrover.sial." Politization im-
plies that the actors, in response to miscalculations or disappointment with
respect to the initial purposes, agree to widen the spectrum of means consid-
ered appropriate to attain them. This tends to increase the controversial com-
ponent, i.e., those additional fields of. action which require political choices
concerning how much national autonomy to delegate to the union. Politiza-
tion implies that the actors seek to resolve their problems so as to upgrade com-
mon interests and, in the process, delegate more authority to the center. 3 It
constitutes one of the properties of integration-the intervening variable be-
tween economic and political union-along with the development of new
expectations and loyalties on the part of organized interests in the member
nations.
Viewed from this perspective, the sophisticated economic analysis of the pos-
sible benofits of common markets, customs unions, and free trade areas is not
S These conceptions of function, purpose, and problem solving in relation to international integration
are explored in detail in Ernst B. Haas, B~yond th~ Nation-Stat~: Functionalism and Int"national Or-
ganization (Stanford, Calif.: Stanford University Press, 19 64), Chapters 3 and 4. For their application to
the western European setting, see Haas, "International Integration," International Organization, Summer
1961 (Vol. 15, NO·3), pp. 366-39 2 •
27
7O"J INTERNATIONAL ORGANIZATION
of direct help to political and sociological projection. Pure economic theory

would be of immense help in our task if we could assume that the actors were
mainly impelled by the statistical projection of benefits and drawbacks of union.
But benefits and drawbacks with respect to welfare are very rarely seen in these
terms by ,the politicians and economic administrators who fashion common
markets. What is important to them is not welfare itself-as analyzed in pure
economic terms--:but future welfare perceived in terms of conceptions deeply
tinged with ideological factors and consistently influenced by the requirements
of political expediency.
Hence the success or failure of an economic arrangement in engendering
political union cannot reliably be revealed by pure economic analysis. Actors
sometimes bank on deferred economic benefits in the evolution of loyalties to
new structures. In the meantime they "payoff" the active or potential opposi-
tion with special benefits, exemptions, and subsidies. The results may feature
the simultaneous presence of inefficient resource allocation and a satisfied public.
Economic policy may be pursued in a fledgling customs union in such a way
as to satisfy a series of political doctrines held by the public without attaining
any demonstrable net increase in welfare which can be credited to the union.
The economist may rejoin the argument, of course, by urging that sooner or
later the moment of truth must be faced, that assessments of net gains must be
made at some point even if all sorts of bargains have bought time for the ad-
ministrator. At that point, he would urge, the union will have to demonstrate
its capacity for becoming a political entity on the basis of its economic prowess.
Is it not equally possible, however, that in 'the interim there may have devel-
oped unintended consequences which reenforce the earlier bargains on the
basis of new ties among groups and individuals, ties which can outlive evidence
of ambiguous welfare gains? The experience of some politically successful
federations would support the argument against the economist, with this
proviso: whenever key actors perceive their postunion welfare as d£minished
because of real or alleged hardships attributed-rightly or wrongly-to the
economic union, political disintegration is almost certain to set in. The growth
of political integration on an economic basis can prevail only so long as the
perception of benefits and drawbacks remains, at least, uncertain and uneven
among sectors of the population.
This proviso also serves as the benchmark for determining the utility of eco-
nomic analysis to political projection. Whenever nonideological economic
analysis of the balance of welfare gains and losses clearI y indicates a loss as a
result of the act of union, the chances for political success are remote. While
we can postulate the possibility of political union in the presence of ambiguity
28
ECONOMICS AND DIFFERENTIAL PATIERNS OF POLITICAL INTEGRATION 709
surrounding the question of gains and losses, we can hardly expect a victory
of political objectives over patent economic hardship-unless the union rests
on force rather than consent. Economic analysis can therefore indicate the
limits of the politically possible. But, then, economists rarely agree with one
another in their projections of the balance of welfare gains and losses in any
one instance of economic union. 4 Our problem is to link the processes of eco-
nomic ·and political integration, thus recognizing the continuum of economics
and politics. Projections of success and failure, including those of LAFTA,
can then be attem'pted on that foundation.
A TYPOLOGY OF INTEGRATION PATTERNS
Our demonstration aims at the de'lineation of typical conditions and factors

and of their consequences for regional integration. Many of the judgments
entering into the statement remain qualitative. Weare not able to indicate
clearly in all cases exactly how a series of variables is internally related, even
though we know them to be associated in the manner of a syndrome. The most
that can be said for the typology is that it has been derived from the available
concrete situations in which economic union led--<>r was supposed to lead---1:o
political union. We have examined these situation's in terms of the pattern
variables which are at the center of analyses of comparative politics.
The basic definitions are simple. We accept as relevant any form of "eco-
nomic union" which involves some measure of continuing central administra-
tive control, whether on the basis of a supranational or an intergovernmental
principle of authority. Actors are expected to desire not merely more un-
restricted trade but also some measure of factor mobility. In short, economic
union (in the most general sense) must aim at more than the removal of ad-
ministrative and fiscal obstacles to trade.
"Political union" implies any arrangement under which existing nation-
states cease to act as autonomous decision-making units with respect to an im-
portant range of policies. The constitutional features which can be accom-
modated under this label range from the unitary state to the principle of shared-
but-not-sharply-divided powers which is typical of the European sU'pranational
approach.Confedera'l arrangements mayor may not qua'lify for inclusion,
4 For applications of u pure economic" projections to the future of UAlFTA, see Robert A. Flammang,
Th~ Common Mark~t Mov~ment in lAtin America (unpublished Ph.D. dissertation, State University of
Iowa, 1962); Attiat A. Farag, Economic Integration (unpublished Ph.D. dissertation, University of Michi-
gan, 1963). But compare with Bda Balassa, The Th~ory of Economic Integration (Homewood, Ill.:
Richard D. Irwin, 1961). Balassa is concerned with LAFTA as well as with western Europe, and he
predicts a number of steps involving politization if lJAFTA is to realize its economic objectives. See also
R. F. Mikesell, uLa Teoria dei mercati comuni e gli accordi regionali tia paesi en corso di sviluppo,"
Mondo Ap"to, August 1962 (16th Year, NO.4), pp. 213-236.
29
710 INTERNATIONAL ORGANIZATION
depending on whether any actual delegation of national power to a central

agency has taken place. If the confederation merely takes the form of institu-
tionalized conferences among instructed representatives who do not delegate
power to a central organ, it stops short of the necessary degree of politization.
Naturally, we have to give a more extended meaning to the term "integra-
tionn than that sometimes given by economists, though we accept their usage
as part of our notion of economic union, i.e., the removal of obstacles to the
free movement of the factors of production. Integration, to us, means the
process of transferring exclusive expectations of benefits from the nation-state
to some larger entity. It encompasses the process by virtue of which national
actors of all sorts (government officials, interest group spokesmen, politicians,
as well as ordinary 'people) cease to identify themselves and their future wel-
fare entirely with their own national government and its policies. This notion
of integration, of course, is entirely compatible with the concept of divided
loyalties and segmented identification on the 'part of individuals.
Have we not now committed the common error of confusing process with
result, of applying indicators appropriate to the identification of a political
union to the sketching of the integration process? A word is neces~ary to ex-
plain how we have sought to avoid this error. A successful political union is an
entity in which the actors have already transcended their earlier exclusive iden-
tification with the preexisting national state. They have adapted to the regional
entity; they bestow a significant portion of their loyalties on it~ How can we
know that this has been accomplished? Adaptation has taken place whenever
crises and disagreements engendered by the increasingly politicized context of
debate are resolved in such a manner as not to involve threats of secession and
promises of revolt even though the solution extends the scope of central con-
trol. In other words, a political union can be said to exist when the politicized
decision-making process has acquired legitimacy and authority. Integration, on
the other hand, is merely the analytical term we bestow on the period of time
intervening between the establis'hment of common economic rules and the
possible emergence of a political entity, and on the events that we think must
occur during that period in order to engender that result. The integration
process, therefore, must show evidence of increasing politization, of shifting
expectations, of adaptation by the actors to a new process of mutual accommo-
dation. But it need not show uniform or unilinear evidence. Our very commit-
ment to the notion of an economic-political continuum compels the application
of identical observattional criteria for both the process and tJ:te result. Process
and result are differentiated, however, by the empirical consistency which we
expect to encounter in our criteria.
30
We now wish to break down this approach to integration into observable

pattern variables, attributes which seem to intervene more or less consistently
between the act of economic union and the possible end product we label p0-
litical union. These can be divided into: I) variables which obtain before the
act of union, 2) variables existing at the time the union is negotiated and enters
into force, and 3) variables which manifest themselves during the process which
ensues after the union becomes operative. The transition from the first two to
the third range of conditions involves some difficulties in terms of assumptions
and observations, which will be spelled out below.
BackgroundCond#ions
The first major consideration among the background conditions would have
to be the size and power of the units joining in the economic union. What is
important here is not the absolute military power or industrial capacity of the
participants but the relative weight of these feaitures in the specific functional
context of the union. Hence France's possession of a nuclear potential is irrele-
vant in the context of the European Economic Community (EEC); Belgium
and Switzerland were, in many respects, the equal of Italy and Germany in
the context of the Organization for European Economic Cooperation (OEEC)
because of their large capacity to export and import as well as provide credit.
After establishing the functional similarity or difference of the units, we must
specify the rate of transaction among the participants before they proceed to
liberalize restrictions. Here, trade figures, labor mobility, capital movements,
the 'possibility of establishment for professions, student exchanges, and similar
indices come to mind.
A third pattern variable is provided by the degree and kind of pluralism
which prevails within and among the member states. Pluralism involves two
separate but related empirical ques~ons. First, we must ascertain whether the
preva'lent mode of group conduct within each of the participating states is func-
tionally specific, universalistic, or achievement-oriented. Typically, the picture
is far from clear-cut, with pockets of functional diffuseness, particularism, and
ascriptive orientations present even in the most pluralistic settings. Second, we
must ascertain the balance of pluralism for the union as a whole, i.e., total the
number of countries which exhibit a "high," "low," or "mixed" pattern; the
final. judgment assigned represents this balance. For instance, in the case of
the EEC, the actual incidence of the variables ranges from the extreme plural-
ism of the Netherlands to the diffuseness and particularism of Sicily. Yet five
out of the -six members merit a "high" score and Italy a "mixed," giving us a
final "high." In COMECON, Poland and Hungary exhibit a pattern in which
31
the dominance of the Communist Party has undergone diminution with the
rise of other, functionally speci'fi~ groupings; in East Germany this has not
taken place to the same extent, with the Soviet Union perhaps occupying an
intermediate position. "High," "low," and "mixed" scores balance to a final
"mixed."
A final pattern variable involves the mutual complementarity of national
elites. Are corresponding grou'ps in the national settings inspired by similar or
differing values? Are all key leading military men apolitical or committed to
intervention in politics? Are allla'bor leaders wedded to a notion of permanent
industrial negotiation or to the subordination of trade unionism to political
revolution? Do similar groups share a common image of possible external
threats? What matters with regard to elite complementarity is whether corre-
sponding elite groups think alike or not, even if they do not live in a function-
ally specific setting. 5
Each economic union can then be evaluated as being "high," "low," or
"mixed" with respect to these background variables, on the basis of the balance
of data assembled for each participating member. But what does the judgment
signify? On the basis of previous work on the political implic1tions of economic
unions it was found that a high rate of previous transactIon, a similarity in
size and power, a high degree of pluralism, and marked elite complementarity
were extremely favorable to the rapid politization of economic relationships.6
But this demonstration is far from being sufficient to settle the argument. The
specific objectives of the actors must also be thrown into focus.
Conditions at the Time of Economic Union

Unless there is some meeting of the minds there can obviously be no agree-
ment on union at all. Hence we can exclude basic disagreement among the
parties. But two major consensual distinctions remain. First, we must differ-
entiate between situations in which the parties profess a strong commitment to
eventual political union, and the more common situation in which they do
not. Second, there is a distinction between a comprehensive and explicit eco-
5 We are deliberately excluding the physical environment as a separate pattern variable because it
seems to us that the differences in natural resource endowment, topography, climate, and the like do
not enter as autonomous determinants of the integration process. They do enter insofar as they affect
the aims and policies of men; but then they would show up in our pattern variables with respect to elite
complementarity. Size, moreover, is considered a separate variable.
6 Leon N. Lindberg, Th~ Political Dynamics of European Economic Integration (Stanford, Calif.: Stan-
ford University Press, 1963); Ernst B. Haas, The Uniting of Europ~ (Stanford, Calif.: Stanford University-
Press, 1958); William Diebold, Jr., The Schuman Plan (New York: Frederick A. Praeger, 1959); R. Colin
Beever, Europ~an Unity and th~ Trad~ Union Mov~ments (Leyden: A. W. Sythoff, 1960); Jean Meynaud,
L'Action Syndica/( ~t la Communaute Economique Europe~nne (Lausanne: Universite de Lausanne,
Ecole des H.E.C., Centre de recherches europeennes, 1962).
32
ECONOMICS AND DIFFERENTIAL PATTERNS OF POLITICAL INTEGRATION 713
nomic agreement and a more ambiguous meeting of minds. Identical commit-
ments at the time of economic union can be said to prevail if the parties agree
on the terms of the compact as well as on the paths of reasoning which led
them to it. A mere convergence of aims takes place, however, when the nego-
tiators agree on certain objectives even though they may have been led to them
by quite different-and perhaps anttagonistic-paths of reasoning.
This gives us four possibilities. I) Identical economic aims with a strong
political commitment merit a "high" rating, and 2) converging economic aims
with a strong political commitment also deserve a "high" rating. We know
of no instance, however, that qualifies for the first category, and only the EEC
meets the criteria for the second. 3) Identical economic aims accompanied by
a weak political commitment are rated "mixed," and 4) converging economic
aims with a weak political component merit a "low" evaluation. Naturally,
the fourth category is the most populated one.
But there is a second major pattern variable, in part institutional and in part
a summation of actor commitments, which must be considered along with the
purposes of governments at the time the economic union is born. The modal
choices are between "built-in" or "automatic" integration and negotiated inte-
gration. Built-in integration takes place on the basis of a firm sche dule for the
rate and amount of dismantling of obstacles to factor movements. Exemp-
tions from the schedule are administered by the central authority, not the na-
tional governments. Further, automatic integration is associated with economic
unions in the proper sense of the term, i.e., in arrangements in which the mem-
ber states aim at more than a customs union or free trade area. Automaticity
is here introduced by virtue of the fact that it is almost impossible to make
isolated decisions in discrete economic sectors, that all decisions impinge on
each other in such a way that a more or less coherent-but politicized-welfare
policy is likely to emerge. Institutionally speaking, automatic integration is
enhanced when an independent body of uninstructed "regional bureaucrats"
possesses the power to make-or at least to initiate and advocate effectively-
significant policy and when these persons act in almost permanent collabora-
tion with national governmental services and the representatives of bureaucra-
tized interest groups.
The opposite mode of integration features a much looser institutional struc-
ture which avoids the notion of "supranationality" in explicit intent as well as
in fact. The timetable for dismantling is flexible; each major step must be nego-
tiated anew; exemptions and escape clauses flourish, and their administration
is decentralized. While the union possesses certain standing organs, their powers
are insignificant because all major decisions remain in the hands of the perma-
33
nent delegates of governments acting alone or in the hands of periodic con-

ferences. The services of secretariats tend to be confined to technical and
housekeeping tasks. Voting formulas among governmental delegates in the
supranational case tend toward majoritarianism based on weighting; unanimity
or a modified two-thirds majority formula prevails in fhe intergovernmental
case.
Now it would be ideal if prognostications of the success of such economic
unions in developing into political entities could be based exclusively on back-
ground factors and conditions prevailing at the time of union. In that event
the learning capacity of the actors in adapting-or resisting adaptation-to the
new way of dealing with economic interdependence could be ignored. Rates
of transaction, degrees of similarity among national social systems, and the
purposes of the chief actors would suffice for prediction. We would not have
to worry about intransigence, shortsightedness, inability to assimilate new
information, capacity to reorganize administrative channels, and the desire to
consult with or co-opt strata in the population not hitherto mobilized for politi-
cal participation. The exclusion of the conceptually difficult "social learning"
process would certainIy sim·plify the task of analysis.
One example must suffice to demonstrate that this procedure is not intellec-
tually defensible: a comparison of the actual experience of the E·EC with that
of EFTA and the Organization for Economic Cooperation and Development
(OEeD). In the case of the EEC, there is a high degree of symmetry among
most background 'factors, among most factors prevailing at the time of union,
and between these two major ranges. In short, an almost uniform "high" can
be scored before data on social learning is introduced. We would hazard the
prediction on the basis of preprocess data alone that politization would occur
almost automatically. However, EFTA and GEeD show that symmetry with
respect to background variables was uneven and "mixed"; further, at the time
of union it was "low" in both cases. One would then predict that the chances
of automatic politization were not good. Yet the recent history of EFTA and
to a much lesser extent that of OECD indicate that such a judgment is,
at least, premature. EFTA has developed definite signs of growth and vigor;
OE'CD has done more than many observers were led to expect on the basis of
the conditions which prevailed in I960-I¢I when its charter was negotiated.
In other words, the actors behaved differently after the act of union than could
be predicted on the basis of our first two ranges of variables.
Therefore, an adequate typology of the integration process must allow for
a certain period of actor adaptation, for a span of time during which "learning"
can be observed. What is an adequate span of time? Experience suggests that
34
three years is a minimum, but that predictions based on that period may still
be hazardous because much depends on whether these three years featured
events which strained and tested the learning capacity of governments, politi-
cians, administrators, and interest groups. In the case of the ten regional eco-
nomic unions used in this typology, such events did indeed occur. The case
for including a third range of variables, process conditions during the first
three years of operation, should thus be clear.
Process Conditions
A major item df interest among the process conditions is the decision-making
style which develops among the actors once they confront one another regu-
larly in the act of implementing their economic union. The chief modes of
making joint decisions involve a behavioral test, so to speak, of the institutional
alternatives isolated in our second range of variables. A "high" rank would
be attached to a way of making decisions which stresses the role of uninstructed
experts who tend to agree among themselves with respect to the reasoning
patterns and antecedent conditions relevant to a decision, and with respect to
the outcome to be attained. Further, such decisions would normally be made
in constant consultation with national administrators similarly inspired and
with representatives of major private interests. It features, in short, supranation-
ality in practice as well as in institutional competence. Naturally, one would
expect such a decision-making style to be highly correlated with "high" back-
ground factors in the fields of pluralism, elite complementarity, and rates of
transaction, and with "high" total scores for both ranges of variables at the time
of union. But the experience of EFTA suggests once more that, while at least
a "mixed" score on the first range is necessary, a "low" score on the second can
nevertheless trigger the necessary quasi-supranational style at a later time.
The opposite of supranationality-in-practice is a style of bargaining in which
the participants tend to disagree on the outcome they desire but nevertheless
agree on many of the background and antecedent factors entering into a deci-
sion. This is all the more true in economic negotiations if and when there is a
reliable and generally accepted statistical base for negotiations and when the
participants share basic patterns of reasoning about the nature of trade and
investment, even when they disagree on who will get how much on what terms.
At the same time, of course, the institutional setting for such bargaining fea-
tures diplomatic negotiation rather than bureaucratic problem solving. Learn-
ing, then, consists in the ability of the actors to transform such a forum into a
setting in which the bureaucratic mode of decision making prevails. This
tended to happen in EFTft. but not in OECD. But the transition does not
35
require the growth of a "supranational" high authority or commission; de fCKto

delegation of decision-making power to nationaH y appointed higher civil serv-
ants can achieve the same result, provided these people enjoy some discretion
and develop their own pattern of reasoning and deliberation.
Another key pattern variable at this stage of the analysis is a reexamination
of the rate of transaction among the member states. Has it grown since the
inception of the union, declined, or remained the same? The key comparison
to be made here is between the intrazonal rate of growth and the rate of growth
in transactions with the outside world.
Our final process factor is the adaptability of the chief actors, governmental
and private. It is here that the "functional" way of viewing change and adapta-
tion becomes prominent. We want to know if new purposes develop in the
interaction among the participants as a result of difficulties and disappointments
experienced with reference to the attainment of the original aims of the par-
ticipants. It is possible, of course, that the union succeeds without ever engen-
dering disappointment. This happens most readily when, in the minds of the
actors, the task never stops being "technical"; but then no politization occurs
either. More frequently in economic unions, the original aims, identical or
converging, were not achieved. 'Crises arose, consensus broke down, distrust
was rife. Are the actors capable of transcending these developments? Are they
able to redefine their means of action at a higher level, i.e., involving more mu-
tual interdependence and more delegation of power?
Transcendence, in the context of economic decisions, almost always involves
entry into neighboring spheres which were not previously part of the shared
aims and the explicit program of the union. The test of transcendence, there-
fore, is the occurrence of a spillover into new fields, economic at first but in-
creasingly political as the process continues. Crisis is the creative op'portunity
for realizing this potential to redefine aims at a higher level of consensus. The
new aims are an unintended and often unforeseen consequence of an earlier
consensus which ran into difficulties. The ability to manipulate and negotiate
new functions from obsolete purposes is the supreme test of adaptability be-
cause it rests on antagonistic actor objectives rather than on a basic desire to
agree for the sake of agreement. When this has gone on for some time without
threats of disruption or secession by the members, the process of actor adapta-
tion has resulted in a sufficient shift of expectations and loyalties to warrant
our conclusion that a political union is at hand. It follows, of course, that a
"low" rating must be assigned to an economic union which fails to redefine its
aims in such a manner once it runs into its first squalls. Again, no spillover
will occur in such a setting, and the nonoccurrence can serve as the test for
nonadaptation with respect to integration and its challenges.
36
It is now time to come back to the notion of "automaticity" which, explicitly
and implicitly, runs through this discussion of types of integration. As long as
men, including statesmen, are free agents, nothing is "automatic." De Gaulle
could reverse the course of politicized economic integration and Nasser could
suddenly launch it, even though in one case all the variables point to "auto-
matic" success and in the other to failure. Mass movements, parties of the threat-
ened lower-middle class in Europe, or the Ba'ath in the Middle East could do
the same. Or entirely unforeseen events could occur-a major war, a techno-
logical breakthrough of major proportions, a massive religious revival spurning
the siren call of increased welfare which underlies our economic-political pro-
jections. The improbability of such events governs our projection. De Gaulle
has not reversed integration among the Six and Nasser has not launched it
among the Arabs, though attempts toward these ends have certainly been made.
Automaticity, then, means that, all other things being roughly equal, a "high"
scorer in our categories is likely to be transformed into some species of political
union even if some of the members are far from enthusiastic about this prospect
when it is argued in purely political terms. Because a spillover is likely to occur
in these cases, the functional adaptation to its implications is likely to be "auto-
matic" in the sense that the participating actors will make the kinds of deci-
sions which will safeguard their collective economic welfare; this, in turn, will
imply the need for political decisions by indirection, almost by guile. But auto-
maticity does not im'ply the absence of conflict, of difficult negotiations, and
of temporary setbacks in the process. It suggests merely that these features will
yield to future adaptive decisions which the actors take in line with their own
perceptions of interest.
Is the "low" ranking union therefore condemned to inevitable failure as far
as transforming an economic entity into a political one is concerned? Far from
it. Such a union is condemned to failure only in that there is no parallel
"automatic" process of collective adaptation at work. The economic union will
fail to "take off"; the participating states will not reach the point at which
anticipated suffering outweighs the expected benefits when the decision to
block integration is taken. Indeed, the indicator that a "take oJ!" into increasing
politization has occurred, that the point of no return has been passed, is the
very prevalence of decisions which rest <?n a calculus that juxtaposes anticipated
national deprivation to expected benefits. In su·ch decisions national delegates
accept the analyses and statistics of fellow negotiators and of the union's central
administration as crucial evidence in their deliberations. But the ({low" ranking
union can still advance to political union if functional equivalents for the fac-
tors elsewhere favoring politization can be found. These functional equiva-
37
lents may be tenuous and unreliable, especially if they are of a noninstitutional

and charismatic nature. But they may exist; and if they do, the underdeveloped
countries which normally do not show "high" ratings in our ranges of vari-
ables may still unite in larger units even in the absence of "automatic" forces.
Our typology can now be summed up. The chart of economic unions in re-
cent history shows the distribution of our pattern variables. We are fairly con-
fident with respect to the data on which the attributions were mad~ with refer-
ence to the EEC, EFTA, OECD, the West Indian Federation, and LAFTA.
Weare less sanguine concerning the other unions, but the demonstration is
intended to be illustrative rather than definitive. On a continuum ranging from
"good" chances at automatic politization to "poor" we find five major clusters
of variables. I) There are those unions which in the crucial area of postcon-
stitutive action display a "high" rate of transaction, "high" actor adaptability
to crisis, and-at least-a "mixed" pattern of bureaucratic decision making. The
EEC and EFTA both qualify here, even though the first also displayed "high"
preunion ratings and the second did not. 2) The Central American Common
Market (on the tbasis of very fragmentary data, to be sure) typifies a category
of "possible" automatic politization because a certain number of homogeneous
traits obtain among the members and a considerable amount of unity of aims
has continued to prevail among them. 7 However, it is not at all clear whether
due to the chronic sociopolitical instability which prevails in all but Costa Rica
it will be possible to maintain consistency in elite expectations. 3) Somewhat
more dubious are the cases in which some evidence toward politization has
appeared, but where this evidence is perhaps matched by contrary trends.
COMECON and OECD are alike in that both include industrialized member
states of varying sizes and interests as well as some underdeveloped nations.
They differ in the realm of governmental purposes and postunion adaptive
ca'pacity because these factors must be given much greater weight in the in-
stance of totalitarian and planned economies as compared with the much looser
pattern typical of the OECDmembers. Probably the future of COMECON
depends much more directly on the aims and perceptions of a relatively small
elite of national communist tec'hnicians and party leaders than on any auto-
matic deductions culled from patterns of transaction or emerging styles of
negotiation. For somewhat different reasons LAFTA's chances seem no better,
a point to which we will return shortly. 4) The East AfriMn Common Market
(and its associated Common Services Organization) escapes being stigmatized
7 The best comprehensive study of the Central American Common Market we have discovered is by
Joseph Pincus, El M~rcado Comun C~ntroamericano (Guatemala City: Oficina Regional para Asuntos de
Centroamecica y Panama, 1963).
38
as "poor" only because the background and constitutive factors all show a
"mixed" pattern of attributes. But postindependence performance has been un-
impressive. While it remains possible that the ties and interdependencies im-
posed by Britain prior to the independence of these countries may still reassert
themselves, chances are that East Africa will follow the pattern of our fifth
type. 8 5) Our last, and least promising, category includes attempts at union
which had their origin in the colonial period and which tend to disintegrate
upon the attainment of independence. All display a "low" pattern of collective
decision making and adaptation to collective problem solving. In the West
Indies a certain amount of homogeneity in perception and organization ob-
tained during the last years of British rule; but it did not withstand the first
major crisis in independent collective deliberations. In the two associations
of former French African territories the uniformities and similarities among
elites do not appear to have penetrated below the very top level of leadership.9
French West Africa disappeared as a unit commanding the respect and loyalty
of independent Africans because the removal of French rule brought to the
fore antagonistic perceptions previously papered over, even though some Afri-
cans have blamed the French for the breakup. Whether the OAMCE can do
any better with a more modest program and dedication to purely economic
objectives remains very much in doubt.
THE PATIERN VARIABLES ApPLIED TO LAFTA

A priori, and before we turn to the possibility of functional equivalency,
LAFfA is a poor candidate for making a rapid and automatic transition from
a free trade area to a political union of some kind. In fact, LAFTA, now three
years old, is still not even a free trade area. Its membership includes Brazil,
Argentina, Chile, Uruguay, Paraguay, Peru, Ecuador, Colombia, and Mexico.
The members joined together under the Treaty of Montevideo in June of I¢I
following negotiations, conducted under the auspices of the United Nations
Economic Commission for Latin America (ECLA), looking toward an all-
Latin American or, alternatively, a subregional common market. If all goes
well, the schedule of tariff dismantling laid down in the Treaty should result
in the establishment of a full free trade area by 1973.
8 For interesting data on this point, see Joseph S. Nye, Jr., "'East African Economic Integration,"
TournaI of Modern African Studies, December 1963 (Vol. I, NO.4); and Carl G. Rosberg, Je. and Aaron
Segal, HAn East African Federation," International Conciliation, May 1963 (No. 543).
9 Hugh w. Springer, Reflections on the Failure of the First West Indian Federation (Cambridge, Mass.:
Harvard University, Center for International Affairs, 1962); Elliot J. Berg, "The Economic Basis of Politi-
cal Choice in French West Africa;' American Political Science Review, June 1960 (Vol. 54, NO.2);
Ruth Schachter, "Single Party Systems in West Africa," American Political Science Review, June 19 61
(Vol. 55, NO.2).
39
'-l
~
ECONOMIC UNIONS: DISTRIBUTION OF P ATIERN VARIABLES
East West West Central

African African Indian American
CDM- Common Federa- Federa- Common
EEC EFTA DECD ECDN Market tion OAlvICE tion Market LAFTA
BACKGROUND CONDITIONS
I. Size of units mixed low low low mixed low low mixed high mixed
2. Rate of transaction high mixed mixed high low low low low low mixed
3. Pluralism high high high mixed low low low mixed mixed mixed
:::d
4. Elite complementarity high inixed mixed high mixed high? mixed mixed mixed mixed
~
~
Total Judgment high mixed mixed mixed + mixed- low+ low mixed mixed mixed :j
--_. o
~ CONDITIONS AT TIME OF ~
~
a ECONOMIC UNION
o
S. Governmental purposes high low low mixed low mixed ? low mixed low
(1960 ) (195 8 ) ~
6. Powers of union high low low low high low? low low low low ~
Total Judgment high low low low mixed mixed? low+ low mixed- low
§o
---- Z
PROCESS CONDITIONS
7. Decision-making style mixed mixed low mixed mixed ? ? low low mixed
8. Rate of transaction high high mixed high low low low low mixed mixed
9. Adaptability of governments high high mixed mixed low low ? low ? mixed
Total J udgmen t high high mixed nlixed low low ? low mixed? mixed
CHANCES OF AUTOMATIC good fairly possible- possible- doubtful poor? ? poor possible poslible-
POLITIZATION good doubtful doubtful doubtful
Let us examine the background factors first. The members vary in terms of
industrialization, per capita GNP, rates of economic growth, and capacity to
export and import. But they may be grouped in such a way as to result in par-
tial patterns of homogeneity. Thus, Argentina, Chile, and Uruguay seem com-
parable in terms of per capita income and degrees of industrialization and com-
mercialization. Paraguay, Peru, Ecuador, and Colombia appear comparable
with respect to low per capita incomes, institu tional stagnation, and uneven
industrialization. Brazil and Mexico fall between the two major groups in
showing a sustained capacity to develop and industrialize, without having yet
achieved standards of living approaching the first group.l0 The picture with
respect to homogeneity in terms of economic size and power is "mixed."
Rates of transaction before 1961 were obviousl y "low" since only 9 percent
of the total export trade took place in mutual transactions. 11 There was almost
no migration of workers and professional people from country to country and
little cross-national investment. Intracontinental transport facilities left much
to be desired and institutionalized contact among groups of professionals and
businessmen was sporadic. The same was true of politicians.
The social structure of the member states also fell into subregional patterns
which merit a "mixed" rating. The economically most underdeveloped group
also shows the prevalence of a diffuse group structure, of particularistic values
in relations among groups and individuals, and of the dominance of personal-
istic and familial ties. Evidence of permanent economic interest groups, how-
ever, exists in Uruguay, Argentina, Brazil, and Chile. Moreover, in the realm
of public affairs the urban middle class in all these nations has long been active,
and in recent years the urban lower class has increasingly participated. Never-
theless, it cannot be maintained that the trend toward a stable pluralism has
triumphed to the extent of eliminating pockets of traditionalism in the rural
areas or of making an achievement orientation supreme even in the cities. The
same is true of Mexico, where the growth of autonomous private associations
is to some extent overshadowed and impeded by the dominant position of a
single multipurpose party in public life and the commanding position of the
10 For a suggestive attempt to derive a typology of Latin American countries from a wealth of com-
parative statistics, see "Tipologla Socioeconomica de los Palses Latinoamericanos," Ret/ista Interamericana
de Ciencias Socialcs, 1963 (Vol. 2, Special Number). The authors group Colombia, Ecuador, and Peru
together, in spite of Colombia's substantially higher per capita income. Paraguay is placed with Bolivia,
although for our purposes we have uadvanced" it to inclusion in the Andean group. Brazil and Mexico
are found to "cluster" along a number of dimensions, as do Argentina, Chile, and Uruguay. See also
Gino Germani and Kalman Silvert, upolitics, Social Structure and Military Intervention in Latin America,"
European Journal of SociologYI 1961 (Vol. 2, No. I).
11 For a summary of the rates and composition of pre-LAFrA regional trade, see o. Campo Salas,
"Comercio Interlatinoamericano e Integracion Regional," C;encias Po!ft;cas Y Sodales, January 1960 (6th
Year, No. 19), pp. 39-57.
41
government bureaucracy. The kind of pluralism most favorable to rapid inte-

gration exists only in spots and its consistency is far from reliable.
Are the chief elites mutually compatible in terms of the values they profess?
Some are and some are not; the answer is enormously complicated by the diffi-
culty of isolating stable elites in the nations which are no longer dominated
by traditional social structures. Even among the more traditional Andean coun-
tries we would hesitate to ascribe a meaningful complementarity of central
values to the aristocracy or to the military. Complementarities with respect to
industrialization and expanding commercial activity can probably be docu-
mented among Argentine, Brazilian, Mexican, Chilean, and Uruguayan busi-
nessmen. But whether conclusions with respect to values concerning private
enterprise, state planning, political freedom, or foreign policy can 'be drawn
from such patterns is more than doubtful. However, a common distrust of
North American economic prowess does provide a unifying theme. Not even
the military, as an elite professional group, can reliably be regarded as having
a core of shared values, either within or among countries, leaving aside the
question of the duration and depth of military rule in anyone member nation.
We must assign a "mixed" judgment; but it may tend toward the "low." Our
total judgment for the background variables, then, would be "mixed."
This brings us to the pattern variables observable at the time of instituting
the economic union. Did the purposes of the governments coincide or merely
converge? Did they converge at a high level of consensus or merely on the
basis of an ephemeral, minimum common denominator? Once more, the pat-
tern in Iif>o-I961 was "mixed." The initiative for economic integration, first
of all, did not come from any government but from ECLA, in general, and
from its dynamic Executive Secretary Raul Prebisch, in particular. But the
more ambitious schemes for integration proposed by ECLA prior" to 1960, ap-
proaching the model of a common market and equipped with some of the
economic mechanisms favoring "quasi-automatic" integration, proved accept-
able only to the government of Mexico, whose involvement in intra-Latin
American trade was negligible. For those who already had a significant share
of that trade-Argentina, Brazil, Uruguay, and C'hile-a much less ambitious
formula proved far more attractive. These countries were not primarily inter-
ested in long-range integration for its own sake; they preferred a modest mech-
anism designed to get them out of an immediate payments crisis in which they
found themselves in 1959. They were interested in freeing and protecting
~'existing" trade, while Mexico wished to liberalize its "future" trade with the
area. Paraguay, on the other hand, had no particular desire to join any bloc
but was compelled to do so by the government's perception that there was no
42
ECONOMICS AND DIFFERENTIAL PATIERNS OF POLITICAL INTEGRATION 72 3
other way to protect the relatively heavy trade with its neigh~bors. Some coun-
tries shared the view of ECLA that the industrialization of the region would
be accelerated by the creation of a preferential market for new industries and
established ones operating below capacity; but for other countries this was not
a primary inducement.12
In short, there was no comprehensive economic consensus among the actors,
no major goals which were shared in any explicit way. Furthermore, there was
little evidence that some larger pan-Latin Americanism was at work here, seek-
ing the autonomy of the southern part of the hemisphere, free from United
States and European influence. While some expressed the thought that an eco-
nomic union would be a protection against "imperialism" and the much
dreaded European Economic Community, it cannot be shown that this senti-
ment was one of the major shared purposes of all the governments. The situa-
tion deserves a "mixed" rating.
This minimal consensus on common purposes is fully reflected in the powers
of LAFTA 'as defined in the Treaty of Montevideo. 13 There is no suggestion
of supranationality. All decision-making power is lodged in the annual confer-
ence and in the standing body of permanent national delegates, the Permanent
Executive Committee (PEe). The duties of the Executive Secretary and the
Secretariat are purely technical and administrative, those of aiding the PEe.
Moreover, the terms of the association are such as to leave the bulk of the nego-
tiations to bilateral contacts. Tariffs are to be reduced at the average rate of
8 percent annually, but through the medium of bilaterally negotiated conces-
sions; every three years a common list is to be drawn up, multilateralizing the
pairs of concessions. Moreover~in accordance with one of the major themes
of ECLA thinking-all concessions must be concluded on the basis of
"reciprocity," i.e., the expected benefits of the reductions must be roughly the
same for the parties. How the common list is to be negotiated is not made clear
by the Treaty. While the PE'C can initiate studies, review progress, make sug-
gestions for further steps toward integration, convoke meetings for studying
such steps, and represent LAFTA with respect to third countries and blocs,
it cannot take any decisions unambiguously binding the member states. Dur-
ing the first three-year period a two-thirds majority of member states suffices
12 The succession of drafts, proposals, and memoranda covering this period is collected in UN Document
E/GN.12/S3I. The period is also discussed, albeit with quite different emphases, in Victor L. Urquidi,
Free Trade and Economic Integration in Latin Amen"ca (Berkeley, Calif.: University of California Press,
1962) and Raymond F. Mikesell, "The Movement toward Regional Trading Groups in Latin America,"
in Albert o. Hirschman (ed.), Latin American Issues (New York: Twentieth Century Fund, 1961). See
also the comprehensive review in Sidney Dell, Trade Blocs and Common Markets (,New York: Alfred A.
Knopf, 1963). Dell forcefully supports the argument that trade blocs are uniquely justifiable in the case
of underdeveloped countries.
13 For the text of the Treaty, see Urquidi, op. cit.
43
INTERNATIONAL ORGANIZATION
7O"J
to pass resolutions, provided no negative votes are cast. Thereafter, the method
of voting can be changed. The PEC is empowered to create advisory commis-
sions for technical subjects and for specific economic sectors which may in-
clude experts in their private capacities and representatives of interest groups.
"Complementarity agreements," aimed at the creation of preferential markets
for specific goods within the larger preferential area, can be negotiated between
pairs of countries, or larger groups. The advisory commissions may be used
for that purpose. The Treaty provides for, but does not command, the economic
steps necessary for transforming the Association into a full customs union and
a full economic union; but it does not provide a timetable for such steps. Surely,
on the basis of its powers LAFfA merits only a "low" rating.
Before the manifestation of any "learning" could be expected, then, the pic-
ture for LAFTA looked unpromising. But we now have three years of activity
and a limited amount of data from which certain conclusions can be drawn
with respect to process variables. The information is incomplete and is presented
here less for purposes of offering a definite demonstration than for providing
the basis for the developmental hypotheses which are to follow.
The decision-making style which appears to have developed in LAFTA is
not such as to suggest a rapid passage into supranationality. Even though sev-
eral major member states have put forth demands for important structural
reforms tending to strengthen central power-notably in the field of payments
arrangements, the harmonization of treatment of foreign capital, the coordina-
tion of economic development plans, and the initiation of negotiations for a
common external tariff-none have in fact been adopted. While many study
groups and advisory commissions have been set up by the PEC, the delibera-
tions of these bodies have borne fruit only in the form of restricted comple-
mentarity agreements for certain products, of interest only to some of the
members. On the other hand, Argentina and Uruguay revised internal admin-
istrative arrangements not conforming to the obligations they had assumed in
LAFfA negotiations, after being reminded by the PEC that they were remiss.
Certainly, the bulk of the activity within LAFfA strongly suggests particular-
istic relations among members and diffuseness in the perception of institutional
duties, notably in the case of the PEC itself; but there is also evidence of coun-
tering trends. 14 The situation, once more, is "mixed."
The rate of transaction among the members has clearly increased since 1961,
14 For information concerning major developments in LAFTA, see the section, "Informe Mensual de
la ALALC" in the excellent monthly organ of Mexico's Banco de Comercio Exterior, Comercio Exterior.
The most important articles concerning regional integration which have appeared in this journal. over
the last five years have recently been reprinted. See La Integraci6n Economica Latinoamericana (Mexico
City: Banco de Comercio Exterior, 1963).
44
ECONOMICS AND DIFFERENTIAL PATTERNS OF POLITICAL INTEGRATION 72 5
but not very much and not very consistently. For the major trading nations
there have been sharp annual fluctuations in exports and imports with their
partners in the Association. The total of intrazonal trade in 1963 had risen by
6.9 percent over 1960; but the base figure represented only a small proportion
of the total trade of the members. 15 On the other hand, LAFTA is clearly re-
sponsible for a much larger flow of personal communication among countries
and for the initiation of contacts among business and professional associations.
Two regional peak associations of industrialists have appeared since 1961. More-
over, regional conferences have been held by shipowners, petrochemical or-
ganizations, the office equipment industry, the machine tool industry, the glass
industry, food producers, paper manufacturers, chemical and pharmaceutical
firms, and many others. Some of them have taken the form of official "sector
meetings" convoked by the PEC; others have been organized on a private
basis.. Many have adopted resolutions requesting changes in the form of
LAFTA and most of them have demanded an expansion of the scope of the
Treaty.16
There is no doubt that the stimulus of a new body of rules-because it was
considered 'potentially beneficial or harmful to private business-was respon-
sible for an unprecedented growth in the corporate contacts among Latin
Americans; the growth has provided them with their first opportunity to at-
tempt transnational lobbying. While the rate Df transaction is clearly higher
than before, it still is "mixed" as compared with the growth observed in some
other regional settings.
Are governments adaptlng to the new rules? The evidence so far available
suggests that they are- not. Demands for reform have gone unheeded. Deci-
sions necessitated by crises regarding payments and the coordination of invest-
ment policies have been repeatedly postponed by the annual conference. When
the anticipated pattern of "reciprocity" is frustrated by the results, governments
clamor for special concessions, for exemptions, and for more understanding
treatment by their partners. Peru, Colombia, and Ecuador have all been active
along these lines. Uruguay threatened to withdraw unless it was given a spe-
cial reward with respect to certain industrial concessions; the concessions were
promptly made. Argentina, because of internal administrative and political
turmoil during much of this period, was tacitly permitted to go slow by its
partners. Chile complains of not having reaped the benefits of complementarity
15 Eduardo de Sevilla y Pierce, "Fluio y Composici6n del Comercio de la AL:ALC, 19 60- 1 962,"
Coma-cio Exterior, July 1963, pp. 515-518.
16 See La lntegracion Economica Latinoamericana, passim; Comercio Exterior, Supplement of Septem-
ber 1963, pp. 7 11 -7 13; and October 19 63, pp. 736-748; and February 1964, pp. 84-85, 87-88. See espe-
cially the ;Brazilian-Chilean proposal of April 1963 in Comercio Exterior, May 1963, pp. 314-315, 3 1 6-3 17.
45
7O"J INTERNAnONAL ORGANIZAnON
agreements. Only Brazil has steadfastly espoused a position of seeking a solu-

tion to its adaptive problems by means of expand~ng the scope of the Treaty
and liberalizing some of its provisions. Mexico, on the contrary, did better than
expected and consequently is satisfied with the status quo. The situation here
is "mixed." Overt disappointment in the attainment of an earlier purpose has
not yielded new solutions which upgrade common interests.
FUNCTIONAL EQUIVALENTS IN LA'ITA AND THE LATIN AMERICAN STYLE
Weare concerned not with the cultural uniqueness of this or that region
but with investigating the generality of the integration process. This emphasis,
however, grants that specific regions may well possess unique cultural or stylistic
attributes which are able to serve as functional equivalents for important traits
isolated in some settings but lacking in others. In western Europe, our modal
pattern of successful politization of economic unions, the element of automa-
ticity to which we have called attention is provided by the internal logic of
industrialism, pluralism, and democracy.]; We now hope to discover stylistic
functional equivalents to the European attributes which are obviously lacking,
in terms of general distribution, in LAFTA; but we do not expect to be able
to reproduce the element of automaticity. Industrial society is the setting in
which supranationality and a lively spillover process are able to flourish. The
societies of Latin America have their own inner logic which may· favor inte-
gration. This style owes its prevalence to the social structures and attitudes
typical of the "transitional" stage. The properties of this style of regional inte·
gration along economic lines now require analysis.
The political implications of contemporary Latin American social and eco-
nomic change may be summed up as a process in which the interplay between
subjects and rulers is being enormously expanded, in which subjects demand
more and more and rulers are challenged to change the established polity so
as to accommodate the demands without destroying the system. Specifically,
this process implies the rapid growth of an ever more complex system of politi-
cally articulate groups clamoring for attention, legitimacy, and inclusion in the
polity. The task facing the traditional rulers is to change the established insti-
tutional pattern so as to permit the peaceful aggregation of these group demands
and pressures. I8 What makes most Latin American polities "transitional" is
]7 For a more elabora,te statement of the stylistic importance of supranationality in western Europe,
see Ernst B. Haas, "Technocracy, Pluralism and the New Europe," in Stephen Graubard (ed.), A N~w
Europ~? (Boston: Houghton.JMiffiin, J964).
]8 For this view of change and transitional attributes, we are indebted to S. N. Eisenstadt's essay in
Joseph LaPalombara (ed.), Bt/r~aucracy and Political D~vdopm~nt (Princeton, N.].: Princeton University
Press, 1963), especially pp. 96-97. For a similar view, see Albert O. Hirschman, Jotlrn~ys Toward Prog-
r~ss (New York: Twentieth Century Fund, 1963), pp. 230-231.
46
the fact that this process is incomplete. Traditional social habits of particularism
and kinship survive as the group structure is developing more and more in
the direction of functional specificity. But during the transitional phase certain
elites acquire a strategic position in the process of change. The· governmental
bureaucracy, which is extensive in most Latin American countries, tends to
all y itself with certain key oligarchic interests-the military, the business elite,
and in some cases the trade unions-in order to acquire support for policies of
innovation. Economic and political modernization may take place on the basis
of such alliances, albeit without the sharp functional differentiation which we
assume as given in the West. In the absence of sharp differentiation, the
bureaucracy and its allies continue to use kinship ties, local memories, religion,
traditional family influence, bribery, and the exchange of favors as the lubri-
cants of innovation. 19 The search for personal power and particularistic norms
among the wielders of that power continue as innovation takes place. This is
the transitional setting in which attitudes and demands relating to integration
are heard.
We call attention next to the types of nationalism which prevail. Among
elites committed to economic innovation-thus excluding much of the landed
oligarchy, most of the older military officers, and some of the oldest indus-
trialists-we encounter an unstructured national sentiment in which negative
arguments predominate: expulsion of the foreign imperialist exploiters, elimi-
nation of their domestic oligarchical lackeys. This is the nationalism of pure
resentment; as yet, it is difficult to discover among its themes any dedication
to a positive national mission, an appeal to a unique people, a vicarious identifi-
cation on the part of the masses now entering the 'political arena with a national
purpose. The nationalism of resentment seems to prevail particularly among
students and in the countries farthest removed from sustained economic devel-
opment and smooth institutionalized interaction between rulers and ruled.
There are, however, indications of a new, 'positive type of nationalism which
finds an expression, for example, in recent Mexican foreign policy. A more
neutralist form is represented by Brazil under Quadros and Goulart, as well as
elsewhere in Latin America in many intellectual and reformist circles which
do not yet participate consistently in government administration. If it is too
much to claim that this sentiment is close toCastroism, it is not too much to
stress its tolerance for the Cuban experiment. Self-conscious Latin American
neutralism shares with Castroism the determination to achieve industrializa-
tion without depending on capitalism in general and on American corporate
interests in particular. It also feels that the quid pro quo exacted by the United
19 Eisenstadt, op. cit., pp. 112-113.
47
States in the past for the giving of economic assistance-support for anticom-
munist policies-is unreasonable and that Latin. America should fashion its
own relations with all "power blocs." Latin America's destiny is held to be very
similar to that of Africa and Asia, to that of all victims of Western imperialism.
In Brazil's case the attitude has found expression in the assertion of special ties
with Africa and in pride concerning the multiethnicity of Brazilians. Argen-
tina, of course, did not require the special stimulus of the cold war and the
anticolonial revolution to assert its separateness from the United States and its
opposition to American influence. 2o
These neutralist sentiments are unevenly distributed among Latin American
countries and between the strata of anyone nation. Revolutions and coups
have a tendency of pushing them aside or bringing them to sudden prominence.
A consistent assertion of these forces cannot be predicted in the LAFTA setting,
except insofar as the process of continuing social and economic mobilization is
likely to push all the nations in the general direction of the Mexican model or
to make a generalized proto-Marxism the most widely accepted tool for all
political and economic analysis. In terms of regionally prevalent economic
doctrines, we encounter a definite anticompetitive bias.
Instead of competition and the growth of a regional market on the basis of
the most efficient producers, the emphasis is placed on complementarity and
reciprocity. Translated into political terms these concepts imply continuous
bargaining, consistent measuring of gains and losses incurred by specific na-
tional firms and industries rather than by nations as a whole-provisions of
the Montevideo Treaty to the contrary notwithstanding. This style engenders
an extreme sensitivity to the fears and hopes of one's opposite numbers. It spells
caution, compromise, and emphasis on short-run developments. But it also
corresponds to some of the most widely and passionately held convictions of
contemporary Latin American business and intellectual elites.
The dominant motif in Latin American economic circles with respect to the
industrialized world which buys the bulk of the area's primary products is one
of fear, distrust, and impatience. The economically stronger unit is seen as
20 See especially the evidence that in Mexico there is an emerging conception of national purpose generated
by a purely national experience in carrying out a social and economic revolution. This purpose then gives
rise to a national mission to help less modern Latin American nations, to show them the true way, through
the medium of institutions and organizations free from United States influence. Among others, see Jorge
Cast3neda, Mexico and tile United Nations (New York: Manhattan Publishing Company, 1958); Octavio
Paz, TIle Labyrinth 0/ Solitude (New York: Grove Press, 1961); F. Cuevas Cancino, "The Foreign Policy of
Mexico," Jose Julio Santa Pinter, "The Foreign Policy of Argentina," and Nelson de Sousa Sampaio,
"The Foreign Policy of Brazil," in J. E. Black and K. W. Thompson (ed.), Foreign Policies in a World
of Change (New York: Harper & Row, 1963). The interplay between modernizing ideology and foreign
policy is treated by K. H. Silvert for Argentina and by Frank Bonilla for Brazil in K. H. Silvert (ed.),
Expectant Peoples: Nationalism and Development (New York: Random House, 1963), Chapters 7 and 10.
48
ECONOMICS AND DIFFERENTIAL PATIERNS OF POLITICAL INTEGRATION 72 9
always victimizing the weaker; the industrialized country is envisaged as al-
ways exploiting the underdeveloped. The form of exploitation involves, most
importantly, the alleged trend toward increasingly unfavorable terms of trade
and the subordination of the underdeveloped country's investment needs to the
desires of the foreign capitalist. ECLA seems to speak for many Latin Ameri-
cans when it urges that rapid industrialization is possible in the hemisphere
only if and when the Latin American countries sever the ties of dependence
between their "peripheral" economies and those of the "center."21 One way
of achieving such a divorce is the preferential regional market.
But it then becomes of the essence of the politics of integration to prevent
the creation of a sentiment of "periphery" versus "center" among the under-
developed countries building such a market. In short, integration cannot take
place merely on the basis of the most efficient allocation of resources because
this would result in the rich getting richer and confirm the dependence of
certain countries on the pattern of monoculture. In its analysis of other com-
mon markets based on a competitive principle, ECLA had in mind the exam-
ples of Uganda being "victimized" by Kenya, Nyasaland by Southern Rhodesia;
some of its economists suspect that the same will happen within the EEC as
Germany reaps disproportionate benefits. Hence the economically ambiguous
formulas of reciprocity and complementarity were apparently built into
LAFTA to create a political climate of trust. ECLA wanted to avoid the com-
plaint of Venezuela (which has not yet joined LAFTA) :
Any common market or free trade area will leave us producing nothing but
petroleum and iron are, and imponing everything else. Our textiles cannot con1-
pete with Brazilian textiles, our coffee cannot compete with Colombian coffee and
our meat cannot compete with Uruguayan meat. For us a free trade area is utopian
at the present time. 22
ECLA thus gave the impatient and distrustful Latin American elites a doc-
trine which subordinated competition, and long-range economic welfare gains
based on it, to regional protection which would discriminate against the cheaper
products of the "center" and thus give the higher priced manufactures of Latin
America a local market. But in order to induce the potential regional customers
to forego the cheaper European or American product, ECLA had to promise
21 We equate the views of Dr. Prebisch with those of the ECLA Secretariat as a whole; d. Wener
Baer, "The Economics of Prebisch and ECLA," Economic Development and Cultural Change, January
1962 (Vol. 10, No.2), p. 169. For an early statement of the center-periphery theme and the argument
for national industrialization, see RaUl Prebisch, "The Economic Development of Latin America and its
Principal Problems," Economic Bulletin for LAtin America (UN publication), February 1962 (Vol. 7,
NO.7), pp. 1-22 (originally published in 1950). For a later statement stressing regional integration as
the principal means for reducing peripheral dependency, see Prebisch, Towards a Dynamic Development
Policy for LAtin America (UN Document E/CN.12/680/Rev.l).
22 Banco de Venezuela, BoletIn de Economfa y Finanzas, September 1960, as quoted in Dell, op. cit.,
P·274·
49
73° INTERNATIONAL ORGANIZATION
something in return: the reciprocity and complementarity formulas were to

assure that everybody would be cut in on the deal, that nobody would gain
disproportionately. But in so doing, it substituted a political ideology for pure
economic analysis. Regionally balanced economic development was put ahead
of maximal consumer welfare; political negotiation and accommodation were
given priority over the unfolding of automatic economic forces. More emphasis
was given to providing protected markets for Latin American industries already
operating below capacity than to increasing their efficiency.23 Our argument,
then, is that the shared fear of the industrialized world, and the special regional
mechanisms for converting this fear into mutual accommodation, may act as
a functional equivalent for the shared positive expectations among elites in
other regional settings.
Even though these functional equivalents may explain the acceptance of
the Treaty of Montevideo, they do not carry us very far in projecting its future.
Functional equivalents monopolized by narrow elites, whose claims to longevity
in power are not secure, do not guarantee the generation of a spillover process,
of creative solutions to crises, of adaptive behavior. We still have to face the
question whether a union based on convergences of the type we have isolated
in Latin America is capable of politization, granted that a commitment to
such a process could not be found in its origins. Are there unintended conse-
quences flowing from previous decisions, from unfulfilled hopes, from inade-
quately resolved crises? Can such consequences hasten politization? We sug-
gest that the very formula for regionally balanced growth implicit in the
reciprocity formula must be upset and must give rise to a species of unbalanced
development, before success in forming an economic union can be channeled
into a political direction. 24
23 Dell, Ope cit., pp. 224-225.
24 Our use of the notions of "balanced" and "unbalanced" growth parallels that of some economists
without being identical to it, though it should be noted that economists apparently do not agree among
themselves on the meaning of the concepts. See Paul Streeten, Economic Int~gration (iLeyden: A. W.
Sythoff, 1964), pp. 106-112, where balanced growth is seen as a series of coordinated and simultaneous
investment decisions so designed as to minimize waste and loss in resources. Economists advocating "un-
balanced" grow·th do so for a variety of reasons, usually hinging on efficiency in resource allocation. One
major exception is Albert Hirschman, who advocates unbalanced growth because he considers it the major
realistic setting in which bureaucrats and businessmen in underdeveloped countries will learn how to
make rational decisions. The results of unbalanced grow,th will create the kinds of administrative and
economic crises in which better decision making will be learned. See his T h~ Strat~gy 0/ Economic D~tJd
opm~nt (New Haven, Conn.: Yale University Press, 1958).
Our use is similar to Hirschman's. We envisage "balanced" growth as the situation in which the ex-
pectations of the participating elites with respect to their individual benefits from integration are roughly
matched, and we argue that if they are successfully matched in a transitional society, the total bulk of
innovation will be limited. "Unbalanced" growth occurs when expectations of matched benefits are not
in fact realized, when some parties gain more than others, thus creating an institutional crisis which
calls for adaptation in terms of new-and more extensive--expectations. On the other hand, it remains
quite possible that these adaptive conclusions will not be drawn by actors experiencing unbalanced growth.
Their kind of "adaptation" may well lead to a downgrading of the center and, therefore, disintegration.
50
When we turn to the process following the entry into force of the economic
union, we must immediately point to a possible functional equivalent for the
symmetrical interaction of pluralist groups observed in the West. This equiva-
lent may be furnished by the social role and political power of Latin American
economic bureaucrats, the tecnicos. 25 The asymmetrical group struct.ure charac-
terizing the members of LAFTA is unlikely to generate a marked, adaptive
regional process of interest group formation, despite the rash of meetings and
conferences. But the officials of economic planning and central banks, because
of the crucial positions they occupy in many countries, may take their place in
fashioning the future of the integration process. Still, these elites, far from cor-
responding to the Weberian civil service, are part and parcel of transitional
societies and, as such, remain linked to other oligarchical groups in the diffuse
manner suggested above. This means that they are most unlikely to emerge
soon as autonomous decision makers, arranging the future of economic develop-
ment and regional industrialization according to universalistic technical norms.
It means, instead, that the process of making decisions regionally will remain
largely submerged within a complex network of particularistic relationships.
The tecnicos, because they are not a homogeneous class whose influence is
roughly the same in all LA·FTA countries, constitute an undependable crutch
for the progress of integration. The extent to which they manage national
economies depends in great measure on how far the country has traveled along
the path of modernization, and on the degree of central management which
has been accepted. Their influence is great in Mexico but small in peru; it could
be great in Brazil, Argentina, and Chile if their lines of rapport with major
political groups were stable. The degree of heterogeneity of influence, then,
supports the tendency toward diffuse decision making which exists because of
features inherent in the general social structure. If this is true nationally, it is
all the more true in a regional organization which lacks a strong secretariat.
Hence we cannot expect a symmetrical learning process with respect to region-
ally adaptive behavior to evolve smoothly as a result of joint decision making
by tecnicos in LAFTA organs. The temptation will be, rather, for each national
group of bureaucrats to make its own deals with important and influential
groups in the national oligarchical structure. There may be a cumulative learn-
ing pattern, then, but hardly a homogeneous one.
25 For the role of Mexican tecnicos in the evolution of lJAFfA and Mexico's membership in it, see
our "!Mexico and Latin American Economic Integration," Research Series (Berkeley: University of Cali-
fornia, Institute of International Studies,. 1964). The general role of the tecnicos has been documented,
unfortunately, only in the case of Mexico and Uruguay. See especially Raymond Vernon, The Dilemma
0/ Mexico's Development (Cambridge, Mass.: Harvard University Press, 1963); William P. Glade, lr., and
Charles W. Anderson, The Political Economy 0/ Mexico (!Madison: University of Wisconsin Press, 19 63);
Philip B. Taylor, "Interest and Institutional Dysfunction in Uruguay," American Political Science Review,
March 1963 (Vol. 57, NO.1), pp. 62-74.
51
73 2 INTERNATIONAL ORGANIZATION
But, paradoxically, we suggest that a diffuse and particularistic style of deci-

sion making can enhance the prospects for successful integration and the
advancement of politization. If an assembly of Weberian planners were to
impose a "rational" pattern of relationships on nine unevenly modernized
economies, the result would be chaos, not integration. It may well be that a
culturally accepted admixture of family contacts, corruption, and special ex-
emptions from theoretically general rules will furnish the lubricant for creating
the new transnational ties which are essential for economic and political inte-
gration. The more transitional societies permit officials who combine some as-
pects of a modern bureaucratic style with remnants of tile traditional to shape
events and fashion innovation, the greater the possibility that the change will
command popular acceptance. 26 Rapid development, of course, will not take
place on the basis of this type of interaction; but the styIe of accommodation
here suggested may be the only procedure which can successfully legitimate
the innovations implied in economic and political integration. It may establish
the channels of communication through which new common interests can be
articulated, even though these interests will contain only a small dose of politics.
But without such channels, eventual politization on the basis of disappoint-
ments cannot be envisaged at all. Accommodation, following the reciprocity
formula incorporated into LAFTA, may well be the procedural prerequisite
for eventual expansion of scope. How, then, can we project any kind of inte-
gration, let alone politization ?
PROJECTIONS ON THE FUTURE OF LATIN AMERICAN INTEGRATION
Our projection of the future of LAFTA in the integration of Latin America

is informed by two convictions. First, since it is unlikely that the hemisphere
will be united by force or under the "leadership" of some single nation, volun-
tary integration is the only realistic possibility. Since frontal attack to promote
political unity by way of the Organization of American States (OAS) has
shown few positive results, we assume that any enthusiasm or converging of
interests toward unity will come about as a result of political objectives trig-
gered and channeled by common economic interests. In support of this assump-
tion we may cite the relative degree of success encountered by the young Cen-
tral American Common Market (again in the presence of the failure of direct
efforts at political unity) and by the Inter-American Development Bank. 21
26Our treaunent here rests on the suggestive argument of Fred Riggs, in LaPalombara, op. cit.
27See James L. Busey, "Central American Union: The Latest Attempt," Western Political Quarterly,
March 1961 (Vol. 14, No. I); Raul 'Hess, "La Integraci6n Econ6mica Centroamericana: Espeetro 0
Esperanza?tt Combale, June 1961. Political and economic aspects of the movement are discussed by
E. A. Hernandez, S.]., The Organization of Central American States in Historical Perspective (unpublished
Ph.D. dissertation, Harvard University, 1963).
52
Second, we feel that the progress of regional integration is very likely to con-
form to the lessons culled by Albert Hirschman from his study of domestic
economic reform and modernization in Latin America, a lesson which stresses
the role of indirection, unbalance, guile, and the social styIe typical of transi-
tional societies. The similarity between nonrevolutionary economic reform and
possible regional integration requires a word.
Latin American nations, in their domestic social structures as well as in terms
of overall regional comparisons, display the gamut of strata found in transi-
tional societies: wholly traditional rural groups, tribal clusters, fully modern
urban groups, as well as large layers of urban middle and lower class people
no longer traditional but not yet "modern" in terms of their behavior and
expectations. Within each "class," modernizing and traditional elements can
be isolated, each with a different effect on the polity. Because of the domestic
and regional unevenness of the social structure, it is idle to expect clean, direct
or frontal "breakthroughs" to economic modernity. Contending groups will
not be persuaded to agree to specific ends and means with respect to the future.
Neither will they be induced to subject themselves to equality in sacrifices in
order to achieve a given piece of reform, whether in taxation, land reform, or
financial stabilization. Imperfect and uneven participation in politics and
marked inequalities in access to the decision makers create a situation in which
no government can count on a stable body of supporters, a permanent majority,
domestically or regionally. Policy initiatives, therefore, must rest on a different
group of supporters for each issue. Alternatively, such initiatives may and do
originate in the bureaucracy without any public pressure at all, as indeed
LAFTA itself did. Eventual acceptance, therefore, creates special problems of
attracting supporters or, at least, not attracting enemies.
In addition to this social setting in which domestic and regional steps toward
major economic change must be taken, the ideological setting shows certain
similarities. Hirschman distinguishes between reform in which a knowledge
of technical feasibility precedes the desire to innovate, and reform in which
the desire exists but the knowledge of feasibility is limited. In the second case,
of course, mistakes will be made and disappointments engendered; neverthe-
less, this is the setting in Latin America. N aturally, social learning will then be
inconsistent and indirect. It takes place not on the basis of the ready and sym-
metrical assimilation of lessons by politicians, bureaucrats, and interest group
representatives but rather by means of a continuous confrontation among them
and among policy issues. Problems are identified, argued about, thrown into
heated political debate, and eventually resolved-at least in part-on the basis
of a dialectic of conflict in which occurs little predictable mutual persuasion
53
734 INTERNATIONAL ORGANIZAnON
but much passionate posturing. In short, pure interest politics in the form of
the resolution of a parallelogram of group forces does not consistently prevail.
"Reformmongering," as Hirschman calls it, thus takes place on the basis
of indirection. It results from consequences unintended by the original deci-
sion makers, from a magnifying of original problems which were only partly
resolved. In domestic reform movements this approach has sometimes worked
well (most spectacularly in the development of a comprehensive plan for the
Brazilian northeast); it is equally manifest in the origins of LAFTA. The
domestic reformer who would utilize indirection and guile must always seek
to "widen the spectrum" of items to be included in his list of innovations, thus
pulling larger numbers of supporting groups into his net and maximizing the
spillover potential of anyone item. It appears that ECLA used some such
calculus in advocating a regional market. There was general agreement that
industrialization was desirable but little hope of achieving an accord on the
conditions and sacrifices industries and nations would have to make in order
to attain it. The regional Inarket was to be the new economic inducement to
encourage sluggish Latin American investors to expand and modernize their
plants and their sales techniques, to adapt to industrial society.28 By "widening
the spectrum" of items in its general program to include a regional inarket,
ECLA sought to spur its original and preferred project, industrialization and
economic independence of Europe and the United States. A series of major
economic steps were planned in order to make up for the failure of earlier
measures proposed for rapid economic progress. The lack of wholly successful
and satisfactory earlier solutions was used by ECLA to suggest a more compre-
hensive plan which also involved more clients in its integrative net and was,
potentially, capable of spilling over into neighboring economic, social, and
political contexts. 29
What does this way of viewing change in a transitional regional setting im-
ply for the future of the integration process? A very convincing case can be
made that the continuation of the integration process is the prisoner and victim
of the functional equivalents which permitted the establishment of the union.
In that case our projected future for LAFTA is one of stagnation. The other
possible projection uses the successful domestic reformmongering technique
28 For interesting material on the continuation of premodern attitudes among Latin American business-
men, see Albert Lauterbach, "Objetivos de la Administraci6n de Empresas, y Requerimentos del Desarrollo
en la America Latina," Ret/ista de Economfa LAtinoamer;cana, January 1963 (3rd Year, NO.9), pp.
Il9- 1 74·
29 In Hirschman's terms, ECLA managed to insert a series of "neglected problems" into a general
concern for the "privileged problem" (industrialization) in the formula for a regional market. For the
distinction between the two kinds of problems and possibilities for manipulating them, see HirS{:hman,
Tourneys Toward Progress, pp. 231-235. The likelihood that some of the "neglect<x) problems"-pay-
ments, planning, customs procedure, tax harmonization-would have to be faced by LAFrA in order to
make cleyelopment succeed was foreseen by llalassa (op. cit., pp. 204-205, 215-230, 260-263).
54
ECONOMICS AND DIFFERENTIAL PAlTERNS OF POLITICAL INTEGRATION 735
as a prescription for preventing stagnation. Here, our alternate projection is
one of indirect expansion, profiting from unbalanced development. Both hypo-
thetical projections now call for more detailed explanation.
If the member governments and the major associations of industrialists are
left to themselves, the chances are good that stagnation will set in. LAFTA, in
order to achieve legitimacy under the still dominant style, will recognize and
use the reciprocity and complementarity formulas only in negotiating tariff
red uctions of less than universal scope. This practice will satisfy those who,
in effect, succeed in building cartels into the regional market and will alienate
the ones victimized by them. The strict bilateral matching of concessions has
the inevitable result that the least cooperative government will impose the limits
on the speed and scope of tariff dismantling. No expansion of LAFTA's com-
petence into new fields impregnated with political significance will take place
because, in a setting in which the minimum common denominator rules, the
most nationalistic government will set the pace of institutional integration. In
other words, governments most satisfied with the current intergovernmental
regime (at the moment, Mexico) will have no reason to support those who
demand an expanded scope because they are dissatisfied with benefits so far
obtained (currently, Brazil and Chile). Since there are no stable majorities or
minorities and no strong central bureaucratic forces, the diffuse pattern of
making short-range decisions on the basis of special deals will continue.
But this alternative is not inevitable. Indirect functional expansion is also
conceivable even though, in contrast to the regionalism of the industrialized
and pluralistic setting, there is nothing automatic about it. In order for this
to happen, the actors must widen the spectrum of LAFTA action in line with
the disappointment and even disaffection engendered by the failure to achieve
a faster rate of regional trade and industrialization. This, the "privileged" prob-
lem, can then be widened to include the "neglected" problem of regional pay-
ments mechanisms or coordinated development planning. The neglected prob-
lem can be made to appear as the means for solving the privileged one, and in
fact it may even be the proper means. Further, the lesson of domestic reform
must be heeded in the adoption of a popular ideology. In many domestic set-
tings the emotional appeal of "general economic planning" has been used as a
means whereby the initiating bureaucrats and politicians sought to assure them-
selves a large body of supporters of diverse persuasions and varying interests.
There is good reason for thinking that the same prescription would work at
the regional level w·hen it is presented as a means for assuring faster growth
and more general sharing in its benefits.
To substitute a popular ideology (with all its indeterminate consequences)
for the rigid formula of bilateral satisfaction now prevalent is to rely on the
55
7O"J INTERNATIONAL ORGANIZAnoN
unintended consequences of unbalanced development. Bilateralism and reci-

procity have not, in fact, assured an equality of satisfactions. If they had, the
resulting growth of regional interchange. would even be more modest than it
has actually been. We are suggesting that the fact of unsatisfactory bilateralism
and reciprocity can be used as the ideological justIfication for the inauguration
of a different procedure for aiming at general satisfaction, that of overall re-
gional development planning. It may well be that the Latin American style
demands that this substitution take the form of total condemnation of the old
formula and the unqualified embracing of a "New, Final, Total, and Integral
Solution." Indeed, the record of successful domestic reform suggests that such
exaggerated posturing and unreasonable claims are a necessity in order to effect
innovation in the diffuse setting in which we are making our projections. When
the New and Total Solution, in turn, is shown to create as many problems as
it solves, the scene will be set for the next crisis in which a broadening of scope
can take place.
Who is to do all this planning, posturing, and manipulating which is so
very different from the muted and pragmatic style we associate with a Walter
Hallstein, a Dirk Stikker, or a Frank Figgures? Integration in the industrial
West thrives on a kind of technocratic detachment from which extravagant
expectations have been banished. Motivation no longer runs ahead of the un-
derstanding of feasibility; and when it does (as, for instance, in the history of
the European Atomic Energy Community [Euratom]) understanding soon
catches up. Clearly, a stronger and more flamboyant kind of leadership is neces-
sary at the Latin American regional level than in the Western industrial cases.
The leader must himself be a self-conscious reformmonger in order to seek
and grasp the opportunities for enlarging the scope of LAFT A operations.
A Raul Prebisch and a Felipe Herrera may possess these qualities.
If such a leader could be chosen, how could he independently contribute to
politization and accelerate the spillover process? Bargaining theory and po-
litical experience suggest two models. Both are based on the likelihood that
regional decisions always involve several choices in a set of closely connected
issues. Trade liberalization can be discussed simultaneously with reference to
several products; arrangements for lower tariffs can be consolidated with new
credit arrangements; the location of new plants can be considered together
with special tax exen1ptions. Were the leader to wait for agreement among the
governments on identical terms, he would have to wait a long time.
He can, however, intervene actively if he has means of his own to punish
and reward; and if he does so, he uses the familiar logrolling technique. Were
he to have access to investment funds, or to negotiating bodies with responsi-
bility for allocating credit and preparing regional development plans, he could
56
construct a majority by "buying" votes for proposals of value to one side, in ex-
change for which that side would "sell" its vote to another set of members on a
different issue. This, of course, presumes that the partner in the trade is in-
different to the benefits which accrue to the "buyer." This mode of bargaining,
very familiar to administrators and legislators of industrial nations in the West,
requires functionally specific perceptions on the part of the bargainers; they
must be able to establish clear priorities in their minds, and calculate the effect
on their supporters, as to which logs can be rolled and which cannot. This
pattern is unrealistic in our setting because the LAFTA Secretariat has no inde-
pendent means of action and because the Latin American social setting does
not favor pure bargaining behavior.
The second mode of bargaining is the more likely one to prevail in LAFTA.
It involves decision making on the basis of shifting coalitions of supporters,
with. each issue demanding a new combination of client governments. Once
politization and functional differentiation have engulfed national and re-
gional associations of industrialists, workers, and wholesalers, the basis for such
coalitions becomes larger and more permissive of new formulas. But we are a
long way from that in Latin America. In the meantime a bargaining mode is
likely to prevail in which governments represent unevenly modernized socie-
ties. This implies continued subordination of the organizational leadership,
and agreement based on a minimal common denominator.
What, then, can provide the initial push for accelerated integration? How
can there develop a viable-if shifting-eoalition of governments whose atti-
tudes run from full satisfaction to great dissatisfaction with LAFTA's achieve-
ments? And how can these governments come to choose a dynamic leader
who will behave so as to maximize integrative tendencies? Only a severe crisis
in the relations among the members can serve this purpose. And in addition the
crisis must be perceived in converging, if not identical, terms by the chief trad-
ing nations of the zone, i.e., by its southern members. If parallel deprivations
are not perceived, no net gain for political integration is implied. Finally, it
must be the kind of crisis in which the likelihood of making a better "deal"
outside LAFTA is remote. If chances for external credit, commodity price
stability, and lower tari'ffs on the part of the EEC are reasonably good, the con-
ditions defining the "creative crisis" we have in mind are unlikely to arise.
Only a crisis which compels the members to fall hack on their own collective
resources can be expected to trigger the behavior patterns which will make the
expansive hypothesis prevail. Otherwise LAFTA will probably fall victim to
the very conditions of the transitional society, conditions which facilitate the
establishment of economic unions among underdeveloped countries, but not
their development into political entities.
57
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THE STRUCTURE OF DEPENDENCE*
By THEOTONIO Dos SANTOS
University of Chile
This paper attempts to demonstrate that the countries (or to "modernize" or "develop" them-
dependence of Latin American countries on other selves). Although capitalist developn1ent theory
countries cannot be overcome without a qualita- admits the existence of an "external" dependence,
tive change in their internal structures and exter- it is unable to perceive underdevelopment in thc
nal relations. \Ve shall attempt to show that the way our present theory perceives it, as a conse-
relations of dependence to which these countries quence and part of the process of the world ex-
are subjected conform to a type of international pansion of capitalism--a part that is necessary to
and internal structure which leads them to under- and integrally linked with it.
development or more precisely to a dependent In analyzing the process of constituting a world
structure that deepens and aggravates the funda- economy that integrates the so-called "national
mental problems of their peoples. economies" in a world market of commodities,
capital, and even of labor power, we see that the
1. What is Dependence? relations produced by this market are unequal
By dependence we mean a situation in which the and combined-unequal because development of
economy of certain countries is conditioned by the parts of the system occurs at the expense of other
development and expansion of another economy to parts. Trade relations are based on monopolistic
which the former is subjected. The relation of inter-
control of the market, which leads to the transfer
dependence between two or more economies, and
between these and world trade, assumes the form of
of surplus generated in the dependent countries
dependence when some countries (the dominant ones) to the dominant countries; financial relations arc,
can expand and can be self-sustaining, while other from the viewpoint of the dominant powers,
countries (the dependent ones) can do this only as based on loans and the export of capital, which
a reflection of that expansion, which can have either permit them to receive interest and profits; thus
a positive or a negative effect on their immediate de- increasing their domestic surplus and strengthen-
velopment [7, p. 6l. ing their control over the economies of the other
The concept of dependence permits us to see countries. For the dependent countries these rela-
the internal situation of these countries as part of tions represent an export of profits and interest
world economy. In the Marxian tradition, the which carries off part of the surplus generated
theory 0 f imperialism has been developed as a domestically and leads to a loss of control over
study of the process of expansion of the imperial- their productive resources. In order to permit
ist centers and of their world domination. In the these disadvantageous relations, the dependent
epoch of the revolutionary movement of the countries must generate large surpluses, not in
Third World, we have to develop the theory of such a way as to create higher levels of technol-
laws of internal development in those countries ogy but rather superexploited manpower. The re-
that are the object of such expansion and are gov- sult is to limit the development of their internal
erned by them. This theoretical step transcends market and their technical and cultural capacity,
the theory of development which seeks to explain as well as the moral and physical health of their
the situation of the underdeveloped countries as a people. 'Ve call this combined development be-
product of their slowness or failure to adopt the cause it is the combination of these inequalities
patterns of efficiency characteristic of developed and the transfer of resources from the most back-
ward and dependent sectors to the most advanced
* This work expands on certain preliminary work and dominant ones which explains the inequality,
done in a research project on the relations of depen- deepens it, and transforms it into a necessary and
dence in Latin America, directed by the author at the
Center for Socio-Economic Studies of the Faculty of structural element of the world economy.
Economic Science of the University of Chile. In order
to abridge the discussion of various aspects, the au- II. Historic Forms of Dependence
thor was obliged to cite certain of his earlier works. Historic forms of dependence are conditioned
The author expresses his gratitude to the researcher
Orlando Caputo and Roberto Pizarro for some of the by: (1) the basic forms of this world economy
data utilized and to Sergio Ramos for his critical which has its own laws of development; (2) the
comments on the paper. type of economic relations dominant in the capi-
59
232 AMERICAN ECONOMIC ASSOCIATION
talist centers and the ways in which the latter ex- plementary economic activities (cattle-raising and
pand outward; and (3) the types of economic re- some manufacturing, for example) which were
lations existing inside the peripheral countries dependent, in general, on the export sector to
which are incorporated into the situation of de- which they sell their products. There was a third,
pendence within the network of international eco- subsistence economy which provided manpower
nomic relations generated by capltalist expansion. for the export sector under favorable conditions
It is not within the purview of this paper to and toward which excess population shifted dur-
study these forms in detail but only to distinguish ing periods unfavorable to international trade.
broad characteristics of development. Under these conditions, the existing internal
Drawing on an earlier study, we may distin- market was restricted by four factors: (1) Most
guish: (1) Colonial dependence, trade export in of the national income was derived from export,
nature, in which commercial and financial capital which was used to purchase the inputs required
in alliance with the colonialist state dominated by export production (slaves, for example) or
the economic relations of the Europeans and the luxury goods consumed by the hacienda- and
colonies, by means of a trade monopoly comple- mine-owners, and by the more prosperous em-
mented by a colonial monopoly of land, mines, ployees. (2) The available manpower was subject
and manpower (serf or slave) in the colonized to very arduous forms of superexploitation, which
countries. (2) Financial-industrial dependence limited its consumption. (3) Part of the con-
which consolidated itself at the end of the nine- sumption of these workers was provided by the
teenth century, characterized by the domination subsistence economy, which served as a comple-
of big capital in the hegemonic centers, and its ment to their income and as a refuge during peri-
expansion abroad through investment in the pro- ods of depression. (4) A fourth factor was to be
duction of raw materials and agricultural prod- found in those countries in which land and mines
ucts for consumption in the hegemonic centers. were in the hands of foreigners (c~ses of an en-
A productive structure grew up in the dependent clave economy): a great part of the accumulated
countries devoted to the export of these products surplus was destined to be sent abroad in the
(which Levin labeled export economies [11]; other form of profits, limiting not only internal con-
analysis in other regions [12] [13]), producing sumption but also possibilities of reinvestment
what ECLA has called "foreign-oriented develop- [1]. In the case of enclave economies the relations
ment" (desarrollo hacia afuera) [4]. (3) In the of the foreign companies with the hegemonic cen-
postwar period a new type of dependence has been ter were even more exploitative and were comple-
consolidated, based on multinational corporations mented by the fact that purchases by the enclave
which began to invest in industries geared to the were made directly abroad.
internal market of underdeveloped countries. This
form of dependence is basically technological-in- IV. The New Dependence
dustrial dependence [6]. The new form of dependence, (3) above,
Each of these forms of dependence corre- is in process of developing and is conditioned by
sponds to a situation which conditioned not only the exigencies of the international commodity and
the international relations of these countries but capital markets. The possibility of generating new
also their internal structures: the orientation of investments depends on the existence of financial
production, the forms of capital accumulation, resources in foreign currency for the purchase of
the reproduction of the economy, and, simultane- machinery and processed raw materials not pro-
ously, their social and political structure. duced domestically. Such purchases are subject to
two limitations: the limit of resources generated
III. The Export Economies by the export sector (reflected in the balance of
In forms (1) and (2) of dependence, produc- payments, which includes not only trade but also
tion is geared to those products destined for ex- service relations); and the limitations of monop-
port (gold, silver, and tropical products in the co- oly on patents which leads monopolistic firms to
lonial epoch; raw materials and agricultural prod- prefer to transfer their machines in the form of
ucts in the epoch of industrial-financial depen- capital rather than as commodities for sale. It is
dence); i.e., production is determined by demand necessary to analyze these relations of depen-
from the hegemonic centers. The internal produc- dence if we are to understand the fundamental
tive structure is characterized by rigid specializa- structural limits they place on the development
tion and monoculture in entire regions (the Ca- of these economies.
ribbean, the Brazilian Northeast, etc.). Alongside 1. Industrial development is dependent on an
these export sectors there grew up certain com- export sector for the foreign currency to buy the
60
ECONOMICS OF IMPERIALISM 233
inputs utilized by the industrial sector. The first tal retains control over the most dynamic sectors
consequence of this dependence is the need to of the economy and repatriates a high volume of
preserve the traditional export sector, which lim- profit; consequently, capital accounts are highly
its economically the development of the internal unfavorable to dependent countries. The data
market by the conservation of backward relations show that the amount of capital leaving the coun-
of production and signifies, politically, the try is much greater than the amount entering;
maintenance of power by traditional decadent oli- this produces an enslaving deficit in capital ac-
garchies. In the countries where these sectors are counts. To this must be added the deficit in cer-
controlled by foreign capital, it signifies the retain services which are virtually under total for-
mittance abroad of high profits, and political de- eign control-such as freight transport, royalty
pendence on those interests. Only in rare in- payments, technical aid, etc. Consequently, an im-
stances does foreign capital not control at least portant deficit is produced in the total balance of
the marketing of these products. In response to payments; thus limiting the possibility of impor-
these limitations, dependent countries in the tation of inputs for industrialization.
1930's and 1940's developed a policy of exchange c) The result is that "foreign financing" be-
restrictions and taxes on the national and foreign comes necessary, in two forms: to cover the ex-
export sector; today they tend toward the grad- isting deficit, and to "finance" development by
ual nationalization of production and toward the means of loans for the stimulation of investments
imposition of certain timid limitations on foreign and to "supply" an internal economic surplus
control of the marketing of exported products. which was decapitalized to a large extent by the
Furthermore, they seek, still somewhat timidly, remittance of part of the surplus generated do-
to obtain better terms for the sale of their prod- mestically and sent abroad as profits.
ucts. In recent decades, they have created mech- Foreign capital and foreign "aid" thus fill up
anisms for international price agreements, and to- the holes that they themselves created. The real
day UNCTAD and ECLA press to obtain more value of this aid, however, is doubtful. If over-
favorable tariff conditions for these products on charges resulting from the restrictive terms of the
the part of the hegemonic centers. It is important aid are subtracted from the total amount of the
to point out that the industrial development of grants, the average net flow, according to calcula-
these countries is dependent on the situation of tions of the Inter-American Economic and Social
the export sector, the continued existence of Council, is approximately 54 percent of the gross
which they are obliged to accept. flow [5].
2. Industrial development is, then, strongly If we take account of certain further facts-
conditioned by fluctuations in the balance of pay- that a high proportion of aid is paid in local cur-
ments. This leads toward deficit due to the rela- rencies, that Latin American countries make con-
tions of dependence themselves. The causes of tributions to international financial institutions,
the deficit are three: and that credits are often "tied"-we find a "real
a) Trade relations take place in a highly mo- component of foreign aid" of 42.2 percent on a
nopolized international market, which tends to very favorable hypothesis and of 38.3 percent on
lower the price of raw materials and to raise the a more realistic one [5, 11-33]. The gravity of
prices of industrial products, particularly inputs. the situation becomes even clearer if we consider
In the second place, there is a tendency in mod- that these credits are used in large part to finance
ern technology to replace various primary prod- North American investments, to subsidize foreign
ucts with synthetic raw materials. Consequently imports which compete with national products, to
the balance of trade in these countries tends to be introduce technology not adapted to the needs of
less favorable (even though they show a general underdeveloped countries, and to invest in low-
surplus). The overall Latin American balance of priority sectors of the national economies. The
trade from 1946 to 1968 shows a surplus for each hard truth is that the underdeveloped countries
of those years. The same thing happens in almost have to pay for all of the "aid" they receive. This
every underdeveloped country. However, the situation is generating an enormous protest move-
losses due to deterioration of the terms of trade ment by Latin American governments seeking at
(on the basis of data from ECLA and the Inter- least partial relief from such negative relations.
national Monetary Fund), excluding Cuba, were 3. Finally, industrial development is strongly
$26,383 million for the 1951-66 period, taking conditioned by the technological monopoly exer-
1950 prices as a base. If Cuba and Venezuela are cised by imperialist centers. We have seen that
excluded, the total is $15,925 million. the underdeveloped countries depend on the im-
b) For the reasons already given, foreign capi- portation of machinery and raw materials for the
61
development of their industries. However, these sponds to new entries of capital and 45 percent to
goods are not freely available in the international reinvestment of profits; in recent years, the trend
market; they are patented and usually belong to is more marked, with reinvestments between 1960
the big companies. The big companies do not sell and 1966 representing more than 60 percent of
machinery and processed raw materials as simple new investments. (2) Remittances remained at
merchandise: they demand either the payment of about 10 percent of book value throughout the
royalties, etc., for their utilization or, in most period. (3) The ratio of remitted capital to new
cases, they convert these goods into capital and flow is around 2.7 for the period 1946-67; that is,
introduce them in the form of their own invest- for each dollar that enters $2.70 leaves. In the
ments. This is how machinery which is replaced 1960's this ratio roughly doubled, and in some
in the hegemonic centers by more advanced tech- years was considerably higher.
nology is sent to dependent countries as capital The Survey of Current Business data on
for the installation of affiliates. Let us pause and sources and uses of funds for direct North Ameri-
examine these relations, in order to understand can investment in Latin America in the period
their oppressive and exploitative character. 1957-64 show that, of the total sources of direct
The dependent countries do not have sufficient investment in Latin America, only 11.8 percent
foreign currency, for the reasons given. Local came from the United States. The remainder is in
businessmen have financing difficulties, and they large part, the result of the activities of North
must pay for the utilization of certain patented American firms in Latin America (46.4 percent
techniques. These factors oblige the national net income, 27.7 percent under the heading of de-
bourgeois governments to facilitate the entry of preciation), and from "sources located abroad"
foreign capital in order to supply the restricted (14.1 percent). It is significant that the funds ob-
national market, which is strongly protected by tained abroad that are external to the companies
high tariffs in order to promote industrialization. are greater than the funds originating in the
Thus, foreign capital enters with all the advan- United States.
tages: in many cases, it is given exemption from
exchange controls for the importation of ma- V. Effects on the Productive Structure
chinery; financing of sites for installation of in- It is easy to grasp, even if only superficially,
dustries is provided; government financing agen- the effects that this dependent structure has on
cies facilitate industrialization; loans are avail- the productive system itself in these countries
able from foreign and domestic banks, which pre- and the role of this structure in determining a
fer such clients; foreign aid often subsidizes such specified type 0 f development, characterized by its
investments and finances complementary public depeudent nature.
investments; after installation, high profits ob- The productive system in the underdeveloped
tained in such favorable circumstances can be re- countries is essentially determined by these inter-
invested freely. Thus it is not surprising that the national relations. In the first place, the need to
data of the U.S. Department of Commerce reveal conserve the agrarian or mining export structure
that the percentage of capital brought in from generates a combination between more advanced
abroad by these companies is but a part of the total economic centers that extract surplus value from
amount of invested capital. These data show that the more backward sectors, and also between in-
in the period from 1946 to 1967 the new entries ternal "metropolitan" centers and internal inter-
of capital into Latin America for direct invest- dependent "colonial" centers [10]. The unequal
ment amounted to $5,415 million, while the sum and combined character of capitalist development
of reinvested profits was $4,424 million. On the at the international level is reproduced internally
other hand, the transfers of profits from Latin in an acute form. In the second place the indus-
America to the United States amounted to $14,775 trial and technological structure responds more
million. If we estimate total profits as approxi- closely to the interests of the multinational cor-
mately equal to transfers plus reinvestments porations than to internal developmental needs
we have the sum of $18,983 million. In spite of (conceived of not only in terms of the overall in-
enormous transfers of profits to the United terests of the population, but also from the point
States, the book value of the United States's di- of view of the interests of a national capitalist
rect investment in Latin America went from development). In the third place, the same tech-
$3,045 million in 1946 to $10,213 million in 1967. nological and economic-financial concentration of
From these data it is clear that: (1) Of the new the hegemonic economies is transferred without
investments made by U.S. companies in Latin substantial alteration to very different economies
America for the period 1946-67,55 percent corre- and societies, giving rise to a highly unequal pro-
62
ECONOMICS OF IMPERIALISM 235
ductive structure, a high concentration of in- their full development come from the way in
comes, underutilization of installed capacity, in- which they are joined to this international system
tensive exploitation of existing markets concen- and its laws of development.
trated in large cities, etc~
The accumulation of capital in such circum- VI. Some Conclusions: Dependent Reproduction
stances assumes its own characteristics. In the In order to understand the system of depen-
first place, it is characterized by profound dent reproduction and the socioeconomic institu-
differences among domestic wage-levels, in the tions created by it, we must see it as part of a
context of a local cheap labor market, combined system of world economic relations based on
with a capital-intensive technology. The result, monopolistic control of large-scale capital, on con-
from the point of view of relative surplus value, trol of certain economic and financial centers
is a high rate of exploitation of labor power. (On over others, on a monopoly of a conlplex tech-
measurements of forms of exploitation, see [3].) nology that leads to unequal and combined de-
This exploitation is further aggravated by the velopment at a national and international level.
high prices of industrial products enforced by Attempts to analyze backwardness as a failure to
protectionism, exemptions and subsidies given by assimilate more advanced models of production
the national governments, and "aid" from hege- or to modernize are nothing more than ideology
monic centers. Furthermore, since dependent accu- disguised as science. The same is true of the at-
mulation is necessarily tied into the international tempts to analyze this international economy in
economy, it is profoundly conditioned by the un- terms of relations among elements in free com-
equal and combined character of international cap- petition, such as the theory of comparative costs
italist economic relations, by the technological which seeks to justify the inequalities of the
and financial control of the imperialist centers by world economic system and to conceal the rela-
the realities of the balance of payments, by the tions of exploitation on which it is based [14].
economic policies of the state, etc. The role 0 f In reality we can understand what is happening
the state in the growth of national and foreign in the underdeveloped countries only when we see
capital merits a much fuller analysis than can be that they develop within the framework of a pro-
made here. cess of dependent production and reproduction.
Using the analysis offered here as a point of This system is a dependent one because it repro-
departure, it is possible to understand the limits duces a productive system whose development is
that this productive system imposes on the limited by those world relations which necessarily
growth of the internal markets of these countries. lead to the development of only certain economic
The survival of traditional relations in the coun- sectors, to trade under unequal conditions [9], to
tryside is a serious limitation on the size of the domestic competition with international capital
market, since industrialization does not offer under unequal conditions, to the imposition of
hopeful prospects. The productive structure cre- relations of superexploitation of the domestic la-
ated by dependent industrialization limits the bor force with a view to dividing the economic
growth of the internal market. surplus thus generated between internal and ex-
First, it subjects the labor force to highly external forces of domination. (On economic sur-
ploitative relations which limit its purchasing plus and its utilization in the dependent countries,
power. Second, in adopting a technology of inten- see [1].)
sive capital use, it creates very few jobs in com- In reproducing such a productive system and
parison with population growth, and limits the such international relations, the development of
generation of new sources of income. These two dependent capitalism reproduces the factors that
limitations affect the growth of the consumer prevent it from reaching a nationally and interna-
goods market. Third, the remittance abroad of tionally advantageous situation; and it thus re-
profits carries away part of the economic surplus produces backwardness, misery, and social margin-
generated within the country. In all these ways alization within its borders. The development that
limits are put on the possible creation of basic na- it produces benefits very narrow sectors, encoun-
tional industries which could provide a market for ters unyielding domestic obstacles to its con-
the capital goods this surplus would make possible tinued economic growth (with respect to both
if it were not remitted abroad. internal and foreign markets), and leads to the pro-
From this cursory analysis we see that the al- gressive accumulation of balance-of-payments def-
leged backwardness of these economies is not due icits, which in turn generate more dependence and
to a lack of integration with capitalism but that, more superexploitation.
on the contrary, the most powerful obstacles to The political measures proposed by the devel-
63
opmentalists of ECLA, UNCTAD, BID, etc., do s. Consejo Interamericano Economico Social (CIES)
not appear to permit destruction of these terrible O.A.S., Interamerican Economic and Social Coun-
chains imposed by dependent development. We cil, External Financing for Development in L.A.
have examined the alternative forms of develop- El Financiamiento Externo para el Desarrollo de
ment presented for Latin America and the depen- A merica Latina (Pan-American Union, \Vashing-
ton, 1969).
dent countries under such conditions elsewhere 6. THEOTONIO Dos SANTOS, El nuevo caracter de la
[8]. Everything now indicates that what can be dependencia, CESO (Santiago de Chile, 1968).
expected is a long process of sharp political and 7. - - - , La crisis de la teoria del desarrollo y las
military confrontations and of profound social relaciones de dependencia en A merica Latina,
radicalization which will lead these countries to a Boletin del CESO, 3 (Santiago, Chile, 1968).
dilemma: governments of force which open the 8. - - - , La dependencia econ6mica y las alterna-
way to facism, or popular revolutionary govern- tivas de cambio en A merica Latina, Ponencia al
ments, which open the way to socialism. Intermedi- IX Congreso Latinoamericano de Sociologia (~1e
xico, Nov., 1969).
ate solutions have proved to be, in such a contra-
9. A. EM~rANUEL, L'Echange Inegal (1Iaspero, Paris,
dictory reality, empty and utopian. 1969).
10. ANDRE G. FRANK, Development and Underde-
REFERENCES velopment in Latin America (Monthly Review
1. PAUL BARAN, Political Economy 01 Growth Press, 1968).
(MontWy Review Press, 1967). 11. I. V. LEVIN, The Export Economies (Harvard
2. THOMAS BALOGH, Unequal Partners (Basil Black- Univ. Press, 1964).
well, 1963). 12. GUNNAR MYRDAL, Asian Drama (Pantheon, 1968).
3. PABLO GONZALEZ CASANOVA, Sociologia de la ex- 13. K. NKRUMAH, Neocolonialismo, Ultima etapa del
plotaci6n, Siglo XXI (Mexico, 1969). imperialismo, Siglo XXI (Mexico, 1966).
4. CEPAL, La CEPAL y el Andlisis del Desarrollo 14. CRISTIAN PALLOIX, Problemes de la Croissance
Latinoamericano (1968, Santiago, Chile). en Economie Ouverte (Maspero, Paris, 1969).
64
THE RISE AND THE DECLINE OF
LATIN AMERICAN ECONOMIC
INTEGRATION
By MIGUEL S. WIONCZEK*
There is no goodfaith in America,

nor among the nations of America.
Sim6n Bolivar (1829).
BOLIVAR'S words (quoted above)-they referred to the state of Latin

American political cooperation two decades after the beginning of
the insurgency against the Spanish Empire-describe fairly well the
present stage of that process of Latin American economic integration
which had started in an atmosphere of big expectations and official
enthusiasm in the late 1950S. The Latin American Free Trade Associa-
tion (LAFTA), established in 1960 with the active assistance of the
UN Economic Commission for Latin America (ECLA) and leading
technocrats in most of the region, has just publicly acknowledged its
failure. The Central American Common Market (CACM), which
originated in a treaty signed in Tegucigalpa, Honduras in 1958 and
looked for a long time to be the most successful common market in the
whole underdeveloped world, now lies in a shambles as the result of the
ludicrous armed conflict between two of its five members-Honduras
and El Salvador. A new subregional integration scheme is emerging
along the Pacific coast under the name of the Andean Common Market
(with the participation of Colombia, Ecuador, Peru, Bolivia and Chile,
all of them LAFTA members), and the former British West Indies have
signed a treaty establishing a Caribbean Free Trade Area (CARIFTA)
regardless of the fact that, less than three years ago, all the heads of
Western Hemisphere states (with the exception of non-participating
Canada and abstaining Ecuador) solemnly committed themselves to the
setting up, by 1985, of the Latin American Common Market. A men-
tion of the 1967 Punta del Este conference of American presidents,
• Adviser at the Center for Latin American Monetary Studies (Mexico City) and the co-editor
of the Joumal of Common Market Studies (Oxford, England); author of Lateinamerika und das
ausliindische Kapital; Mexican Nationalism and Foreign Investment, and Latin American Integration
and u.S. Economic Policy; editor of Economic Cooperation in LAtin America Africa and Asia-A
t
Handbook of Documents. The views expressed in this essay are solely those of the author.
65
50 JOURNAL OF COMMON MARKET STUDIES
hailed at its time as a major breakthrough in the acceleration of regional

economic cooperation, is considered these days in Latin America as
being almost as tasteless as a revival of the ·memory of the Kennedy
Alliance for Progress would be in the Washington of President Nixon.
In spite of this overwhelming evidence that not only the regional
common market has never taken off: but also that LAFTA and CACM
crash-landed after the early and apparently successful take-offs, few
local commentators appear willing to admit the extreme seriousness
of the situation. This is due, primarily, to the fact that it is completely
contrary to the Latin American political ethos to blame oneself for a
failure. Since, in the case of the regional economic integration move-
ment, the blame for its misfortunes can hardly be put at the doors of
either the 'imperialist Colossus of the North' or at the 'international
communist conspiracy', public discussion of this subject is rather less
than frank, oscillating as it does between two opposing schools of
thought. The first, composed of many long-time advocates of regional
cooperation, holds that both LAFTA and CACM are passing through a
series of major crises which might well endanger their futures. The
second, led by spokesmen for the LAFTA and CACM secretariats and
other Latin American institutions-such as the Inter-American
Development Bank-which are deeply involved in plans for integration,
suggests that the present difficulties are only 'growing pains' which will
pass eventually, if only because integration is vital to the economic
development of the region. To complicate the picture even further for
the unsophisticated public, high officials in some Latin American
republics continue to express their confidence in the future of inte-
gration, while qualifying their support with statements to the effect
that domestic interests and objectives must have clear priority over
regional growth and cooperative goals: yet others hold that all diffi-
culties in the field of integration should be handled with kid gloves for
fear of damaging the little that has so far been achieved.
Thus, barely a decade after the first experiments with regional
integration were launched in the midst of general applause, conflicting
opinions lead one to speculate as to the future path of Latin American
progress. The available factual evidence suggests that with regard to
integration, as unfortunately with regard to all major economic policy
matters, Latin America is drifting aimlessly under the mounting
pressures of unsolved internal and external problems. It is therefore
extremely difficult to predict where the region will find itself, not just
by 1985, when according to the 1967 Punta del Este agreement a Latin
American common market was to be established, but even by 1980,
the new date set for LAFTA's becoming a fully fledged free trade zone.
This uncertainty about the short and middle term future is rooted in
66
LATIN AMERICAN ECONOMIC INTEGRATION 51
the failure, since World War II both of Latin America as a whole, and
of the majority of its component Republics either to undertake or to
implement successfully long overdue economic, social and political
reforms. Unable to resolve the problems inherited from the past, Latin
America is thus poorly equipped to deal with those which are emerging
in a world characterized by technological revolution, rising consumer
expectations, and demographic explosion.
It is not that Latin America did not witness economic growth in the
past two decades. The region's gross national product has increased
about three times in real terms since 1945 and an impressive degree of
industrialization has been achieved by the large and middle-sized
republics. But the area's population doubled in the same period and
in most places growth did not translate itself into development.
In socio-political terms the Latin America of the late 1960s is probably
the most traditionally minded and conservative part of the world.
As a leading Chilean political scientist put it recently:
In spite of its reputation for frequent and violent upheaval perhaps the principal
contemporary problem of Latin America is excessive stability. There exists in the region
a resilient traditional structure of institutions, hierarchical arrangements, and attitudes
which conditions every aspect of political behaviour and which has survived centuries
of colonial government, movements for independence, foreign wars and invasions,
domestic revolutions, and a confusingly large number of lesser palace revolts. More
recently it has not only successfully resisted the impact of technological innovation
and industrialization, but appears to have been strengthened by it.!
This social and political stagnation breeds an apparent inability to

approach external and domestic economic difficulties in a modern and
rational way. It is also largely responsible for the present serious crises
in the ambitious attempts at regional integration which seemed to have
such a bright future less than ten years ago.
II
The idea of economic cooperation was born during the 1950S

in the minds of a particular coalition of Latin American technocrats
and reformist politicians. Experts recruited from the region by ECLA,
led by Raul Prebisch, then the commission's executive secretary,
looked upon economic integration as a potentially powerful develop-
ment factor in two senses. They postulated first that it would stimulate
the abandonment of a traditional primary commodity export trade and,
secondly that it would help modernize the Latin American economies
by forcing them to specialize within the framework of an expanded
1 Claudio Veliz in his introduction to Obstacles to Change in Latin America (London-New York-
Toronto, 1965), p. 1.
67
and protected regional market. The general ECLA proposition was

phrased convincingly:
Latin America's basic long-run development problems can be solved only if the
following fundamental fact is recognized: Latin America, however great assistance it
receives, however high the rate at which its exports expand-and they cannot do so
very rapidly-will be unable to carry out its development plans, will be unable even
to regain the rate of growth achieved in the ten post-war years, unless it makes a
sustained effort to establish within its own territory the capital goods industries of
which it is in such urgent need today, and which it will require on a large scale during
the next quarter of the century.... In order to produce these capital goods and
develop all the intermediate goods industries required to launch these higWy complex
dynamic industries ... Latin America needs a common market. 2
While accepting ECLA's general development theses, some indi-
vidual political figures also saw in economic integration an important
vehicle that would permit them to redress somewhat the lack of
balance in hemispheric political relations. By the mid-1950s economic
growth in most of Latin America, induced largely by World War II
and sustained by the international commodity boom during the
Korean conflict, petered out; at the same time the chief member of the
inter-American system, the United States, continued to pay little
attention to the development problems of the region. Thus, it was
thought, closing the ranks and fostering intra-regional economic
cooperation would force the U.S. to change its policy towards the
area.
Beset by foreign trade problems, lacking external capital assistance
and moved by the idea of spiritual and cultural unity, Latin Americans
found the proposals for regional cooperation attractive. Between 1958
and 1960 the Central Americans established their common market.
At the same time, in a parallel but geographically broader movement,
six South American republics (Argentina, Brazil, Chile, Paraguay,
Peru and Uruguay) and Mexico opted for a free trade zone scheme that
would-it was hoped-evolve during the 1970S into a common market
covering the whole subcontinent. Drawing upon the example of
Western Europe, both schemes put an accent upon trade liberalization
as a vehicle for regional division of labour. The Central American
arrangement provided for the creation ofa common market by 1966 for
all but a few commodities. The Latin American free trade zone was to
be set up by 1972, through annual product-by-product tariff negotia-
tions.
The Central American regional cooperation scheme provided
not only for commercial but also for financial, monetary, fiscal and
industrial cooperation. In the early 196os, an impressive array of
institutions supporting the common market emerged in the area,
2 The Latin American Common Market, UN Publication No. 59.II.G.4, New York, 1969, p. I.
68
among them a regional development agency (the Central American
Integration Bank), a monetary council, a clearing house, and an
industrial research institute. While these agencies worked with relative
efficiency, coordination of major economic policies, particularly in
respect to the siting of new industries and the common treatment of
foreign investment, has proved very difficult. The inability to reach
agreements in the key field of industrial cooperation, partly because of
an absence of national economic planning mechanisms in Central
America and partly because of the opposition of powerful external
political and economic interests, proved in the late 1960s to be the
major source of CACM's difficulties.
The LAFTA agreement (known as the Montevideo Treaty) was less
specific in respect to non-commercial cooperation mechanisms.
However, it did commit the participating countries-whose initial
number of seven increased to eleven by 1968-'to facilitate increasing
economic integration and complementary economies' by making
'every effort to reconcile their import and export regimes, as well as
the treatment they accord to capital, goods, and services from outside
the Area'. Furthermore, the Montevideo Treaty envisaged 'progres-
sively closer coordination of the corresponding industrialization
policies' through agreements 'among representatives of the economic
sectors concerned'. Very little, however, has been achieved in these
fields during the first eight years of LAFTA. No regional agreement
about the coordination of foreign trade and industrialization policies
has been reached and none is in sight. Neither was it found possible to
agree upon a common treatment for private foreign capital. Only a
few agreements designed to make industrial developments comple-
mentary, by specialization of production in individual industrial
branches with concomitant freeing of trade for their output, have
been signed. Only one of them (covering chemicals and signed in
1968) deals with an important industry. While some degree of co-
operation was achieved in respect to the multilateral clearing of regional
trade balances and maritime transport, these agreements had very little
impact upon the expansion ofintra-LAFTA trade and no effect whatso-
ever upon the acceleration of regional economic growth.
The achievements of CACM and LAFTA have been measured to
date mainly by the growth of trade within their respective areas. Con-
sequently, by 1968 it appeared that the Central American Common
Market was an unqualified success whereas the Latin American free
trade zone was making only slow and hesitant progress. In fact, trade
within Central America responded to the establishment of a common
market with amazing dynamism. Regional trade flows, measured in
terms of imports, increased from U.S.$37 million to $259 million
69
between 1961 and 1968, or by about 35 per cent a year. About two-
thirds ofintra-Central American trade consists ofmanufactured, mainly
consumer, goods, pointing to a significant diversification of zonal
commerce and the progressive although limited impact of the common
market upon the region's production structure.
Latin American Free Trade Association trade achievements are much
less impressive. The signing of the Montevideo Treaty was followed
by five years of a relatively rapid intra-regional trade expansion,
partly in response to early progress in tariff negotiations. By 1966
intra-LAFTA export trade (excluding Bolivia and Venezuela who
joined the scheme in 1967) exceeded U.S.S700 million (10 per cent of
the member countries' total export trade) as compared with $300
million (6 percent) in 1960. The regional trade of some newcomers-
Mexico, Peru and Ecuador-grew very rapidly from the low levels
registered at the end of the 1950S. The bulk of commercial exchange
continued to be concentrated in the three southern republics-Argen-
tina, Brazil and Chile-which had a long tradition of reciprocal trade
and still account today for close on three-quarters of intra-LAFTA
trade. In spite of the impressive number of tariff reductions (exceeding
11,000 by the end of 1969), very little was achieved in respect ofregional
trade-product diversification. In 1967 foodstuffs and the other primary
products traditionally exchanged by South American republics still
represented something like 70 per cent of intra-LAFTA trade. But the
biggest setback to LAFTA was that regional trade almost ceased to
expand in 1967 and grew only slightly (by 10 per cent) in 1968. It has
stood at slightly over $700 million in 1967 and at some $780 million
in 1968, although LAFTA trade with the rest of the world has con-
tinued to register healthy growth rates.
From the statistics it might seem that while the rapid setting up of a
common market in Central America proved an efficient way of
accelerating trade and growth within that small area, the trade liberaliza-
tion measures of the Montevideo Treaty were too weak to produce a
similar effect within LAFTA. But it is not only LAFTA which became
progressively paralyzed at the close of the 1960s; the CACM faces
even more serious difficulties as the result of the Honduras-EI Salvador
war, directly related to the growing social crisis in the area. One is led
to suspect that although regional trade liberalization programmes may
be necessary to stimulate economic growth, they do not by themselves
guarantee much to the underdeveloped participants in such schemes.
ill
A close analysis of the CACM's experiences before the outbreak
70
of the war in the area suggests that the positive impact of common
market arrangements of a traditional type upon the economies of its
underdeveloped member countries has been over-publicized. In the
absence of joint or even national long-term development policies,
particularly of an industrial and fiscal type, the establishment of a
common market brought relatively little real growth to Central
America, all the impressive figures on intra-area trade notwithstanding.
Some independent sources estimate that only 1 per cent of the annual
7 per cent average growth rate in the GNP between 1961 and 1966
resulted from common-market-induced activities. The setting up of a
regional trade barrier considerably higher than the previous tariffs of
the individual countries did not lead to serious industrialization but
rather to the rapid expansion of all types of 'final-touch' industries in
the integrated area. Many consumer goods imported in finished form
before 1960 are now imported in parts or at intermediate stages in
production. After undergoing final processing (bottling or packing
only in a few extreme cases) they circulate in the region as 'Central
American' manufactures.
The high regional protection offered to finished goods, the low
tariffs extended to raw materials and intermediate products, the race
of CACM member countries for 'new industries', together with the
oligopolistic structure of the market, led to an impressive expansion of
intra-regional trade in manufactured goods at a considerable economic
and social cost to the area. Among the economic costs of this particular
type of regional integration are a rapidly growing bill for imports from
third countries, a decline in fiscal revenues, high prices of new regional
'manufactured goods', and the exorbitant profits accruing mainly to
foreign-owned manufacturing enterprises which moved massively into
CACM, once they became aware of the profitability of the new ven-
tures. To make matters worse, the haphazard industrialization that
followed the emergence of CACM led to political complications by
accentuating differences in intra-regional development levels. Most of
the new 'final-touch' industries settled in the more advanced countries
-Guatemala and El Salvador-which, followed by Costa Rica,
became the principal exporters of manufactured goods to the area.
Since the liberalization of agricultural trade proved an intractable issue,
the two least developed members-Honduras and Nicaragua-found
themselves in an uncomfortable situation. They became markets for
expensive manufactures from the rest of the region while being unable
to increase by much their intra-regional exports of traditional non-
competitive agricultural commodities.
As long as the over-all balance-of-payments position of Central
America was satisfactory relatively few complaints about the growing
71
imbalance in regional development and trade were heard. But by 1966

the area found itself facing a major payments problem vis-a-vis the
outside world. The rapidly growing import bill was due both to
CACM industrialization and to the high level of imports of luxury
goods. This latter reflected the extremely unequal income distribution
in the area, symptomatic of its social backwardness. Subsequently the
CACM ran into heavy criticism from its less developed members.
The unequal distribution of benefits accruing from integration became
the key issue and Honduras and Nicaragua began to press the rest for
special concessions. The conflict became exacerbated when the attempts
to deal with the regional balance-of-payments difficulties, through
tariff surcharges on most imports from third countries and an equalized
consumption tax on a large list of luxury commodities of regional
origin, met with opposition from Costa Rica, dictated by purely domes-
tic political considerations. In early 1969 Nicaragua, which had accu-
mulated a sizable commercial deficit within the region and was unable
to export agricultural goods to neighbouring countries, introduced-
without warning and in clear contravention of the CACM treaty-
levies on regional imports. It lifted them only after the other members
ratified the pending regional protocols. The most important of these
was a protocol for the equalization of fiscal incentives, its absence in
the original treaty having permitted the initial free-for-all to attract
foreign industrial investment.
A few months after the Nicaragua-induced crisis had been solved, a
war broke out between EI Salvador and Honduras that put the whole
future of the CACM into question. Since most probably little attention
is given in Europe to this armed conflict between two small 'banana
republics', a few words about its origin are in order. Whereas CACM
has brought about the freeing of almost all regional trade, capital
movements have enjoyed considerable freedom in Central America
for a considerable period of time-in spite of monetary restrictions,
imposed from time to time in some CACM member countries.
However, the issue of free movement of labour, considered a political
and security problem, has never been discussed or resolved by the
various institutions working towards integration, although a consider-
able free movement oflabour-largely illegal-has been taking place in
Central America since the 1930S. It consisted mainly of the outflow of
unemployed rural and urban labour from tiny overpopulated EI Salva-
dor to Honduras, and to lesser extent to Nicaragua and Guatemala.
The majority of Salvadoran rural squatters have been settling for several
decades in the empty but fertile hinterland valleys of Honduras. The
ensuing frictions were kept under control until 1969 when the economic
growth of Central America, helped by CACM but unaccompanied
72
by social reforms, led to severe social tensions both in the overpopu-

lated but relatively rich-in terms of per capita income-El Salvador,
and in the undersettled and extremely poor Honduras. According to
the best Central American tradition, from which only Costa Rica
stands out as an exception, both countries happened to be run by
military regimes on behalfof large landowners. In the face of the grow-
ing domestic unrest, the Honduran military opted in favour of land
reform to alleviate tension among the landless peasants. Since the
politically most viable land reform was obviously that which would not
affect local landed interests, those parts of the country inhabited by
Salvadoran squatters proved to be the most logical sites for the imple-
mentation of this reform. The preparatory stages of this land reform
in Honduras lasted long enough to give the military counterparts in
El Salvador time to prepare countermeasures.
In July 1969, the Salvadoran army launched a blitzkrieg against
Honduras that was expected to repeat the Israeli feats during the
Six-Days War in the Middle East. But Salvadorans proved not to be
Israelis and, quite unexpectedly, the Hondurans were no Arabs. While
El Salvador's army got stuck across the border, the conflict became
particularly bloody on both sides with the Salvadoran illegal population
in Honduras bearing the brunt. The outbreak of hostilities took prac-
tically everybody by surprise, although it is understood-from very
well informed Washington sources-that the u.S. was well aware of
the coming armed clash. Since no Communist or Castroist threat was
apparent on either side, the u.S. is reported to have decided on a hands-
off attitude. The armistice finally imposed on both sides by theOAS-
but frequently broken by border skirmishes-eame too late to prevent a
severe undermining of CACM. Not only was there a complete sus-
pension oftrade between the belligerents, but Honduras put an embargo
upon transit trade between El Salvador and Nicaragua and Costa Rica.
Moreover, the operation of the majority of CACM agencies came to a
virtual standstill. Almost a year after the outbreak of war the economic
blockade of El Salvador is still maintained successfully, while many of
the agencies for integration remain paralysed. While in late 1969 it
seemed that the attempted arbitration by Guatemala, Nicaragua and
Costa Rica, aimed at restoring the economic and trade cooperation
existing in the area before the war, was making some headway, the
absence of tangible progress in the political settlement of the Honduras-
EI Salvador conflict increased the long-term dangers to CACM con-
siderably. Moreover, as should have been· expected, the war did not
solve anything and the price paid by both parties for diverting public
opinion from real local, social issues ·seems very heavy.' Most of the
Salvadoran economy is reported to be paralysed, since that country's
73
industrial capacity depends to a considerable extent upon access to

CACM members' markets. At the moment EI Salvador's regional
export trade is limited to Guatemala and to the shipping of some goods
by sea to Nicaragua and Costa Rica at considerable extra cost. Honduras t
on the other hand, paid for its victory with an extremely serious
financial dislocation.
The bleak economic future forecast by all CACM members permits
some economic observers to hope for an early solution of the conflict.
But even if peace is restored to the region, the CACM will, for a long
time to come, work under severe handicaps. Memories of the war
together with the continuing long-simmering conflict of economic
interests between the more developed CACM members (Guatemala,
EI Salvador and Costa Rica) and the poorer ones (Honduras and Nicar-
agua), will reinforce nationalist attitudes in the individual countries,
and skilful negotiation will be needed to keep CACM alive. More-
over, while the issue of equal benefits for all member countries may
somehow be resolved, yet another one continues to overshadow the
area. Both the Central American left and many local conservatives
insist with growing vehemence that whatever gains from CACM may
accrue to the region, foreign industrial investors are the principal
beneficiaries of the common market arrangement. Given the force of
nationalism in the underdeveloped countries, such a frame of mind
can hardly be considered conducive to an orderly future for the Central
American scheme for economic integration, especially in view of the
fact that, ten years after the setting up of the common market, the area
is socially and politically as backward as before. The message seems to be
clear. Economic integration is a poor substitute for socio-political
reforms.
IV
Latin American Free Trade Association is not a success story either.

Within LAFTA, disenchantment began even before intra-regional
trade stopped growing in 1967. From 1964 onwards a number of
attempts to accelerate the implementation ofthe non-trade commitments
of the Montevideo Treaty were made by the main proponents of
regional integration, including President Eduardo Frei of Chile,
Raul Prebisch, and Felipe Herrera, the head of the Inter-American
Development Bank. These initiatives led to the establishment of
LAFTA's Council of Ministers and indirectly to the conference of
American presidents, held at Punta del Este in the spring of 1967.
But after two meetings, the Council of Ministers ran out of ideas,
while the Punta del Este declaration calling for the establishment of a
74
Latin American common market was quietly shelved. External and

regional political difficulties proved stronger than the superficial idea of
Latin American solidarity.
The Latin American Free Trade Association's inability to proceed
on schedule with the original commitments of the Montevideo Treaty
was finally admitted openly in mid-December 1969, when the so-called
Caracas Protocol was signed at the Ninth Annual Conference of
LAFTA's Contracting Parties. The Protocol postpones, from 1973 to
1980, the establishment of a free trade area between eleven Latin
American republics; it slows down the pace of tariff negotia.tions by
committing each LAFTA member country to making annual tariff
cuts equivalent to only 2·9 per cent (formerly 8 per cent) of weighted
average of duties applicable to all imports; and it suspends the imple-
mentation of the so-called common list of products freely traded until
at least 1974, the date by which negotiations toward a 'new stage' of
LAFTA are to begin. It is no secret in Latin America that the Caracas
Protocol represents a victory for the three major countries (Argentina,
Brazil and Mexico) who have lost interest in all but the purely commer-
cial aspects of regional economic integration and who assume-perhaps
correctly-that the point reached in tariff cuts assures them enough
room for export expansion in the area for some time to come without
forcing them to undertake any non-commercial commitments toward
the less developed LAFTA members. Significantly, the Caracas Proto-
col makes only a token reference to a common market by resurrecting
two rather nebulous articles ofthe Montevideo Treaty which encourage
'creating conditions favorable to the establishment of a Latin American
Common Market', and 'adapting [LAFTA] to a new stage of economic
integration'. The Protocol· sets no deadline for the setting up of a
common market.
While there are many reasons for LAFTA's disappointing perform-
ance and the clear lack of enthusiasm for a common market, some of
them are particularly important. One is the ambitious geographical
scope of LAFTA. In the name of a Latin American community of
interests, economies ofall sizes and levels ofdevelopment were put under
one roof. In spite of higWy publicized declarations of regional solid-
arity, the events of the last few years proved that each of the three
groups within LAFTA (the industrial 'giants'-Argentina, Brazil and
Mexico; the middle group led by Chile, Colombia and Venezuela;
and the most backward republics-Bolivia, Ecuador and Paraguay)
faces specific problems which hardly lend themselves to joint action.
All the major conflicts that arose in LAFTA involved the economic
relations among these three groups. The poor members and the middle
group insist quite correctly that they are getting little, if anything,
75
from the regional free trade scheme and are, in fact, running the risk
of becoming markets for the industrial surplus of the 'big three'.
And \tvhile Argentina, Brazil and Mexico are obviously interested in
markets in neighbouring countries, their dependence on exports to
the rest of LAFTA is not great enough to force them to grant those
unilateral commercial and other concessions for which the less fortunate
republics have asked persistently. Recently Argentina made it clear that
its interest in LAFTA and any future regional common market is
limited strictly by considerations of domestic economic developments.
While Brazil and Mexico abstain from making public statements, their
position is basically similar.
While the differences in economic development levels within the
LAFTA group may be the main reason for its disappointing perform-
ance, a second obstacle has its roots in the flaws in the ECLA doctrine
that served as the rationale for the establishment of a Latin American
free trade zone in 1960. ECLA claimed, though events of the 1960s
have proved it wrong, that the Latin American countries must inte-
grate because import-substitution on a national level had run its course
by the mid-I950s. But the post-LAFTA experiences of the 'big three'
and of some of the middle countries have shown that rational industri-
alization programmes can continue in Latin America for a considerable
time without an increase in the level of protection. In response to the
differentiation ofdomestic demand for industrial inputs and final goods,
new manufacturing establishments continue to spring up in Argentina,
Brazil and Mexico ten years after the ECLA's declaration that this type
of industrial growth was running into a blind alley. Eventually,
perhaps within another decade, these large republics may encounter the
difficulties predicted by ECLA, but as long as the constraints upon
industrialization for the home market are not too severe, some outlets
for manufacturing exports are found elsewhere, and the nationalist
ideology remains strong, none of these three countries will see a
manifest necessity to support LAFTA fully.
The possibilities of continuing such inward-directed industrialization
in the middle group ofcountries are somewhat more limited. This may
explain in part their interest in an Andean subregional common market,
a project under negotiation since 1966 and subject to a formal treaty,
signed at Bogota, Colombia in July 1969 by Bolivia, Colombia,
Chile, Ecuador and Peru. At the last moment Venezuela opted out of
the Andean scheme, proving that the private sector in that republic
believes that national industrialization programmes are still feasible
in most places regardless of the market size, extent of natural resources,
and the high cost of modem technology. Industrial entrepreneurs in
Venezuela have been very vocal in their opposition to the Andean
76
scheme, predicting a major national disaster if Venezuelan borders

were to be opened to the 'cheap labour' products of neighbouring
countries. There is little reason why industrial interests in Venezuela
should think otherwise. After all they are reaping very handsome
profits behind high protective barriers, and, in traditional and conserva-
tive Latin America, profits and national interest are easily equated.
Moreover, Venezuela represents a particularly interesting case of close
cooperation between local industrial interests and u.s. exporters.
In exchange for special treatment for Venezuelan oil in the U.S.,
Venezuela grants special tariff concessions to U.S. goods. At the same
time the high degree of participation by u.s. capital in Venezuelan
manufacturing activities is growing. Under such conditions Venezuela's
entry into the Andean arrangement makes little sense both to local and
u.s. economic interests. It would only expose the country to the
competition of the third countries at a possible loss either to u.s.
exporters to Venezuela, or to u.s. manufacturers in that country,
or their Venezuelan partners, or to all three groups.
Paradoxically, the third major obstacle to regional cooperation
arises from the improvement in the international commodity trade
picture, registered in recent years under the impact of conditions of
economic boom in the advanced countries. Contrary to the pessimistic
ECLA predictions, the external demand for Latin America's traditional
commodities improved considerably in the 1960s. Although the rate of
expansion of the region's exports lagged behind that of trade among
industrial countries, the results were better than expected. Between
1963 and 1968 Latin America's commodity sales increased by 25 per
cent from U.S.S9,200 million to SII,400 million. If Venezuela's oil
exports, which behaved sluggishly over the period, are excluded, the
five-year increase in export revenue of the region amounted to 30 per
cent. The improvement of the export picture made internal industrial-
ization efforts much more attractive politically than the alternative
negotiation of regional industrial cooperation schemes that might have
affected certain powerful interest groups in individual countries. As at
other times and in other places, once the atmosphere of the external
trade crisis that was hanging over Latin America ten years ago began
to dissipate, long-term problems were conveniently forgotten.
The preference shown in the capital exporting countries for the prac-
tices of tied public loans and of private suppliers' credits in lieu of
untied public foreign aid, only strengthened the propensity of Latin
American countries to think in terms of national inward-directed
development and industrialization. Whatever their external payments
situation might have been, Latin American republics were swamped
in the 1960s with offers of external credit for individual industrial
E
77
projects involving imports of capital goods. These offers were readily

taken up, with the result that the duplication and overlapping,
previously characteristic of primary activities in the region, was ex-
tended to the industrial sector. With new, high-cost, foreign-financed,
self-contained industrial plants springing up even in the most backward
countries, economic integration became more rather than less difficult
to attain during the present decade.
The absence of coordinated aid policies toward Latin America
among the donor countries, and the U.S.'s lack ofinterest in supporting
LAFTA politically and financially created another important obstacle
to integration. 3 Through its aid agencies the u.s. gave financial support
to the CACM from the very start. The CACM members agreed in
turn to accept the 'proper' rules of the game by abstaining from any
interference with free market forces and foreign investment. Moreover,
the possibility of a political challenge to the United States from the
Central American scheme for integration was virtually nil, while the
acceleration of growth within the area attracted the u.S. as a possible
means of lessening socio-political tensions in a strategically important
part of Latin America.
The United States attitude to LAFTA has been considerably more
ambivalent. In the 1950S the u.S. gave no support to Latin American
integration efforts, even if only because the initiatives came from the
ideologically suspect ECLA. With the emergence of the Alliance for
Progress in 1960, the u.S. position began to fluctuate between a 'hands-
off' policy and one of 'neutral benevolence'. Only in 1965 did the u.S.
begin to express qualified support for Latin American integration.
In the winter of 1966-67 and prior to the conference of American
heads of state, President Johnson offered aid for the readjustment of
those economies that might be affected in the process of the gradual
establishment of a regional common market. But the u.S. Congress
refused to support the executive's offer, and in any case the amoW1t of
aid offered was considered by most Latin Americans to be ridiculously
small.
This aid, informally promised, has never materialized. The u.S.
claims that Latin America's lack of interest in the implementation of the
Punta del Este agreement made any external financial help superfluous.
The Latin American countries, in tum, point out that they would
perhaps be ready to take the PW1ta del Estecommon market proposals
more seriously if only the u.S. had not backed out of its promises.
Obviously, this is mere verbal shadow-boxing. Both the u.S. and Latin
3 For details, see Miguel s. Wionczek, 'Latin American Integration and United States Policies',
in Robert W. Gregg (ed.), International Organization in the Western Hemisphere (Syracuse, N.Y.,
1968).
78
America put the matter of broad and serious regional econo111ic
integration low on their list of priorities, and both were fairly satisfied
with the traditional, bilateral methods of hemispheric aid distribution.
Given the attitudes prevalent in the u.s. Congress, the Executive
Branch can hardly ask for additional funds for integration. Moreover,
in a period of declining aid, the maintenance of bilateralism is not
unattractive to the aid-receiving countries. Each of these hopes that it
will somehow get more than others because of its 'special' relation with
the powerful donor. Besides, since the earmarking of certain funds for
integration might affect the amount of bilateral aid available, no Latin
American country is willing to press for financial assistance for inte-
gration. Thus, traditional aid distribution patterns continue, while both
Latin America and the u.s. find themselves in the comfortable position
of being able to blame each other for the failure of the agreements
arrived at by the heads of state in 1967.
The final major obstacle to LAFTA's efficient functioning and to its
evolution toward a regional common market arises from the latent
conflict between Latin American societies and foreign private invest-
ment, particularly the giant multinational corporations. 4 In many Latin
American quarters fears are expressed that, because of their managerial
and technological power, these corporations would reap the major
benefits from integration, and in the process destroy many weak
domestic industries. 5 In principle, these problems might be solved by
regional harmonization of policies toward foreign private capital, and
by special financial and technical assistance on a regional scale to the
domestic industries. In practice, the harmonization of such policies
seems a forbidding task. Less developed LAFTA members claim that
the introduction of equal. regional treatment for foreign investment
would result in its concentration in the few large countries~ The latter,
in turn, insist that offering the poorer republics the right of more
liberal treatment for foreign capital, on the top of unilateral regional
trade concessions, would result in the swamping of Latin America
with manufactured goods assembled by foreign firms in the less devel-
oped republics. Unable to resolve this particular regional dilemma,
LAFTA members continue to maintain highly varied national foreign
investment policies geared mainly to individual industrialization needs.
Thus, on the regional level a curious argument emerges. While each
country talks about the dangers of foreign domination of the free
trade zone or a future common market, only foreign investment
.. For details see Miguel S. Wionczek, LAteinamerika und das ausliindische Kapital (Institut fUr
Iberoamerika-Kunde, Hamburg, 1969).
5 The most recent Latin American official attitude on this subject is presented in the so-called
'Latin American Concensus of Vifia del Mar', adopted at a special meeting of the Committee for
Latin American Coordination (CECLA) held in Vifia del Mar, Chile in May 1969.
79
located outside one's own national territory is considered to form a

threat. And once local foreign-owned enterprises become somehow
the extension of national economic power, negotiating battles are
fought to give them access to the neighbouring markets. Under such
conditions the elaboration of a regional foreign investment policy is
more than a forbidding task. It appears an impossible exercise.
v
It has been argued earlier in this paper that many of CACM's
difficulties prior to the Honduras-EI Salvador war were due largely to
an overemphasis on regional trade liberalization on the one hand, and,
on the other, to a neglect ofjoint industrial policies, which would have
avoided the economic inconveniences of the spurious 'final touch'
industries and assured political satisfaction by 'equal' participation in the
industrial process for all member countries. An attempt was also made
to identify the major obstacles to the progress of the LAFTA scheme:
large differences in development levels in the area; the existence of a
sizable margin for national import-substitution policies in the large
and middle-sized republics; the defence of the status quo by domestic
industrial groups thriving behind national tariffwalls; the improvement
of the traditional export sector leading to a relaxation of the pressure
for structural modernization; the aid and credit practices of the capital
exporting countries; and, finally, the fear of the predominance of
foreign private capital in an expanded regional market. What is the
future of Latin American economic integration under these circum-
stances?
To prophesy that it may take Latin America thirty years to integrate
economically because it was disintegrating for a century and a half, as
GAS Secretary General Galo Plaza said recently, dodges the issue. 6
Speculating about the shape of the world in the year 2000 ala Herman
Kahn may be a fascinating intellectual exercise, but those speculations
look somewhat idle from the vantage point of the underdeveloped
world. By the year 2000 Latin America's population will reach 700
million people as compared with 150 million in 1945 and almost 300
million today. What kind of adjustment in social organization will be
needed in the region in face of these demographic developments is
anybody's guess. Will a traditionally conceived economic integration
scheme run by traditionalist national elites still be relevant to Latin
America's social adjustment needs in the year 2000? Will these elites
6 Galo Plaza is credited with a statement made in early 1969 to the effect that 'the process of
economic integration in Latin America will perhaps take three decades; it is, however, a relatively
short period when compared with one and one-half centuries of economic disintegration .. .'
80
still exist, if only because they have happened to be around in different

disguises since the early nineteenth century? These Toynbee-esque
questions seem impossible to answer.
But if one shortens the time horizon and talks about the next ten to
fifteen years, the shape of things to come becomes somewhat clearer.
No Latin American common market along the lines of the 1967 Punta
del Este agreement is on the cards for 1985. It is also extremely difficult
to envisage the substantial strengthening of LAFTA which has pro-
gressively degenerated into a weak preferential arrangement, whose
main virtue consists in a marginal stimulation of intra-regional trade
that perhaps would have been taking place anyway.
Under the LAFTA umbrella two developments are probable: first,
the economic rapprochement between neighbouring countries like the
Rio Plata riparian states (Argentina, Brazil, Paraguay and Uruguay),
aimed at a joint exploitation of energy and water resources through
binational or multinational projects stimulated by the Inter-American
Development Bank; secondly, the setting up of sub-regional common
markets among the middle-sized and small underdeveloped countries
such as the proposed formation by 1980 of an Andean Common
Market. Since there are reasons to hope that, despite periodic crises, the
CACM will somehow survive, if only because most of its members are
not viable economic units individually, then the best that can be
expected is a proliferation of similar groupings in other parts of Latin
America. If such groupings prove relatively successful, one might
envisage various kinds of arrangements between them and Argentina,
Brazil and Mexico. This type of loose economic cooperation is already
developing between Mexico and the CACM.
All this falls very much short of ECLA's proposals of the late 1950S
and the American heads of state commitments of 1967. While the
responsibility for the present decline of economic integration schemes
lies mainly with Latin Americans themselves, the actual policies of the
advanced countries are oflittle help too. Moreover, few changes in these
policies can be expected judging by the contents of the two recent
policy reports, prepared respectively for the u.S. Government by the
Rockefeller Mission that visited most of Latin America in 1969, and
for the World Bank-by the Pearson Commission.?
The Rockefeller Report, widely criticized both in the u.S. and Latin
America for a particularly low level of political and economic imagina-
tion and for obvious inability to look at Latin America as a region,
dedicates exactly three lines to the economic integration issue by
7 See Quality of Life in the Americas (Report of a u.S. Presidential Mission for the Western
Hemisphere), Agency for International Development, Washington, 1969, and Partners in Develop-
ment (Report of the Commission on International Development under the chairmanship of Lester
B. Pearson), Praeger Publishers, New York, 1969.
81
stating tersely that 'the United States should lend its support to regional
markets as they develop in the area, including participation in regional
development banks'. The Pearson Report, a much more impressive
effort aimed at analysing the whole structure of the relations between
the advanced and the underdeveloped countries, is more specific than
the Rockefeller exercise but still looks upon integration attempts in
Latin America and elsewhere as of marginal importance though useful.
Reflecting the UNCTAD philosophy, the Pearson Commission ex-
presses a belief that the expansion of trade among developing countries
on a global level is badly needed and that 'where appropriate, should be
supplemented by regional trading blocs'. Consequently, it recommends
that bilateral donors and international agencies provide financial assist-
ance to institutions such as development banks and clearing and pay-
ments unions which are designed to promote trade among developing
cOWltries on a regional scale. It also urges aid-giving countries to give
special attention in their aid allocation to projects which have the effect
of strengthening old, or forging new, economic links among groups of
developing countries. But these are just two out of some 150 recom-
mendations of the Pearson Commission. Moreover, since they are
supported with little if any factual analysis of economic integration
problems and difficulties of the sort encountered by LAFTA and
CACM, the impression is left that not only the Rockefeller, but the
Pearson Report group as well, still live in a world of nation-states and
not in one of potential economic groupings.
It may well be that this approach represents a realistic appraisal of
the strength of nationalism in the developing regions. But such atti-
tudes do not bode well for the future of economic integration schemes
in Latin America. Without sizable external assistance and without social
and political modernization within the region itself, Latin American
economic integration will most probably remain an empty dream for
some time to come.
82
MANIPULA1~ING INTERNATIONAL
COMMODITY MARKE1~S: Brazilian Coffee
Policy 1906 to 1962
srrEPHEN D. KRASNER
Introduction
Poorer states are often described as victims of forces beyond their

control. The structure of the international economic system is
perceived as being systematically biased against theln. Terlns
of trade are declining, export earnings erratic, capital Ao\vs per-
nicious, and tariff structures discriminatory. This attitude, shared
by both political leaders and intellectuals, has its advantages. For
radicals it emphasizes the necessity of revolution. The present
structure is so perverse that there is no possibility of reform. For
political leaders in developing states it offers an explanation for
failures that relieves them of responsibility. Castigating the in-
dustrial states at international conferences is easier than chang-
ing domestic policies.
Belief in structural determinism is not, however, without costs.
It blinds both analysts and officials to possibilities for change.
Poorer areas are not always hapless and ineffectual. Brazil has
been the leading exporter of coffee for seventy years. Since the
beginning of the century Brazil has actively intervened in the
coffee market. Brazilian policies have had an important influence
on the world coffee trade.
Brazilians were interested in raising and stabilizing prices and
in increasing control over the world market. Coffee was the na-
tion's major source of foreign exchange. Since government reve-
nues as well as export receipts depended on coffee sales, price gy-
rations made it difficult for the government to estimate the ma-
terial resources it would have for either economic development or
the maintenance of the political structure. Brazilians wanted the
satisfaction of controlling their own economic destiny by not
leaving the market to speculators or objective conditions.
Completion of this manuscript was made possible by a grant from the Center for
International Affairs, Harvard University. Thanks are expressed to Jorge Domin-
guez, John Jackson, and Joseph Nye for their comments on earlier versions.
83
494 Public Policy
A dominant share of the world coffee market was a prerequisite
for unilateral action. Brazil enjoyed such dominance at least
until the 1930s. During later periods Brazil continued to use her
position as the largest coffee producer to further multilateral co-
operation. Within the limits imposed by Brazil's share of the
,vorld market, success depended upon t,vo variables: the atti-
tude of consumers and the government's ability to limit returns
to coffee planters. The latter constraint was decisive. It was the
internal political situation, not the behavior of foreign consum-
ers, that limited Brazil's ability to secure its objectives. Brazil
,vas, however, still able to improve its situation over what it
would have been without intervention.
The Political Economy of Intervention
The most important conclusion of neo-classical theory is that with

free trade the income of all nations is Pareto optimally distrib-
uted. It is, however, possible for a single exporting country to
improve its position at the expense of consumers by intervening
in the market. Under certain conditions a nation can secure high-
er income than under free trade conditions by imposing a tariff
or export duty. The economic prerequisite for unilateral inter-
vention is that a nation's share of the world market for a com-
modity exceeds the price elasticity of demand for that commodity.
This can be illustrated by an example. If the world price elas-
ticity of demand for a commodity is 25 percent and a particular
producing nation has 50 percent of the world market, then it can
increase its total receipts by restricting supply at the margin.
Total receipts are equal to price P times quantity Q. Price elas-
ticity of demand is defined as
dQ/Q
dP/P
If a nation with 50 percent of the world market restricts its sup-
plies by say two percent, the world supply of the commodity falls
by one percent. With a price elasticity of demand of 25 percent,
world prices will increase by four percent. The country restrict-
ing its supplies offsets its two-percent loss of sales by a four-per-
cent increase in prices. I ts total export receipts increase by al-
84
BRAZILIAN COFFEE POLICY 495
most two percent. Minor producers enjoy a four-percent increase
in prices without bearing any of the cost of stock retention.
While a dominant market position is the prerequisite for uni-
lateral intervention, it does not guarantee success. There are two
conditions that must be met if a policy is to raise income above
what it would have been under free market conditions: limited
retaliation by trading partners, and effective government control
over private producers. If a nation's trading partners retaliate,
all countries may end up worse off than they were under free
market conditions. A sustained tariff war, for instance, makes it
impossible for any country to enjoy the benefits of comparative
advantage. If the government fails to control domestic groups,
it cannot implement a durable policy. Passing on the benefits of
intervention to the private sector causes persistent oversupply,
brings into question the government's ability to control the mar-
ket, and generates inflation and possible dependence on foreign
sources of finance.
The outcome of efforts to manipulate international commodity
markets is then determined by events in three separate arenas:
the international market, the political system of consuming states,
and the political system of the producing state.
The existence of a dominant producer - a country whose share
of the world market for a commodity exceeds the price elasticity
of demand - is unusual. The production of most commodities
is so widely dispersed that only rarely does a particular state dom-
inate the world market. Brazil held such a position in the inter-
national coffee market for much of the twentieth century. For
coffee, estimates of the price elasticity of consumer demand range
from 0.20 to 0.44. 1 Brazil's share of the international coffee mar-
1 The United States Federal Trade Comtnission in its Economic Report of the
Investigation of Coffee Prices (Washington, D.C.: 1954), p. 510, estimated the con-
sumer-price elasticity of demand for coffee as 0.44. A second study, A. Szarf and
F. Pignalosa, "Factors Affecting United States Coffee Consumption," Monthly Bul-
letin of Agricultural Econ01nics and Statistics, Vol. 8 (October 1954), p. 10, placed
the elasticity of demand at 0.20 to 0.31 for the period 1920 to 1954. An analysis
by Rex F. Daly, "Coffee Consumption and Prices in the United States," Agricultural
Economic Research, Vol. 10 (July 1958), p. 62, sets the elasticity between 0.25 and
0.30 for the period 1920 to 1957.
These analyses and the presentation in the text assume that coffee is a homo-
geneous commodity. In recent years increased output of robusta coffees from
Africa and milds from Latin America make this assumption questionable. A study
by J. N. Abaelu and L. Mandercheid, "U.S. Import Demand for Green Coffee by
Variety," American Journal of Agricultural Economics, Vol. 50 (May 1968), pp.
85
496 Public Policy
ket has ranged from about 70 percent during the first decade of
the century to its present level of about 30 percent. Prior to the
late 1930s Brazil enjoyed the economic prerequisite for unilateral
market intervention: its share of the market exceeded upper esti-
mates of the elasticity of demand. By 1950 Brazil's market share
had fallen below 40 percent. Effective market control ,,,ould
require multilateral cooperation.
The United States is the world's leading coffee-consuming na-
tion. Its share of world coffee imports has ranged from 70 to 40
percent during this century. Brazil could not successfully inter-
\'ene in the world market had the United States government de-
cisively opposed such efforts. It did not. Individual bureaus
moved against Brazil but they were often checked by other
agencies. American policy was unified only when strategic con-
cerns were paramount. Then the United States assisted Brazil,
expecting to further its political objectives.
Private American coffee corporations also accepted Brazil's
intervention. They had no alternative sources of supply. During
the early part of the century the industry lacked the institutional
cohesion necessary to secure assistance from the U.S. Government.
Later it was loath to oppose efforts to raise and stabilize prices
that were supported by the American government as well as
Brazil.
Brazil, for its part, could only raise returns by restricting sup-
plies entering the "vorld market. I t could restrict international
supplies only by limiting domestic production or by withholding
stocks from the market. The government was able to limit pro-
duction or ,vithhold stock only if it enjoyed sufficient internal
political po"ver to resist the demands of the private coffee sector
for hig-her payments. If returns to the private sector are high
enough to encourage additional output even when some coffee
is being retained or destroyed, the government \vill be unable to
sustain its intervention over the long term. 2 Paying farmers for
232-2'11, claimed that disaggregated demand according to coffee type suggests an

elastic demand for all three major kinds of coffee. These studies suggest that Brazil
was a dominant producer until the late 1930s. After the Second World War it was
no longer economicalJy rational for Brazil to intervene unilateralJy.
:? The price response of coffee planters is reflected in decisions concerning planting,
uprooting, and abandonment of coffee trees. Studies in several countries indicate
a positive price elasticity of supply. M. Arak, in "The Price Responsiveness of
Sao Paulo Coffee Growers," Food Research Institute Studies, Vol. R (1968), pp.
86
BRAZILIAN COFFEE POLICY 49i
coffee that is never sold can be inflationary and can place dispro-
portionate burdens on urban groups that in turn can bring
pressure on the government. Funding paYlnents to private pro-
d~lcers fronl foreign loans leads to external dependence and
increased debt burdens. Persistent domestic overproduction may
lead consumers to doubt the government's ability to continue
intervention, prompting speculation that \vill undermine market
control.
When Brazil's efforts to control the international coffee market
failed, it \vas because of events in the Brazilian political system.
Consumer opposition was never very significant. Successes \vere
often facilitated by American behavior. Given the international
market position, the variable that has ultimately determined the
outcome of intervention has been the ability of the Brazilian po-
litical system to resist pressures from the private coffee sector.
Within limits set by the structure of world trade the division of
rewards in the international coffee industry has been determined
by developments within Brazil, not by consumer retaliation.
The International Arena
The international coffee market offered Brazil the opportunity

for unilateral intervention from the end of the 19th century
until the late 1930s. Her share of the world market moved above
the price elasticity of demand around 1890, as a result of both
a diminishing output in Asia and the opening of ne\v coffee
plantations in Brazil. It fell below the upper estimates of the
price elasticity of demand for the first time in the late 1930s be-
cause of increased production in other areas of Latin America.
After the Second World War a number of African areas also
became major coffee exporters. By the early 1950s it became
clear that unilateral action would be counterproductive. Market
211-223, found that in the state of Sao Paulo between 1930 and 1955 at the mean
level of prices a one-percent change in price expectations produced a change of
approximately 6.5 million in the desired stock of coffee trees. Positive relation-
ships were also found for uprooting and abandonment. Thomas Geer, in An
Oligopoly: The World Coffee Economy and Stabilization Schemes (New York:
Dunnellen, 1971), pp. 96-105, also discusses a positive price response of supply for
Brazilian planters.
87
498 Public Policy
regulation could only be achieved through international coop-
eration.
Brazil's efforts to control the international market have taken
a variety of institutional forms. In 1906, 1917, and 1921 the
government financed the ,vithholding of coffee from the market.
In 1924 the State of Sao Paulo established a Coffee Institute em-
po,vered to intervene in the market on a continuing basis. After
the revol ution of 1930 this task was assumed by the Federal
government. During the Second World War an agreement be-
t"reen the United States and the coffee producers of Latin America
regulated the international market. After the "var, Brazil's efforts
,vere directed at securing multilateral regulation of coffee trade.
They came to fruition in the International Coffee Agreement of
1962.
The Coffee Valorizations. In 1906 and 1917 the government
of the state of Sao Paulo bought large amounts of coffee and with-
held them from the market for several years. The Federal gov-
ernment undertook a similar effort in 1921. These operations
,vere known as coffee valorizations. In all three cases official inter-
vention \vas prompted by the prospect of price declines that
,vould have resulted from marketing the entire harvest. The
1906/07 crop was exceptionally large, setting a record that ,vas
not surpassed until the late 1920s. The State of Sao Paolo, which
gre,v 70 percent of Brazil's coffee, purchased some 8 million bags,
equal to 50 percent of the national average annual production for
the years 1904/05 to 1908/09. These were held off the market
until 1910. Stocks ,vere not completely liquidated until the
conclusion of the First World War. In 1917/18 Sao Paulo pur-
chased some 3 million bags because of a large harvest and the ,var-
time blockade that cut Brazil from European markets. By June
of 1920 the entire stock had been sold. In 1921 the Federal gov-
ernment, worried by the prospects of the exchange-rate deprecia-
tion that would result from a continual fall in coffee prices, bought
SOIne 4-1/2 million bags, all of \vhich were disposed of by 1924.
The 1906 valorization was funded almost entirely by foreign
loans. Sao Paulo first received short-term financing from sev-
eral large American coffee-importing firms~ When this proved
inadequate, longer-term obligations were floated in Europe and
the United States. The 1908 valorization loan of £15 million ,vas
88
five times larger than any other foreign obligation incurred by a
Brazilian state during the period 1900 to 1910. 3 The 1917 op-
eration was funded with paper money issued to Sao Paulo by
the Federal government; foreign funds were unobtainable be-
cause of the war. A foreign loan of £9 million was used to finance
the third valorization. These resources were used to pay farmers
for coffee being held by the state.
All three valorizations were on balance successful in terms of
increasing efficacy, returns, and price stability. The 1906 one
was the first major attempt by any Latin American exporting
country to influence the market on which its earnings depended.
It was received \vith skepticism in major European economic
circles. The Economist (London) derided the operation. 4 The
Rothschild Bank, Brazil's usual source of foreign loans, refused to
extend funds. In 1908 business leaders in Rio de Janeiro de-
manded that the Federal government intervene and force Sao
Paulo to liquidate its holdings. 5 Despite this opposition the
leaders of Sao Paulo, pressed by coffee planters and traders, per-
severed. They came to view with great satisfaction their ability
to hold off the market and then successfully sell large quantities
of coffee. 6 That this position became more widely accepted is
evidenced by the willingness of the Federal government to finance
the 1917 valorization and to undertake a similar effort itself in
1921.
The valorizations resulted in higher and more stable earnings
and coffee prices. During the 1906/07, 1917/18, and 1921/22
crop years when coffee was retained, world prices were lower than
in succeeding years when it was sold. All three interventions
resulted in improvements over what would have happened in the
absence of market manipulation. Each increased the Brazilians'
sense of efficacy and raised and stabilized international prices and
foreign-exchange earnings.
3 A list of Brazil's foreign loans can be found in Brasil, Annuaire Statistique du

Bresil, 1908-1922 (Rio de Janeiro: Directoria Ceral de Estatistico, 1916) p. 159.
4 The Economist, Vol. 67, No. 3401. October 31, 1908, p. 826.
5 Ibid., No. 3399, October 16, 1908, p. 720.
6 See for instance a statement of the Sao Paulo Minister of Finance, reprinted in
United States Congress, House of Representatives, Subcommittee of the Commit-
tee on Banking and Currency, 62nd Cong., 3rd Sess. (1913), Investigation of Finan-
cial and Monetary Conditions in the United States under House Resolutions Nos.
429 and 501, p. 93.
89
500 Public Policy
Against this record of gross success must be set the costs in-
curred by the necessity of funding the first and third valorizations
\vith foreign loans, which lessened Brazil's discretionary control
over the market and reduced net foreign receipts. The 1906 loan
from American coffee brokers and banks carried an effective inter-
est rate of 10 percent if service charges and discounts are added to
the 5-percent nominal rate. Each week Sao Paulo was obliged to
pay to the lenders' representative the receipts from a three-franc
export tax imposed to guarantee the loan. The major 1908 loan
also carried an effective interest rate of some 10 percent. In addi-
tion, Brazil agreed not to engage in further valorization activity.7
The coffee itself was stored in consuming states and its disposal
directed by a committee of six bankers and one representative from
Sao Paulo. Sao Paulo was compelled to accept a 20-percent ad
valorem tax on coffee exports exceeding 9 million bags in 1908/09,
9-1/2 million in 1909/ 10, and 10 million annually thereafter. 8
The third valorization, funded with a foreign loan of £9 million,
had an effective interest rate of about 9 ·percent. It carried the
condition that the Brazilian Warrant Co., a British concern, car-
ry out all defense operations on behalf of the government. 9
While conceptually bold for their era, the valorizations \vere
modest in substance. Externally they were designed to stabilize,
not permanently control, the international market. Internally,
gro\vers received direct payments from the state only during the
years \vhen coffee was \vithdrawn from the market. This together
\vith limited exchange-rate depreciation gave the private coffee
sector a level of returns that kept the average Brazilian output vir-
tually constant from 1900 to 1924. In the inter-war period when
Brazil sought more ambitious external objectives, the govern-
7 Ibid., pp. 64 and 73, for the conditions of the loans to finance the 1906 valoriza-
tion and an estinlation of the effective interest rate by one of the American im-
porters involved in extending funds. The effective rate takes into account both the
discount on the original issue and the actual date of repayment.
8 Descriptions of the financin~ can be found in The EconomiJt, Vol. 69. No. 31-12,
.-\ugust 14, 1909, p. 333, Vol. 6R, No. 3·110. January 2nd, 1909. p. 15; Antonio Del-
finl Netto, 0 Problema do Cafe, Boletim No.5, Cadeira III, No. 1 (Sao Paulo:
Faculdade de Ciencias Economicas e Administrativas, Universidade de Sao Paulo,
1959), p. 72; and Albert Mourier, I.a l.'alorisation du cafe (Paris: Les Editions des
presses modernes au Palais Royal, 193R), p. 51.
~ .J. \V. F. Rowe, "Studies in the Artificial Control of Raw Material Supplies No.
3: Brazilian Coffee," Royal Economic Society, issued by arrangenlent with the
London and Cambridge Econonlic Service. Memorandunl No. 34, February 1932,
pp. 10, 22-26; and Mourier, 0/1. cil., pp. 70-71.
90
Inent's inability to lilnit paynlents to planters not only led to
dependence on foreign loans but also made it i'npossible to inter-
vene effectively on the world market.
The Sao Paulo Coffee Institute. The operations of the Sao

Paulo Coffee Institute during the 1920s had at best mixed results.
Established in 1924, it was charged with regulating the purchase
and storage of coffee in the interior, movements to ports, and
sales on foreign markets. Paulista politicians and their supporters
from the coffee sector expected it to accomplish continuously ,vhat
the valorizations had achieved during three discrete periods.
In 1925 and 1926, supply and demand cleared at high interna-
tional prices. The Institute did not accumulate stocks. After 1926,
ho,vever, average annual production, which increased by 44 per-
cent for the period 1925 through 1929 over the preceding five
years, outran demand. The Institute bought and held large
amounts of coffee. By July 31, 1929, there were 10 million bags
in warehouses, an amount in excess of 50 percent of Brazil's an-
nual sales. Having burdened itself with some £20 million of
foreign loans, the Institute was unable to secure additional fi-
nancing. By October 11, 1929, its funds were exhausted. In three
months prices fell from 22.5¢ to 15¢ per pound. They were to go
much lower.
While the Sao Paulo Coffee Institute's activities incrementally
increased world-market prices during the late 1920s, the long-
term effects were hardly salutory. The domestic Brazilian price
,vas allowed to rise ,vith ,vorld prices, encouraging new plantings.
Brazil could not sell all of its output even at the low prices of
the depression years. The sense of efficacy of the 1920s was suc-
ceeded in the 1930s by a series of desperate acts to prevent coffee
prices from falling below levels that were only about one third of
those prevailing during the previous decade. Thus the marginal
gains from the operations of the Institute were secured only at
the cost of accentuated price declines, market instability in the
1930s, and an undermining of the confidence Brazilians had had in
their ability to affect the market.
Federal Control During the 1930s. The revolution of 1930

brought Getulio Vargas to power and ended the extreme decen-
91
502 Public Policy
tralization that had typified the Republic. Along with other func-
tions, intervention in the coffee market was transferred from state
to Federal authorities. The Federal Coffee Institute continued
the regulatory activities begun by the Sao Paulo Coffee Institute.
Confronted with increased production and decreased demand
because of the depression, the government was forced to take ex-
treme measures to prevent a complete collapse of the market.
Among other actions Brazil burned some 80 million bags of coffee,
equal to about two years of total world consumption, between
1931 and 1944. Without this action the market might have fallen
even lower but, even so, coffee prices declined some 80 percent
in terms of gold between 1929 and 1938. A study of 26 commodi-
ties found that only silk tissues suffered a more precipitous fal1. 10
The large stocks held by Brazil even after destroying such a sub-
stantial part of the crop helped discourage any bullish movements
in the coffee market.
Without government action the situation might have been
worse, but this was scant recompense. Returns were down. The
government had again resorted to foreign creditors to fund opera-
tions during the 1930s. Brazil's share of the international market
continued the decline that had begun during the previous dec-
ade. Other producers, particularly Colombia, had substantially
increased their production after the First World War. By the
late 1930s Brazil's share of the world market had fallen to about
50 percent, a level at which the wisdom of unilateral intervention
became questionable. Thus domestic overproduction and world-
market conditions made it impossible for Brazil to secure ade-
quate returns or effectively influence the market.
The Inter-American Coffee Agreement. During the Second
World War the rump international market ,vas regulated by an
agreement bet,veen the United States and 13 Latin American
coffee-producing states. This I nter-American Coffee Agreement
(I.A.C.A.) allocated quotas to each producer. The maximum
price for coffee in the United States was fixed by the Office of
Price Administration. Exporters quickly set their minimum sale
price at the same level. The established price was double the
-level that had prevailed during the 1930s.
10 Ervin Hexner. J11lenlalio11al Carlels (Chapel Hill: University of North Caro-
lina Press, 19"6), p. 90, reprints the results of a League of Nations study.
92
The I.A.C.A. gave the exporting countries higher and nlore
stable returns than they ,vould have enjoyed under free market
conditions. With the war preventing sales to Europe, prices \vould
almost surely have fallen in the absence of international regula-
tion. Under the Agreement, coffee exports to the United States
increased 10 percent in volume in 1940/41 but almost 54 per-
cent in value.!t Prices were held constant throughout the ,var.
These higher and more stable prices \vere secured, ho,vever, only
at the cost of reduced efficacy. Under the terms of the Agreement,
the United States had an effective veto; it could unilaterally in-
crease total export quotas. While the I.A.C.A. raised and stabil-
ized prices, it left the producing states with no market discretion.
Posllvar Policy. \Vhen the Inter-American Coffee Agreenlent

lapsed at the end of the Second World War, Brazil's share of the
world market ,vas approaching the price elasticity of demand. In-
creased production in other areas was partly a response to the
higher world prices resulting from Brazil's retention and destruc-
tion of stocks. Because of the supply sensitivity to price, erosion
of market share is a cost that any producer who restricts sales
must accept. It was not, ho,vever, until 30 years after the initial
valorization that production in other areas, particularly Colom-
bia, reached levels that made unilateral intervention counterpro-
ductive. Furthermore, the increase of coffee production canle pri-
marily from bringing new areas of cultivation into contact with
the world market, a process not very responsive to price. Pro-
duction in Colombia continued to increase through the depression,
\vhile Brazil's fell after the early 1930s. African output increased
through the 1950s despite falling world prices. Brazil would have
lost her dominant position even if no attempts to influence the
world market had been made. With her share of trade falling be-
low 50 percent, Brazil adopted a competitive policy while at the
same time pressing for multilateral regulation of ,vorld coffee
movements.
During the late 1940s stocks that had accumulated during the
war were sold off. Brazil continued to sell all of her production
through the mid-1950s. At the same time she turned her at-
11 v. D. Wickizer, The World Coffee Econorny with Special Reference to Con-
trol Schenles (Stanford: Stanford University Press, Food Research Institute, 19-t3),
p. 106.
93
504 Public Policy
tention to multilateral control of the coffee market. In 1955 a
short-lived agreement was concluded with Colombia. In 1957
all of the major Latin-American producing countries reached an
agreement that established marketing restrictions. By 1960 major
African exporters joined in. It was Brazil, however, that carried
the major burden of market intervention. In 1962 only Brazil
and COlolllbia ,vere ,vithholding stock from the market. The
Central American states lacked the financial and fiscal resources
to regulate their exports. African producers ,vere rapidly increas-
ing their share of the market and ignored restrictions imposed
by their having agreed to multilateral regulation.
Had such a situation continued for any length of time it would
have been counterproductive for Brazil, which ,vas in effect hold-
ing an umbrella over a market in which her o,vn exports \vere
becoming increasingly less important. The producer coffee agree-
ments of the late 1950s did not check the declining price trend
that began in 1955, nor did they stabilize the market. Their pri-
mary significance ,vas to lay the foundation for effective control
of the \vorld market that ,vas established through the International
Coffee Agreement.
The International Coffee Agreement. In 1962 all major coffee-

producing and -consuming sta.tes initialed an International Cof-
fee Agreement. Eventually some sixty-five nations joined. The
Agreement regulated the market by assigning quotas to exporters;
these ,vere enforced by the consuming states that controlled the
entry of coffee into their markets.
Brazil played a major role in the formulation of the Agreement.
Once the consuming states had agreed to enforce quotas, the ma-
jor problem was to allocate market shares among producing
countries. With a global quota established, producers became in-
volved in a zero-sum game among themselves. Brazil helped to
bring this contest to a mutually satisfactory solution by accepting
a basic quota that was only 68 percent of her exportable produc-
tion. Other large producers also accepted relatively higher bur-
dens than smaller producers. 12 Brazil's willingness to accept a
12 This pattern conforms with an argument made by Mancur Olson and Rich-
ard Zeckhauser in .. An Economic Theory of Alliances," Review of Econ07nics and
Statistics, Vol. 48 (1966). They suggest that larger producers will accept a greater
burden in providing a collective good - in this case a higher world price for coffee.
94
low quota compared with her output, coupled with an implicit
threat to dump large stocks that had been accumulated during the
late 1950s, contributed to the decision of the African robusta pro-
ducers, whose share of the market was increasing, to join the
Agreement. While quotas might constrain their rate of eXJport
growth, they could not ignore the threat of Brazilian competition
in an open market. Brazil could undermine the market in the
short run by selling her stocks. In the long run Brazil might
even be a lower-cost producer than the African states.
The Coffee Agreement benefited all producing countries. Prices
were more stable than they had been the previous decade. The
Agreement checked falling prices. In its first year of operation
prices rose for the first time in six years, although the level of
production remained relatively stable and the amount of stock
increased. 13 Under the terms of the Agreement, resolutions re-
quired a majority of producing and consuming states voting sep-
arately. While hardly equivalent to the efficacy exercised by
Brazil during the early part of the century, this arrangement con-
stituted a great improvement over the veto power held by the
United States under the terms of the Inter-American Coffee Agree-
ment.
In summary, Brazil has since 1906 engaged in an active effort
to influence the world coffee market. Its efforts have on balance
been successful in terms of achieving greater efficacy and higher
and more stable prices. The three coffee valorizations improved
her position over ,vhat it would have been in the absence of market
intervention. Succes "vas mitigated only by the necessity of fund-
ing through foreign loans. Both the Inter-American Coffee Agree-
ment and the International Coffee Agreement, arrangements
strongly backed by Brazil, increased and stabilized prices, al-
though not without reducing the efficacy of producing states.
Only during the 1920s was the result of state intervention nega-
tive. Paying planters at world prices led to levels of production
that could not be cleared at acceptable prices. The huge surpluses
The Spearman's rank-order correlation between size of production and basic quota
as a percent of production was 0.62 (p < 0.001). Figures for coffee production are
given in Pan-Anlerican Coffee Bureau, Annual Coffee Statistics, various years.
13 Spot prices on the New York market are given in Pan-American Coffee Bureau,
Ope cit. Statistics on coffee stocks can be found in Blair Eugene Rourke, Causes and
Predictability of Annual Changes in Supplies and Prices of Coffee, unpuh. Ph.D.
Dissertation, Stanford University, 1969, p. 38.
95
506 Public Policy
accumulated during the 1930s contributed to a weak and vacil-
lating international market. While success was hardly complete,
state activity was not ineffectual. Brazil did not allow herself to
be a passive victim of the world market. In the international
arena she generally succeeded in securing her objectives.
Consumer Response
Public Response. The United States is by far the world's largest

consumer of coffee. Had the American government moved against
Brazil by, for instance, imposing tariffs on coffee im.ports, or allo-
cating quotas to other countries, Brazilian market intervention
would have failed. The United States, however, never tried de-
cisively to thwart Brazil's initiatives. Its policy was only con-
sistent when it acted in support of Brazil by joining the Inter-
American Coffee Agreement and the International Coffee AgTee-
mente How can this be explained?
Dependence on a single export commodity is generally con-
sidered undesirable because of price fluctuations and the danger
of a market collapse. For public policy, however, monoculture
does have its advantages. The ultimate aims of the state are
clear: greater efficacy and higher and more stable prices. The
need for official action is apparent when any single commodity
is the major source of foreign exchange and, indirectly, of gov-
ernment revenue. Domestic producers may press the state for
protection against the vicissitudes of the international market.
In a monoculture economy the government is likely to take an
activist and unified stance toward its major commodity export. 14
There is no analogous focus of attention for advanced states,
particularly the United States. Economic development is charac-
terized by structural differentiation as well as a high level of
per capita income. As economic activity becomes more diverse,
national economic interest becomes less clear. While the inter-
ests of specific groups may be identifiable, those of the whole
economy often are not. The objectives of groups are often in
14 While this paper deals only with coffee, activist government policies are the
rule for other commodities as well. Various forms of marketing boards govern
other tropical produce, such as cocoa. In recent years host countries have become
increasingly involved in extractive industries and petroleum.
96
conflict. With public power scattered, and with many avenues
of access, official policy may be contradictory and inconsistent
in the absence of intervention by central decision makers. Differ-
ent bureaus may take opposite stands. 15 Policy may shift with the
political adroitness of groups or the power of their congressional
or bureaucratic allies. Official agencies may be unable to agree
on any policy.
In the formulation of policy toward the international coffee
trade Brazil enjoyed a systematic advantage over the United
States. Her objectives were clear, her policy unified. The Amer-
ican government was unable to formulate a consistent policy ex-
cept when coffee impinged on security issues. In the absence of
considerations associated with high politics, the official American
response to Brazil was ineffectual or contradictory.
The 1906 coffee valorization was attacked by the U.S. Justice
Department and defended by the Department of State. The for-
mer was .primarily concerned with the anti-trust aspects of
Brazilian market intervention. An official Department report
described the valorization as a "willful and deliberate violation
of the law." 16 It contended that Brazil's behavior violated both
the Wilson Tariff Act and the Sherman Anti-Trust Act. The
Department instituted court action to seize the valorized coffee
held in New York.
Brazil objected. Her ambassador to the United States argued
that the suit was an attack on a government friendly to the United
States and a violation of Brazilian sovereignty.17 She retaliated by
suspending preferential tariffs accorded to several classes of man-
ufactured imports from the United States and terminating an
extradition treaty negotiated in 1897. 18
15 Graham Allison's Essence of Decision (Boston: Little, Brown and Co., 1971) has
sensitized students of foreign policy to the possibility of inconsistencies in official
behavior due to conflicting bureaucratic activity.
16 United States Congress, House of Representatives, Subcommittee of the Com-
mittee on Banking and Currency, ftn. 6, p. 1587; and William T. Chantland,
Valorization of Coffee: A Detailed Report of the Transactions and Facts Relating
to the Valorization of Coffee, presented by Mr. Norris, United States Congress, Sen-
ate, 63rd Cong., 1st Sess., document no. 36 (1913).
17 United States, Foreign Relations of the United States, 1913 (\Vashington: Gov-
ernment Printing Office, 1920), p. 53; and United States Congress, House of Repre-
sentatives, Subcommittee of the Committee on Banking and Currency, ftn. 6, p.
1589.
18 Lawrence F. Hill, Diplomatic Relations Between the United States and Brazil
(Durham, N.C.: Duke University Press, 1932), pp. 296, 297, and 300.
97
Fl08 Public Policy
These developments alarmed the Department of State. For
three decades the primary objective of its Brazilian policy had
been to rectify a bilateral payments balance unfavorable to the
United States. Preferential tariff agreements were the fruit of
these labors. These efforts were jeopardized by the Justice De-
partment.
The Department of State entered into negotiations lvith the
Justice Department on Brazil's behalf. A compromise was ar-
rived at. Sao Paulo agreed to sell the coffee held in New York
provided it would not be dumped on the market. The Justice
Department, with some lack of grace, dropped its suit. 19 The dis-
position of the coffee had little effect on the market. By 1913
most of the valorized coffee, only a part of which was held in
Ne,v York, had already been sold. Conflicting bureaucratic ob-
jectives and the low salience of the issue precluded any more de-
cisive retaliatory action by the American government.
Having in effect accepted the 1906 valorization, the United
States made little effort to interfere with later Brazilian market
intervention. In 1926 Herbert Hoover, then Secretary of Com-
merce, moved to prevent the Sao Paulo Coffee Institute from secur-
ing financing in New York. He was concerned with several con-
trol schemes in primary commodities that he claimed were costing
the American consumer $500 to $800 million annually.20 He sent
letters to two New York banks that had been approached by Sao
Paulo, urging them not to extend credit. The two banks in-
volved, while formally acceding to Hoover's request, took a share
of loans floated in Europe. 21 The operations of the Coffee Institute
were not hampered.
The Justice Department's suit and Hoover's requests are the
only examples of direct American action against Brazilian attempts
19 The Attorney General's letter to President Taft in which he agrees to the

State Department's position but still contends that the major U.S. importer in-
volved in financing the valorization would be found guilty if prosecuted can be
found in United States, Foreign Relations of the United States, 1913, Ope cit., p.
1587. Documents describing the final denouement of the dispute can be found on
pp. 59-61 and 1588 of the same volume.
20 United States Congress, House of Representatives, Committee on Interstate
and Foreign Commerce, 69th Cong., 1st Sess., On H.R. 59, Crude Rubber, Coffee,
etc., 1926 p. 3.
21 Eugene Staley, War and the Private Investor: A Study in the Relations of In-
ternational Politics and International Private Investment (Garden City, N.Y.:
Dou bleday, Doran and Co., 1935), p. 302.
98
BRAZILIAN COFFEE POLICY ~)09
to regulate the international coffee market. Both were taken at

the departmental rather than presidential level. Neither gained
broad support \vithin the government. Neither had much impact
on Brazil's behavior or capabilities.
U.S. participation in the Inter-American Coffee Agreement and
the International Coffee Agreement, the only official American
actions that have affected the market, ,vas beneficial for Brazil.
In both cases government policy was unambiguous and approved
at the highest level. The United States was motivated in 1941
and again in 1962 by security considerations. Both agreelnents
were perceived as economic devices to secure ,political ends.
By the late 1930s American decisionmakers were alarmed by
German penetration into Latin America. They saw the large
number of people of German origin, proto-fascist political mo\·e-
ments, and increased German trade and diplomatic activity as
a threat to the security of the lJ nited States. A gro\ving German
presence could undermine American hegemony in the \vestern
hemisphere, creating a base for hostile military action against
American interests. The Panama Canal, for instance, was \vithin
range of planes Ao\vn by a German-owned airline in Colombia.
The United States responded to "vhat the Chiefs of Staff re-
~arded as the "most immediate danger to national security" in a
number of \vays.22 Hemispheric security conferences were held in
1936, 1938, and 1939. Extensive credits were opened through,
the Export-Import Bank. The United States made various plans
to purchase surplus commodities from Latin America; of these
the Inter-American Coffee Agreement was the most important.
By allocating the American market among Latin-American pro-
ducers and setting a domestic price twice as high as the level that
had prevailed during the 1930s, coffee-exporting states were in-
'iulated from the dislocations caused by the war. These and other
economic measures were designed, in the words of Secretary of
State Cordell Hull, to thwart German efforts to "make Central
and South America an economic appanage of Germany." 23 They
also gave western-hemisphere states an inducement to follow the
lead of the United States in security arrangements. The benefits
of a protected market could always be withdrawn.
22 William L. Langer and S. Everett Gleason, The Challenge to Isolation, 1937-
1940 (New York: Harper and Bros., 1952), p. 607.
23 Cordell Hull, Memoirs (New York: Macmillan Co., 1948), p. R13.
99
510 Public Policy
The objectives which American central decisionmakers thought
would be furthered by the International Coffee Agreement of
1962 extended beyond security defined in terms of protecting the
territorial and political integrity of the United States. While the
Coffee Agreement was seen as one device for securing Latin-
An1erican support with the O.A.S. for action against Cuba, mem-
bers of both the Eisenhower and Kennedy administrations also
hoped it would contribute to restructuring the political and eco-
nomic systems of producing countries. Political developments
were perceived as highly dependent on economic conditions. 24
President Kennedy suggested to Congress that failure to ratify the
Agreement would lead to a dangerous political situation in pro-
ducing countries. 25 In 1968 a State Department official contended
that a collapse of the agreement could place a number of pro-
ducing countries "in serious political straits." 26 American sup-
port of the Coffee Agreement was but one manifestation of the
concern of a hegemonial power not simply with the external re-
lations of other states but also with the internal structure of
their regimes.
From both the security-oriented objectives of American decision-
makers in 1940 and the grander aims of the New Frontier, Brazil
and other producing countries enjoyed substantial benefit. Both
the Inter-American and the International Coffee Agreements
raised prices above what they would have been in the free market
and brought stability to the market. The only official American
policies that had an important effect on the coffee market were
beneficial to producing states.
Private Response. American coffee-processing concerns never

succeeded in interfering with Brazilian policy. Private companies
do not directly control the resources of their home-country gov-
ernments. They cannot impose tariffs or quotas. They may, how-
ever, be able to resist market intervention by a producing country
24 Robert Packenham, "Political Development Doctrines in the American For-

eign Aid Program," World Politics, Vol. 28 (1966), passin!.
25 International Coffee Organization, Chronology, unpublished manuscript, (Lon-
don) p. 31.
26 United States Congress, Senate, Committee on Foreign Relations, 90th Cong.,
2nd Sess., International Coffee Agreement, 1968: Hearings before the Committee
on Foreign Relations, 90th Cong., 2nd Sess., on Executive D, 90th Cong., 2nd Sess.,
1968, p. 5.
100
by influencing the policies of their government, or changing their

pattern of purchases. American processors were too dependent
on Brazilian supplies to shift their pattern of imports. They were
too divided and too inarticulate politically to change official
policy.
United States coffee processors needed Brazil at least as much
as Brazil needed the American market. While the United States
has always been Brazil's largest customer, Brazil has also been the
United States' main source of supply. An indicator of the poten-
tial economic po\ver of an exporting nation is the ratio of the
consuming nation B's percentage of supply from producing na-
tion A to the percentage of A's total exports going to B. The
value of this indicator varies from zero to infinity. The higher
the value, the greater the cost of B of acting against imports fronl
A and the less the economic dislocation that A will suffer. This
indicator can be applied to specific commodities as well as to the
aggregate pattern of trade. Its advantage over other commonly
used measures, such as the share of exports to a particular country
or the relative acceptance indicator, is that it takes into account
the reciprocity of trade.
Brazil's level of economic power vis-a-vis the United States \vith
respect to coffee is shown in Fig. I.
While the American coffee trade was not enthusiastic about the
valorizations or operations of the Sao Paulo Coffee Institute, its
dependence on Brazil for raw materials precluded concerted and
unified retaliatory behavior. At the first meeting of the ne\vly
founded National Coffee Roasters Association in 1911, a resol u-
tion was passed calling for the Justice Department to investigate
Brazilian valorization. 27 This was offset, however, by support
given the valorization by some large New York coffee importers
who had participated in the financing and disposition of valorized
coffee. In 1912 the Association sent a delegation to Brazil that
returned with a report favorable to valorization. The roasters
hoped that their support would persuade Sao Paulo to contribute
funds for an advertising campaign in the United States, a policy
that was actually adopted after the First World War. 28 In 1922 and
1925 more delegations from the U.S. coffee industry visited Brazil.
27 The Spice Mill (New York: The Spice Mill Publishing Co., 1911), p. 974.
28 A summary of the Committee's report and the debate that it engendered can
be found in The Spice Mill, 1912, pp. 1021-1024.
101
512 Public Policy
2.50
2 .00
1.50
1.00
0.50
.00
1900 1910 1920 1930 1940 1950 1960 1970
Figure 1. BRAZIL'S ECONOMIC POWER IN COFFEE VIS-A-VIS THE UNITED STATES.

(DERIVED FROM STATISTICS IN PAN-A1\fERICAN COFFEE BUREAU, ANNUAL COFFEE
STATISTICS 1946-1970; AND ANNUARIO ESTATISTICO DO CAFE, 1939/40, 1943/45,
A:"D 1967)
Their reports indicated acceptance of market intervention and

placed strong emphasis on procuring advertising funds from
Brazil. In return for advertising aid, the 1925 delegation, in effect,
promised to defend the operations of the Coffee Institute in the
United States. 29 Unable to force Brazil to abandon intervention,
the U.S. trade sought modest offsetting gains in the form of rev-
enues for coffee promotion.
The U.S. trade did not vigorously oppose the Inter-American
Coffee Agreement nor the International Coffee Agreement. The
first served the interests of coffee processors as well as producers.
During the war, regulation was inevitable, if only in the form
of allocation of scarce shipping space. Prices were fixed by the
Office of Price Administration. Order was preferable to the
chaos that could have resulted from dumping and from irregular
shipments.
Industry support of the International Coffee Agreement of
:?9 National Coffee Roasters Association, Report of the 1925 Conference between
the Sao Paulo Institute for the Pennanent Defense of Coffee and the Representa-
tilll'S of the National Coffee Roasters Association of the United States (n.p., n.d.),
pp. 20-25.
102
1962 is more perplexing. While the Agreement held some bene-

fits for processors, such as more stable prices, its costs, including
higher prices and market restrictions, were perceived as decisive.
The industry did not want the Agreement; it was willing, how-
ever, to accept government initiative. Managers of firms reaped
some private rewards from participating in official policy-making
procedures and attending international conferences. Some large
coffee processors, such as General Foods, Procter and Gamble,
and Nestle's had investments in producing countries that could
be threatened had they opposed the Coffee Agreement. The
aggregate interest of the large diversified multinational corpora-
tions that came to dominate the American coffee industry in the
postwar period was often ambiguous. With interests unclear, the
course of least resistance was to follow the initiative of the gov-
ernment. 30
To sum up, Brazilian unilateral market intervention was un-
affected by American behavior. The United States government
was divided in opposition. Both the Justice Department suit of
1912 and Hoover's effort to block loans in 1926 were ineffectual.
Only security concerns prompted a unified policy. The Inter-
American Coffee Agreement as well as the International Coffee
Agreement benefited Brazil. Private coffee companies were too
dependent on Brazil during the first four decades of this century
to contemplate retaliation. Later, the ambiguity of their own
interest led them to accept government support for multilateral
regulation.
Domestic Constraints
Given conditions in the international market, the fundamental

determinant of the success of Brazilian intervention was the ability
of official agencies to control the private coffee sector. Ideally the
government would have paid planters at levels that would have
equated domestic supply with a level of exports that would have
maximized foreign-exchange receipts. Until 1945 official agencies
did not, however, control the private coffee sector. This resulted
30 I have elsewhere, in "Business Government Relations: The Case of the Inter-
national Coffee Agreement," International Organization Vol. 27, No.4 (Fall 1973)
examined the behavior of the private coffee sector in greater detail.
103
514 Public Policy
in reduced efficacy and foreign indebtedness before 1924, but did
not prevent Brazil from successfully intervening to stabilize the
market. During the 1920s, however, the inability of the state to
control payments to the private sector became disastrous because
it led to secular overproduction that made market regulation
impossible. While Brazil again allowed production to rise above
levels that could be marketed at existing prices in the late 1950s,
excess stocks could be held off the market ,vithout resort to for-
eign lenders. Farmers received minimal payment for coffee that
,vas not exported. Brazil's large holdings helped secure multilateral
market regulation by threatening African producers with cut-
throat competition. Thus, during the first four decades of this
century, when the economic prerequisite for unilateral interven-
tion existed, the primary constraint on Brazilian success was ex-
cessive payments to the private coffee sector. After the Second
\Vorld War the government controlled the planters. This con-
tributed to successful market regulation under the International
Coffee Agreement.
The position of the private coffee sector can be brought out
by comparing its real returns with the real value of foreign sales.
Figure 2 shows values for indices of real domestic receipts and
real foreign recei pts (the base period for both indices is 1910-
1912 == 100). The index of real foreign exchange earnings was
derived from current dollar sales deflated by the wholesale price
of manufactures in the United States. The index of real returns
to the private coffee sector was derived from current cruzeiro earn..
ings deflated by the urban cost-of-living index in Brazi1. 31
From 1915 to 1945 the index of real returns to the private
coffee sector relnained consistently higher than that of real foreign-
exchange receipts. After 1945 the index of private receipts falls
below that of international sales.
The relationship between domestic and foreign returns is
brought out more clearly by dividing the index of real private
receipts by that of real foreign-exchange earnings. The higher the
result, the greater the increase or the less the decrease of private
returns relative to international returns. Regardless of the base
period chosen, the slope of the graph indicates the position of
the private sector relative to foreign-exchange receipts.
31 Figures are given in the Appendix, p. 521.
104
300
250 ndex of Real Returns to

the Private Coffee Sector
200
150
ιοο-
50
Index of Real Foreign-Exchange
Earnings from Cof fee
O
1910-12 1920 1930 1940 1950 1960 1970
Figure 2. INDEX OF REAL FOREIGN-EXCHANGE EARNINGS FROM COFFEE Al'D OF
REAL RETURNS TO THE PRIVATE SECTOR.
(SOURCE: Ol-:RIVED FRO~f COl.UMNS D, E, F, AND G OF APPENDIX)
2.50
2.00
I. 50
1.00
O. 50
.00
1910-12 1920 1930 1940 1950 1960 1970
Figure 3. INDEX OF REAL RETURNS TO THE PRIVATE SECTOR, DIVIDED BY I~DEX
OF REAL FOREIGN-EXCHANGE EARNINGS.
(SOURCE: DERIVED FROM COLUMNS D, E, F, AND G OF APPENDIX)
105
516 Public Policy
The values on Figure 3 reflect the relationship between fiscal,
monetary, and exchange-rate policy. If the rate of devaluation is
slower than that of inflation, the real earnings of exporters, in-
cluding coffee planters, deteriorates. If the export tax placed
upon coffee is increased, the real earnings of the planters relative
to international returns will fall.
I t was not until 1945 that returns to the coffee planters rela-
tive to international earnings began a secular decline. This is
brought out by a regression analysis that introduces regime
changes through the use of two dummy variables, one dichoto-
mized at 1930 when the Republic was overthrown, and the other
at 1945 when Vargas left office for the first time. The dependent
variable is the values on the vertical axis. The coefficients for the
t,vo dummy variables and the corresponding t values with their
levels of significance are shown in Table I. The large and highly
significant coefficient for the dummy variable dichotomized at
1945 shows that the earnings of coffee planters did not begin to
decline substantially and steadily until after the Second World
\Var.
Table J.
Two-tailed level of
Y(Jar C oefficiel1 t J. significance /0''- t
)9~() -14 1.149 not significant at 0.20
)915 -67 5.691 >0.001
While the planters encountered significant opposition during

the Republican period they ,vere still able to control coffee policy.
They were organized and sensitive to the potential benefits of
state action. When they met resistance at the Federal level the
decentralized structure of the regime still allowed them to operate
effectively through the State of Sao Paulo. The state government
procured loans to fund the 1906 valorization after Federal and
other state authorities refused to guarantee foreign obligations.
Sao Paulo established the Coffee Institute in 1924 when the Fed-
eral government refused to bear the costs of such an operation. 32
Lack of government autonomy during the Republic was the
:~:! 'rhe refusal of the Federal government to support the planters belies the con-
ventional view of the Republic being a tool of the coffee aristocracy. Paulistas did
govern in Rio, but not always in the interests of the coffee planters. If policy out-
put is taken as a nleasure of power, the ability of the planters to get what they
wanted at the Federal level was lirnited even before the revolution of I9110. This
106
primary constraint on coffee policy. While high payments to
farmers ,vere compatible with the limited international market
objectives of the valorizations, they precluded successful long-term
intervention. In all three valorizations farmers ,vere paid at or
above world price levels, forcing both Sao Paulo and the Federal
government to resort to extensi ve foreign credits in 1908 and
1921. Interest payments and restrictive terms reduced Brazil's
net returns and efficacy, but the basic aim of stabilizing returns
was secured. During the 1920s the planters were not insulated
from the world market. Internal prices rose even more than
external prices. Failure to restrict returns to the private coffee
sector encouraged increased production. Secular overproduction
precluded effective market intervention. The large stocks held by
Brazil depressed the world price until the Second World War.
The revolution of 1930 centralized administrative control of
the coffee sector but did not decisively turn policy against the
planters. Under Vargas the Sao Paulo Coffee Institute was even-
tually superseded by the National Coffee Department. While
Paulistas lost control of central decisionmaking posts, the plant-
ers were too important a group for Vargas to ignore. In 1931
he authorized the Federal purchase of all coffee stored in ,vare-
houses in Sao Paulo at prices remunerative to all but the least
efficient plantations. 33 As a conciliatory gesture follo,ving the
abortive Sao Paulo revolt of 1932, he revoked 50 percent of the
indebtedness of the planters, a step that saved many plantations
from foreclosure. In 1937, a month after Vargas abrogated the
1934 constitution and proclaimed the Estado Novo, the export
tax on coffee ,vas reduced by two thirds. While this measure in-
creased the competitiveness of Brazilian coffee on the world mar-
ket, the magnitude of the reduction could not but help Vargas's
position with the planters. 34 Vargas had no vision of Brazilian
interpretation supports suggestions made by Warren Dean in "The Planter as
Entrepreneur: The Case of Sao Paulo," The Hispanic American Historical Review,
Vol. 46 (1966) that Brazil was never simply a coffee republic.
33 Rowe, ftn. 9, pp. 66-67; and Mourier, ftn. 8, pp. 91-92.
34 In terms of the international Inarket the reduction in the export tax came at
the right time. The cross elasticity of demand with Colombian coffee exceeded
unity for the first time in 1937. See Jorge Kingston, "The Elasticity of Substitution
of Brazilian Coffee," United States, Department of State, Proceedings of the Eighth
Atnerican Scientific Congress, Vol. 8, Statistics (Washington: U.S. Government
Printing Office, 1943), The reduction was, however, excessive. Although Brazil's
liales increased in 1938, revenues fell.
107
518 Public Policy
economic development that would have led him to discriminate
systematically against the planters. The revolution of 1930 did
not bring a decisive reduction in the returns of the private coffee
sector relative to the world market.
Official policy began to discriminate systematically against the
private coffee sector only after the Second World War. This de-
velopment cannot be explained simply by reference to the de-
creasing contribution of coffee to the economy. There is no
short-term relationship between the importance of coffee indi-
cated by its contribution to foreign-exchange receipts and returns
to the private sector relative to the world market. 35 As the con-
tinued, relatively high returns to the coffee sector during Vargas's
first regime indicate, the centralization of authority follo,ving the
revolution of 1930 is also not in itself sufficient explanation for a
policy change. While centralization and economic diversification
may have laid the foundation for .post-1945 behavior, the edifice
of discrimination against the planters was constructed by officials
and tecnicos within the central bureaucracy, who felt that an
export-oriented economy could not sustain rapid growth. Post-
war government policy promoted import-substituting industriali-
zation, not exports. The government dealt with the dwindling
foreign-exchange reserves in the late 1940s through quantitative
ilnport restrictions that benefited domestic manufacturers, rather
than through devaluation that ,vould have benefited exporters.
Under the multi,ple exchange-rate system introduced in the 1950s,
coffee exports always received the smallest number of cruzeiros
per dollar. When a unified rate was introduced in the early
3;') Several attempts were made to find a relationship between changes in the
irnportance of coffee as indicated by its share of foreign-exchange receipts and rela·
tive returns to the private coffee sector. First differences were used because of the
unacceptably high level of autocorrelation among residuals. The difference in
relative returns was first regressed upon the difference in the share of coffee in ex-
change earnings for the saIne two years for the period 1914 to 1967. The coefficient
of detennination r was 0.05. The difference in relative earnings was also re-
gressed against the difference in the coffee share of export earnings. lagged by one
year, and against an average of differences for the current and preceding two years.
The r for these two calculations were 0.05 and 0.001, respectively. The last two
exercises were carried out to test the possibility that it might take a period of tilne
before changes in economic ilnportance were manifest in public policy. In all
three cases the coefficients of detennination were not significant at the 0.10 level.
There is then very little, if indeed any. relationship between domestic coffee policy
and the importance of coffee as indicated by its share of export earnings. Figures
for the coffee share of foreign-exchange earnings can be found in Instituto Brasiliero
do Cafe, Anlluario Eslali.'itico do Cafe, 1971. p. 3R.
108
1960s, a tax amounting to 50 percent was levied on coffee ex-

ports.
Both the multiplicity of controls and the autonomy of central
administrative structures muted any protest from the private cof-
fee sector. 36 Administration of the coffee sector was removed from
the Coffee Institute, \\There the planters had some influence, to
the Superintendency of Money and Credit (SUlVIOC), \vhere they
had none. SUMOC set exchange controls and credit policy for the
Banco do Brazil, the most important source of credit for the agri-
cultural sector. The multiplicity of controls, which included at
one time or another differential exchange rates, quality standards,
export taxes, credit policy, and minimum export prices, absorbed
the protests of planters in a bureaucratic morass. Discontent was
met by marginal changes that had little effect on over-all policy.37
The private coffee sector was impotent.
Increased autonomy allowed the government to pursue its
international objectives of multilateral market regulation \vith-
out internal constraints. Coffee planters were paid at minimal
levels for the large stocks that accumulated in the late 1950s.
There was no need to resort to foreign sources of credit. These
holdings helped induce African producing states to join the In-
ternational Coffee Agreement.
In summary, the coffee 'planters effectively controlled policy
under the Republic. They received high returns relative to the
value of international sales. This prompted overproduction by
the late 1920s and contributed to the collapse of the world market
during the depression. It also reduced Brazilian efficacy and net
returns by forcing official agencies to resort to foreign loans. After
the Second World War official policy systematically discriminated
against the planters. While Brazil's declining share of the world
market made unilateral intervention counterproductive, the gov-
ernment could manipulate returns to the private coffee sector
with impunity.
36 Two studies, Philippe C. Schmitter, Interest Conflict and Political Chall{;e in
Brazil (Stanford: Stanford University Press, 1971) and Nathaniel H. Leff, Economic
Policy-Makin.g and Development in Brazil 1947-1964 (New York: John \Viley &:
Sons, Inc., 1968), point to the power of bureaucracy as a central feature of the
Bra:dlian political system.
37 In the mid-1950s, for instance, the authorities made several changes in the
coffee exchange rate after receiving protests from the planters. These changes,
however, were made only after inflation had offset any real benefits for the private
sector.
109
520 Public Policy
Conclusion
The long period of unilateral Brazilian intervention in the world

coffee market that began in 1906 and ended ,vith the Agreement
of 1962 illustrates the ability of a less developed producer of a
primary commodity to influence, if not control, its international
economic environment. Brazil's activities generally raised returns
above "vhat they would have been in the absence of government
intervention and stabilized prices. In dealing with its major
consumer, the United States, Brazil enjoyed systematic advan-
tages. Because of the size and complexity of its domestic economy,
the interests of various groups ,vithin the United States ,vere often
at odds. The dispersal of power in the U.S. government made it
possible for opposing groups to find official representation. While
only economic issues were at stake, coffee questions ,vere never
sufficiently important to attract the attention of officials who had
the power to reconcile conflicting bureaucratic positions. Only
\vhen economic policy was seen as a device for achieving political
objectives did high American officials become involved in policy
formulation. Consistent and unified U.S. policy has al,vays bene-
fited })razil. Brazil's difficulties in taking advantage of her posi-
tion as the dominant producer of coffee stemmed from a domestic
political weakness - the government's inability to tax planters at
levels commensurate with maximizing international earnings. Po-
litical underdevelopment, not imperialism, was the principal con-
straint on Brazilian coffee· policy.
110
co
,:;
ApPENDIX
>
~
THE ECONOMIC POSITION OF THE COFFEE SECTOR IN BRAZIL 1910 TO 1967 ~
(G) >
Z
u.s. Wholesale
Price Index - CJ
All Commodities 0
(A) (B) (C) (D) (E) (F) Other than 'Tl
'Tl
Export Earnings State Payments Taxes on Coffee, Nominal Return Brazilian Cost- Foreign-Exchange Farm Products t'f1
jrom Brazilian to t he Private Direct and In- to Farmers oj-Living Index Earnings jrom and Foods t'f1
Year Coffee * Coffee Sector* direct * (A +B-C)* (1912 = lOa) Coffee t (1913 = 100)
~
0
1910 385 385 ~
1911 607 607 n
1912 698 698 100 .-<
227
1913 612 612 102 198 100
1914 439 439 102 131 95
~ 1915 620 620 III 157 97
~
~ 1916 589 589 llY 142 126
1917 440 60 500 l~ I 112 16~
IYI8 353 120 473 147 93 178
1919 1,226 41 1,185 152 322 184
1920 861 21 41 841 162 197 230
1921 1,019 336 1,355 172 132 150
1922 1,504 41 1,463 188 192 146
1923 2,125 97 41 2,181 208 215 150
1924 2,929 97 29 2,997 242 320 142
1925 2,900 20 50 2,870 259 360 146
1926 2,348 32 41 2,339 266 339 143
1927 2,576 236 47 2,765 273 305 134
1928 2,840 220 64 2,996 269 339 132
1929 2,740 298 85 2,953 267 328 131
1930 1,828 298 125 2,001 242 200 122 c..n
~
C,)1
~
~
THE ECONOMIC POSITION OF THE COFFI::E SECTOR IN BRAZIL 1910 TO 1967 (continued)
(G)
u.s. Wholesale
Price Index-
A II Commodities
(A) (B) (C) (D) (E) (F) Other than
Export Earnings State Payments Taxes on Coffee, Nominal Return Brazilian Cost- Foreign-Exchange Farm Products
from Brazilian to the Private Direct and In- to Farmers of-Living Index Earnings from and Foods
rea, Coffee * Coffee Sector * direct * (A+B-C)* (1912 = 100) Coffee t (1913 = 100)
19~1 2,347 200 2,147 234 166 107

1932 1,824 540 1,284 235 129 100
1933 2,052 712 1,340 233 162 102
1934 2,115 637 1,478 251 ]77 112
]935 2,157 689 1,468 264 162 III
~ 1936 2,231 640 1,591 303 170 114
~
~
1937 2,129 465 1,664 326 167 122
1938 2,296 205 2,091 339 130 ]17
1939 2,254 200 2,054 326 133 116
1940 1,590 145 1,445 342 94 119
1941 2,018 133 ],885 38] 122 127
1942 1,966 87 1,879 423 106 137
1943 2,804 120 2,684 489 151 139
1944 3,880 159 3,721 623 209 14]
1945 4,241 467 3,774 759 229 143
1946 6,510 1,009 5,501 862 350 ]57 ~
1947 7,623 1,029 6,594 1,128 414 191 ~
C"'"
1948 9,019 1,2]8 7,801 1,209 491 207 ~
~.
1949 11,610 1,509 10,101 1,189 632 203
1950 15,908 15,908 ],271 865 210 ~
1951 19,457 c
~
19,457 ],373 1,058 232 ~.
'<
1952 19,213 19,213 1,681 1,045 226 t:l'
~
1953 21,696 21,696 2,050 1,090 228 ;>
N
1954 24,813 24,813 2,419 948 229 ~
1955 30,367 30,367 2,911 844 243 ;;
1956 37,710 37,710 3,546 1,030 244 z
Ci
1957 32,951 32,951 4,222 846 251 0
1958 30,772 30,772 4,858 688 255 'TJ
'TJ
1959 51,602 51,602 6,674 744 255 M
M
1960 59,378 59,378 9,010 713 257 ~
1961 78,801 78,801 12,681 710 256 0
~
1962 106,897 106,897 19,355 643 252 c=;
1963 192,030 192,030 33,370 747 253 ~
1964 437,441 437,441 62,402 760 254

1965 598,107 598,107 100,777 707 260
1966 768,834 768,834 147,829 774 264
~
~ 1967 899,620 899,620 191,544 733 268
~
... In thousands of milcruzeiros
t In millions of U.S. dollars
Sources:
Column A: Annuario Estatistico do Cafe, 1943-45, p. 231, and Al1llUario Estatistico do Cafe, 1967, p. 3.
Columns Band C: These estimates are drawn fronl a variety of sources and represent primarily payments to plant-
ers for coffee purchased by the state and taxes imposed upon coffee. A detailed description of how these estimates
were arrived at can be found in Stephen D. Krasner, The Politics of P1"i"zary COlllmodities: A Study of Coffee, Un-
published Ph.D. dissertation, Harvard University, 1971, pp. 319-322.
Column E: Brazil, Ministry of Foreign Affairs, Braz.il, 1935, p. 150; United Nations, Statistical Yearbook} 1948, p.
365; ibid., 1958, p. 42; ibid., 1961, p. 480; and ibid., 1970, p.52-L
Column F: Annuario Estatistico do Cafc, 1967, p. 15.
Column G: United Slales Bureau of lhe Census, l-/istorical Statistics of tlte United States} Colonial Times to 1957}
p. 117; l}nited States Bureau of the Census, Historical Statistics of the United States} Colonial Times to 1957: Con-
tinuation to 1962 and Revisions; and United States Bureau of the Census, Statistical A bstract of the United States} C-J\
},969, p. 339. ~
t.>o
1
INTRODUCTION
The following synthesis attempts to identify the major tendencies in the dependency
litcrature and to introduce the reader to the major works and issues on the subject. Ronald
Chilcote is Associate Professor of Political Science at the University of California, Riverside.
DEPENDENCY: A CRITICAL SYNTI-IESIS OF Tl-IE LITERATURE

by
Ronald H. Chilcote
Over the past decade a new perspective of developnlent and underdevelop-

nlent has emerged. Labelled by its advocates as dependency theory, this per-
spective focuses on the problenl of foreign penetration in the political econonl1cs
of Latin Anlerica. Generally, this theory explains underdevelopment throughout
Latin Anlerica as a consequence of outside econonlic and political influence.
1\'fore specifically, the econonlY of certain nations is believed to be conditioned by
the relationship to another economy which is donlinant and capable of expanding
and developing. Thus the interdependence of s·uch economies assumes contrasting
fOnTIS of dominance and dependence so that dependent nations nlight develop
as a reflection of the expansion of donlinant nations or underdevelop as a conse-
quenceof their subjective relationship. This explanation approximates the defini-
tion of dependency offered by Dos Santos (1968:6) who states:
By depcndence we mcan a situation in which the economy of certain countries is condi·
tioned by the dcvelopment and expansion of aEother economy to which the fonner is
subjected. The relation of inter-dependence between two or more economies, and
between these and world trade, assumes the fonn of dependence when some countrics
(the dominant oncs) can expand and can be self-sustaining, while other countries (the
dependent oncs) can do this only as a reflectio~l of that expansion, which can have either a
positive or a ncgative effect on their immediate development.
In nlore specific ternlS, Osvaldo Sunkel (1972:519) elaborates on this interpreta-
tion:
. . . foreign factors arc seen not as external but as intrinsic to the system, with manifold
and sometimes hidden or subtle political, financial, economic, technical and cultural
effccts inside the underdeveloped country . . . Thus, thc concept of "dependencia" links
the ·postwar evolution of capitalism intenlationally to the discriminatory nature of the
local process of development, as we know it. Access to the means and benefits of
development is sdecti\e; rather than spreading them, the process tends to ensure a self-
reinforcing accumulation of privikge for special groups as well as the continued existence
of a marginal class.
111ese definitions arc ccntral to an understanding of dependency, for like other
theory in an infant stage, depcndcncy theory has spawned a plethora of interpre-
tations and applica tions and has been adopted by ideologues on all sides of the
political spectrun1. IIowcver, initial comprehension of the theory should revolve
around the relationships of nations, one to the other in ternlS of dominance
versus dependence.
Dependency theory quickly canght the attention of Latin Anlericans and
11lore rccently it has conlC undcr \vide acceptance by others, both in Europe and
the United States. 'fhcre have been criticisnls of the theory, from left and right
circles. Perhaps nlore iIllportant, a nunlber of thrusts have enlerged in the ever-
114
CHILCOTE: CRITICAL SYNTHESIS 5
expanding literature that has ensued. In this essay I trace the impact of depend-
ency theory upon three personal academic experiences I have shared with colleagues
and students. I mention these to illustrate how the theory serves as an understand-
ing of Latin America; how it motivates students to confront the complexities of
Latin America; and how it provoked the editors of the present journal to reassess
its importance in the face of deternlined efforts on the part of many scholars to
disregard it altogether. I also elaborate on the evolution of the theory and identify
the major thrusts in the literature on dependency. Finally, I examine several
assumptions, suggested in the literature, and critically examine these in the light
of crucial issues which have divided advocates of dependency theory.
First, I turn to three personal experiences to show how dependency theory
has affected my own thinking and recent involvement in Latin American studies.
The present essay is partly prompted by my having to review the rather extensive
literature in an effort to advance my understanding of the theory and at the same
time to convey this understanding to students interested in Latin America. 111 is
resulted in a collaborative essay (Chilcote and Edelstein, 1974) which focused on
two alternative explanations advanced by observers of Latin America. One argued
that the development of areas like Latin America will come about through outside
influence and assistance; we called it the diffusion model. The other viewed foreign
penetration as the cause of underdevelopment; this we called the dependency
model. We juxtaposed these two models by examining their essential premises
and their contrasting assumptions about development and underdevelopment. We
related these models to the historical experience in Europe, especially in England
and in the Iberian countries, as well as in Latin America. We were able to demon-
strate how different analyses of development and underdevelopment in Latin
America correlate to one's reliance upon either the diffusionist or dependency
model. Further, we traced these differences through a critique of three major
interpretations of Latin America by Latin American scholars, thereby exemplifying
how use of the models led to different conclusions.
Since traditional explanations of Latin America tend to relate to the diffusion
model and because my o\\'n understanding is premised on the dependency model,
I found the above approach useful as a way of involving students. This involvement
took place on' two levels: undergraduate and graduate. The contrasting models
were presented to two undergraduate courses. In the first course a description of
each model was worked out through dialogue and study. Then, four issues which
differentiate the models were identified. Reading and discussion focused on litera-
ture relating to each issue but stressing one model or the other. The question of
the existence of a dual society in La tin America was of particular concern, for
example, as was the role of (or existence of) a national bourgeoisie. We critically
examined the contrasting positions on the role of a ruling class, and we speculated
on the possibility of a classless society. To illustrate the analytical implications of
the two models, we studied the interpretations of Pablo Gonzalez Casanova, Jose
Luis Imaz, and Anibal Quijano, respectively of Mexico, Argentina, and Peru.
This intensive study made students aware of the th~oretical underpinnings, albeit
biases and value judgments, of Latin American writers who sometimes work in the
diffusionist tradition of contemporary social science yet accept many of the assump-
tions of the dependency model. The exercise tended to clarify perspectives and
lead students to new insights and in-depth analysis. The pedagogical implications
of this approach are described elsewhere (Chilcote, Gorman, Le Roy, and Sheehan,
1974) .
115
6 LATIN AMERICAN PERS?ECTIVES
A similar approach was attempted in a graduate seminar on Latin American

political economy, resulting in an immediate rejection of the premises of the dif-
fusion model and a serious effort at understanding, interpreting, and applying
dependency theory to Latin America today. The ten graduate students decided to
identify major weaknesses in dependency theory and through study and writing
to suggest ways of strengthening the theory. Their point of departure was the
collective effort undertaken at Stanford University during 1972, in particular the
collection of papers edited by Frank Bonilla and Robert Girling (1973) and
reviewed in the present issue by Terry Dietz-Fee and Gilbert Gonzalez. The
Riverside seminar also produced a lengthy paper which revolved around a series of
questions relating to weaknesses in the existing dependency theory (see Le Roy
et aI., 1973).* One question was directed to a critical reassessment of internal
colonialism in the light of theories of dependency and imperialism. We found,
however, that the examination of this topic prompted more questions than
answers. Another concern related to the significance of ruling classes in the literd-
ture on dependency, for it was believed that the theory had tended to overlook
an analysis of the Latin American ruling class as a dependent bourgeoisie which
rules in the interest of world imperialism. Still another issue was that of socialism
and dependency with specific reference to criticism implying that the independence
of underdeveloped socialist countries is impossible because they become dependent
upon the developed socialist metropoles. The response to this argument, presented
by Guy Gilbert in the present journal issue, shows that donlinance of the socialist
metropolis is fundanlentally different than that manifested by the capitalist
powers. A final question dealt with the struggle to break with and to move beyond
dependency. Chile and Peru were selected as case studies and analysis was directed
at the measures enlployed by these nations to break their dependent relationship
with capitalism and imperialism. The Riverside product demonstrated that persons
with different backgrounds and ideologies could work together collectively on a
common theme. ~Iore important perhaps was that the challenge of dependency
theory, the awareness of its strengths and weaknesses, and the use of an alternative
model all served to stimulate and motivate a group of graduate students to become
deeply involved not only in understanding the problems of Latin America but in
trying to work out critical perspectives that might lend themselves to solutions.
A desire to resolve some of the difficulties and confusions in dependency
theory stimulated the early efforts of the journal collective in founding Latin
AmeriGan Perspectives and in putting together this first number. At our first
meeting in March 1973 there was a quick consensus on the need for a new journal,
but very little agreement in a lengthy dialogue on dependency theorj. Raul
Fernandez and Jose Ocanlpo forcefully presented their attack on the dependentist-
as. Certainly a majority disagreed with them at the time and probably continue . to
disagree today. Our disagreenlents, however, brought us together. First, we recog-
nized the need for a critical yet constructive reevaluation of the dependentistas and·
their theory. Second, \ve felt that our dialogue and experience should be exposed
to others. TIle present journal issue serves to update the discussion on dependency.
It should be apparent that we have not resolved many questions. Hopefully,
however, the different ideas and approaches contained herein will serve to stimulate
ne\v inquiry and dialogue. In that spirit, I tum now to a synthesis of the literature
• A limited number of copies of the Riverside papt:r arc available for $1.50 which covers
production, handling, and mailing costs. Address inquiries and payment to this journal,
P. O. Box 5703, Riverside, CA 92507.
116
on dependency. In particular, I review the theoretical directions evident in the

literature as well as the principal criticisms that have acconlpanied each direction.
Later, I look at descriptive and empirical efforts to validate some propositions
that emanate from the literature.
THEORETICAL DIRECTIONS
The literature on dependency moves in many directions and criticisms emerge
from a variety of ideological positions. Clearly depedency theory is eclectic in
nature. Some dependency theorists focus on assumptions about a progressive
bourgeoisie whose nationalist inclinations serve as a foundation for opposing out-
side influence. Some critics oppose dependency theory on the grounds that it
focuses on external dependency and thereby avoids consideration of internal class
struggle. Others argue that the theory obscures analysis of imperialism.
In all the writings of dependency only two offer a synthesis of the many
directions and positions. Fernando Henrique Cardoso (1973c) provides the most
recent of these. He finds the foundation for the concept in the writings of Lenin
and Trotsky, then attempts to relate these classical fornlulations to the literature
of the past decade. I-Ie notes three tendencies in the recent literature. One con-
centrates on analysis which critiques the obstacles to national development, a
good example being the publications of the Instituto Superior de Estudos Brasil-
eiros (ISEB), established in the middle fifties to study and introduce to Brazilian
society a new conception of nationalism and development. Helio Jaguaribe (1970),
a founder of ISEB, has carried this tradition forward in his view that Latin America
faces three alternatives: dependency, autonomy or revolution. Dependency will
be overcome, he argues through autonomous national development and non-
revolutionary change. This view of development falls into what above I called
the diffusion model; it has been criticized by Frank (1967b), Theotonio dos
Santos (1970a), and Cardoso (1965). A second tendency incorporates analysis
on international capitalism in its monopolistic phase. The thrust of this tendency
springs from Marx and Lenin, especially the latter. Refinements and elaboration
of the early ideas were offered by Paul Baran and Paul Sweezy (Baran, 1957; Baran
and Sweezy, 1966); and Harry Magdoff (1969 ) (effectively ties theory to fact in
contemporary world affairs. A raging debate from differing perspectives is found
in recent issues of Socialist Revolution; particularly noteworthy are the veiws of
Robert Fitch who is critical of Baran and Sweezy's corporate model. The third
tendency identified by Cardoso attempts to describe "a historical structural process
of dependency in terms of class relations, tying the economy and International
politics to corresponding local factors which in turn generate internal contra-
dictions and political struggle . . ." Cardoso's own contributions fall into this
tendency.
Claire Savit Bacha (1971) has contributed the other synthesis of the litera-
ture in a study that embraces theory and relates to the Brazilian experience. She
examines five conceptions of dependency as elaborated in the writings of Vasconi,
Lenin, Frank, Dos Santos, and Cardoso. Let us briefly examine each coriceptual-
ization.
Bacha describes the effort by Tomas Vasconi (1969a) as oriented to a "system-
atization of the concept of dependency." Vasconi's conceptualization of depend-
ency relates to distinctions between underdevelopment and development, on the
one hand, and between the center and the periphery, on the other. Dependency,
117
8 LATIN AMERICAN PERSPECTIVES
he argues, pernlits one to see the center and the periphery as parts of a .capitalist
structure, this structure being a systenl of relations of international interdepend·
ence. j\ccordingly, a central econonlY expands as it reaches the peripheral economy,
incorporating it within that system. Vasconi then suggests a number of proposi-
tions. First, dependent nations nlay or lllay not develop, but the process of de-
velopment can lead to a rupture in the ties of dependence. Second, dependency is
deternlined historically. Third, dependency includes all internal and external
forces that historically affect a nation, fornling its structures in relation to its
historical and international position. Vasconi elaborates. During the development
of capitalism, he says, dependent nations are isolated fronl the center. These peri-
pheral nations renlain dependent until they break their dependent relations, but
in either case they nlay or nlay not experience developnlent. Changes in dependent
relationships, however, are tied to historical forces.
Another nlajor conceptualization of dependency is closely tied to imperialism.
Both concepts deal with relations between the center and the periphery and both
explain underdevelopnlent. Drawing upon Hobson and others, Lenin refined the
concept of inlperialis111 as the consequence of capitalism itself. Monopoly capital,
he argued, needed to export its surplus of capital, to search for new external
nlarkets, and to expand profit-nlaking opportunities. Lenin identified two types
of nations: inlperialist and donlinated nations and he referred in his work to the
concept of dependency:
Sincc we arc speaking of colonial policy in the epoch of capitalist imperialism, it must be
observed that finance capital and its foreign policy, which is the struggle of the great
powers for the economic and polifical divisio~ of the world~ give rise to a number of
transitional forms of state dependence. Not only are there two nlain groups of countries,
those owning colonies, and the colonies thenlselves, but also the diverse forms of dependent
countries which, politically, are fomlally independent, but in fact, are enmeshed in the net
of financial and diplonlatic dependency . . . (Lcr:in, 1967, Vol. 1:742-743).
Thus, dependentistas can turn to Lenin for the theoretical underpinnings of
their argulllent. Lenin nlakes clear the external inlposition that inlperialist nations
force upon lllany nations, and by also focusing on dependency, he is able to
COlnbirie internal with external forces in interpretillg the national reality of a
dependent nation.
Econonlist Andre Gunder Frank offers a third conceptionalization of de-
pendcncy. In his early work (1967), Frank affirnls that "it is capitalism, both
world and national, which produced underdevelopnlent in the past and which
still generates underdevelopnlent in the present." IIis analysis centers on the
metropolis-satellite structure of the capitalist systenl as he traces throughout the
history of certain countries the developnlent of underdevelopnlent. He identifies
the internal contradictions of capitalisnl as "the expropriation of econonlic surplus
frOlll the nlany and its appropriation by the few, the polarization of the capitalist
system into nletropolitan center and peripheral satellites, and the continuity of the
fundanlental structure of the capitalist systenl throughout the history of its
expansion and transfornlation ..." His central thesis focuses on these contradic-
tions; capitalisnl, he argues, has "generated underdevclopnlent in the peripheral
satellites \vhose econonlic surplus was expropriated, while generating econolllic
developnlent in the nletropolitan centcrs which appropriate that surplus." With
this thesis, Frank suggcsts a scries of hypotheses which contend with sonle litera-
ture \vhich explains back\vardness through a dualist lllodel of society and advocates
change through a progressive national bourgcoisie. llis critique of these ideas set
in Illotion IlC\V thinking and provokcd a 111l11titude of criticisnls, sonle of which he
118
answers in this journal. Further, Frank concentrates attention on exploitation,

thereby turning attention to the internal consequences of nations caught up in
dustrial dependence."
A fourth conceptual~zation offers a further refinement. Known as the "New
Dependency" and elaborated by Brazilian sociologist Theotonio dos Santos (1968),
this conceptualization differs fronl colonial dependency, based on trade export,
and from financial-industrial dependency, characterized by the donlination of big
capital in the hegemonic centers at the end of the nineteenth century. The new
dependency is a recent phenomenon, based on multinational coporations which
after the Second World War invested in industries geared to the internal market
of underdeveloped countries. Dos San tos characterizes it as a "technological-in-
dustrial dependence."
Finally, Bacha turns to the early work of Cardoso and Faletto (1969) on
dependency. They stress internal structure. For exalnple, classes or groups are
analyzed in relation to the structure of outside domination. Dependency, therefore,
is viewed not only as an external variable but within "a system of relations among
different social classes in an environment characteristic of dependent nations."
Like Frank and Dos Santos, they trace dependency through history. They also
criticize the economic emphasis of these writers, and attempt to elaborate on
theory by suggesting that politics and the internal forces are more decisive than
economics and external forces in determining forms of dependency. Their own
approach embraces these four levels of analysis: internal and external, political
and economic.
Bacha observes that there are as many conceptions of dependency as there are
authors, that the proponents of the theory work at various levels of analysis, and
that there are limitations to the formulation of a workable conceptualization. No
single author is able to apply the theory to all levels of analysis which pervade the
literature. Most authors fail to define external components of their theory,
tending instead to rely upon a national perspective. Relations among structural
elements are not explicitly identified. Bacha believes that such inconsistencies
account for the varying conclusions reached by different writers of dependency.
While none of the writers affirms the possibility of autonomous capitalist develop-
ment, Lenin admits the existence of capitalist development within the dominant
countries, Dos Santos looks for autonomous development in some countries after
industrialization, and Cardoso, Faletto, and Vasconi acknowledge that some
development can occur in a state of dependency. Frank, in contrast, sees persistent
underdevelopment as the outcome of the dominated countries.
My own synthesis of the dependency theory builds upon the earlier efforts
of Cardoso and Bacha. I shall recast the categories to reflect the evolution of the
literature from the early conceptualization until the present time. Rather than
focus on particular writers, I concern myself with two thrusts and six formulations
which seem to stand out in the literature. The thrusts revolve around distinctions
between the diffusionist and dependency models mentioned earlier while the
formulations relate to one or the other model. These formulations are not
necessarily mutually exclusive. Indeed they overlap, but they are representative of
particular theoretical directions. I now turn to a discussion of each in an effort to
identify major theoretical works, attempts to implement the theory, and critical
assessment.
119
10 LATIN ANIERICAN PERSPECTIVES
The Diffusion Model and the ECLA

and Internal Colony Formulations
The diffusion nlodel embraces a nunlber of fundanlental prenlises. Progress
COIlles about through the spread of modernism to backward areas. Inescapably
these areas evolve fronl a traditional toward a modern state as technology and
capital are introduced. Underdevelopnlent is a condition which all nations have
experienced at one tillle. Sonle nations have nlanaged to develop, while others
have not. In SOUle underdeveloped nations, modern cities have arisen through
contact with the developed world, while the countryside maintains a system of
unproductive agriculture of large feudal estates.
111ese prenlises lead to two controversial propositions. One is that developing
nations are structured into dual societies, one advanced and modern and the other
back\vard and feudal. The other propGsition suggests that in the advanced society
there will enlerge a new bourgeoisie, conlnlercial and industrial in character. This
bourgeoisie may become progressive and a supporter of national interests as
capitalist development diffuses itself into rural areas and as economic and political
policies restrict the donlination and penetration of foreign interests. Both proposi-
tions are enlbraced, at least partially, by two fornlulations which sometimes are
linked to the foundations of dependency theory. These fornlulations were pro-
posed, on the one hand, by the United Nations' Econonlic Commission for Latin
Anlerica (ECLA) and, on the other by advocates of internal colonialism.
l'he ECLA school of thought evolved after the Second \Vorld \Var. It was
nationalist and sonletinles anti-inlperialist but non-l\1arxist in orientation. Its
analysis sprang fronl Latin Anlerican econonlists grouped around the Argentine,
H.aul Prcbisch. rJ'heir philosophy was shaped by beliefs and principles set forth
in a ~llanifesto on developnlent (United Nations, ECLA, 1950). The history of
the ECLA nlovenlent dates fronl its manifesto and breaks into three phases: from
1950 to 1953 when its ideology was formed, elaborated, and tested; from 1953 until
1958 when intensive studies were made of individual Latin American countries
with the objective of proposing plans for their future development; and since 1958
when attention shifted to the study and pronlotion of regional integration through
forll1a tion of a comnlon nlarket. The ECLA thesis divides the world into an
industrial center and a primary producing periphery, both of which should benefit
fronl the 111axinlizing of production, inconle, and consunlption. However, unre-
strained conlpetition tends to result in appropriation to the center of most of the
increnlent in world inconle. In short, the thesis correctly links Latin American
undcrdevclopnlcnt to the international economic system', and thus affirms an
underlying assunlption of dependency theory. But analysis also is limited. For
exanlple, the thesis neglects an adequate exanlination of the conscious policies
and specific necds of the nations of the center; it mistakenly attributes Latin
Anlcrican backwardness to traditional or feudal oligarchies; it inappropriately
aSSU111eS tha t devclopment would be proll10ted by a progressive, nationalist bour-
geoisie, an aSSlll11ption thus far negated by historical experience; and its stress on
inlport substitution as a solution to consumptive dependence on the outside world
has resulted in cven greater dependcnce on the international system and in eco-
n0111ic stagnation.
l'heorics of internal colonialisl11 relate to dependency. The early work of the
1\.'lexican sociologist, Pablo Gonzalcz Casanova (1970), proposed a framework for
anah'sis of internal colonialisnl. \Vith the elinlination of traditional forms of
co}o;lialisnl, characterized by foreign donlination over nations, he suggests that the
120
same conditions of the past colonialism may be found internally: "With the
disappearance of the direct domination of foreigners over natives, the notion of
donlination and exploitation of natives by natives emerges." I-Ie describes the
forms of internal colonialism, focusing on monopoly and dependence (the me-
tropolis dominates the isolated communities, creating deformation of the native
economy and decapitalization); relations of production and social control (exploita-
tion plunders lands and discriminates every\vhere); and culture and living standards
(subsistence economies accentuate poverty, backward techniques, low productivity,
lack of services, and traditionalism).
Gonzalez Casanova stresses internal conditions of colonialism and suggests
that external conditions no longer have great impact in Mexico. His formulation is
similar in this respect" to the culture of poverty thesis of Oscar Lewis (1964).
Lewis attempts to demonstrate through his experience in poor l\1exican and Puerto
Rican communities that the culture of poverty applies to those people at the
bottom of the socio-economic scale, the poorest workers, the poorest peasants and
plantation laborers, and others. These people are marginal, have lo\\' levels of
education and literacy, suffer from unemployment and underemployment as well
as the absence of food supplies in the home. They experience a sense of resigna-
tion and fatalism based on the reality of their life situation. These traits are
precisely those recognized by Gonzalez Casanova. They are very similar to the
conditions of colonized peoples described, in the case of French Algeria by Frantz
Fanon and of French Tunisia by Albert Memmi. At one point Fanon (1967:83-
108) writes about the "so-called dependency complex of colonized peoples" and
asserts that this form of dependency emerges as a psychological response to a
colonial situation, not a phenomenon that antedates colonialization. as some
observers believe. Memmi draws a portrait of the colonizer and the colonized; he
clarifies the differences between the two: "One is disfigured into an oppressor, ~
partial, unpatriotic and treacherous being, worrying only about his privileges and
their defense; and the other, into an oppressed creature, whose development is
broken and who compromises by his defeat" (Memmi, 1965:89).
These writers emphasize the forms or conditions of colonialism. Our selection
of cxanaples of colonialism and internal colonialism suggests that Gonzalez
Casanova's stress on internal aspects alone may be nlisleading. He believes that
marginal peoples will be absorbed into a collective society through the formation of
a national bourgeoisie. Lewis speaks of the defense mechanisms without which
the poor could not carryon, for the culture of poverty, he feels, is "a way of life,
remarkably stable and persistent, passed down from generation to generation along
family lines." f\1emmi provides two answers for the colonized: assimilation and
revolt, but he offers no strategy for revolution. In a preface to Memmi's work,
Jean-Paul Sartre describes the stnlggle against colonialism: "And when a people
lias no choice but how it will die~ when a people has received from its oppressors
only the gift of despair, what does it have to lose? A people's misfortune will
become its courage; it will make, of its endless rejection by colonialism, the
absolute rejection of coloniaIization" (Memmi, 1965: xxix). Fanon is perhaps
most instructive in this respect for his insights and understandings of colonial
oppression are based on a struggle for national liberation. He is able to combine
an identification of forms and conditions with an understanding and interpretation
of the violent phenomenon of dccolonialization (see especially Fanon, 1963 and
1965) .
Internal colonialism has interested those concerned with the situation of
121
racial minorities in the United States: Chicanos, Blacks, Puerto Ricans, and others.
Some of the conceptual problems alluded to above have provoked a division in the
ranks of scholars studying these internal colonies. l\tlost agree that classical con-
ceptions of colonialism were too narrow for contemporary analysis. Some scholars
believe that contemporary dependency theory and much radical analysis overlook
the issue of race. Studies which seem to move in this direction include those on
the Chicano (see Almaguer, 1971 and Barrera, Munoz, and Ornelas, 1972), on the
Black (see especially Blauner, 1969 and I-Iarris, 1972), and on the Puerto Rican
(see Oliver, 1972). This position is explicitly stated by Frank Bonilla who argues
that "the most penetrating critique of dependency theory as it now stands was a
by-product of the effort to assess its applicability to the case of racially stigmatized
communities in the U.S." (Bonilla and Girling, 1973:5). He feels that dependency
theory ignores the "national question," that it fails to contend with questions
regarding internal differentiation. tIe is particularly critical of "the incomplete and
controversial treatment in Marxist analysis of certain key categories-ethnicity,
caste, culture, racism, and nationalism." Students in Bonilla's seminar at Stanford
University during 1972 attempted to grapple with this problem, and while there
were many conceptual problems in the analysis which ensued, their contributions
move toward l\1arxist categories, not in Bonilla)s direction. The essay by Guillermo
V. Flores (Bonilla and Girling, 1973: 189-222), for example, breaks internal
colonialism into three components (economic domination, racial-cultural domin-
ation, and political and institutional domination) reminiscent of Gonzalez
Casanova's categories. At the same time he turns to concepts such as surplus
value (which he converts to "racial-cultural surplus value"), class position, and
cultural dependency and alienation in an obvious attempt to reconcile his focus
on the racial question with Marx, Baran, and some dependentistas. In his conclu-
sions, Gonzalez Casanova refers to "monopoly capitalism turned inward" and to
the need "to resist capitalist exploitation within the heart of imperialism's most
powerful nation." This eclectic approach apparently was unsatisfactory to most
Chicano scholars who during the spring of 1973 met at Irvine, California, and
concluded that they would do well to consider abandoning the concept of internal
colonialism altogether. This sentiment runs through the critique offered by Gilbert
Gonzalez in the present journal issue.
The Dependency Model: Four Fonnulations

The dependency nlodel distinguishes underdeveloped Latin America from
pre-capitalist Europe. It does not view underdevelopment as an original condition,
but instead assumes that nations may once have been undeveloped but never
underdeveloped and that the contenlporary,'underdevelopment of many parts of
Latin America was created by the saIne process of capitalism that brought develop-
ment to the industrialized nations.,- Latin America is underdeveloped because it
has supported the development of Western Europe and the United States. When
the center of the expanding world economic system needed raw materials, it was
supplied by Latin America. TIlis relationship has not basically changed,' even
though the United States has replaced Great Britain as the metropolis which
dominates over the area, resulting in a strengthening of dependency through
foreign corporate and governmental peI1ehation of banking, manufacturing, re-
tailing, communications, advertising, and education. \Vithin each country the
pattern of metropolis-periphery relations is replicated as the economic surplus of
the countryside drains into urban areas.
122
These premises lead dependentistas to a nunlber of propositions. First, they

argue that while feudalistic conditions and relationships exist, the backwardness
of the countryside cannot be explained by the image of a dual society. Rural
areas are poor not because of feudalism but because they have been responsive to
urban and international market influences. The consequence has been the enrich-
ment of the cities and the dominant nations. (Second, dependentistas assert that
the capitalist link between the city and the countryside is characterized by com-
merce between landowners and merchants who form an agro-commercial bour-
geoisie which is subject to the market forces of a national and international capital-
ist economy. Empirical evidence verifies that agriculture, financial, and industrial
interests are often found in the same economic groups, the same firms, and even
in the same families. Thus, the capital of archaic latifundia may be invested by
their owners in lucrative enterprise in the cities; or the grand families of the city,
associated with foreign capital, may also be the owners of the backward latifundias.
Thus, the landowning aristocracy and the urban commercial bourgeoisie often
align with the manufacturing bourgeoisie. Third, dependentistas believe that dom-
inant class interests are dependent on world imperialism for the manufacture of
some goods, for foreign currency, and for foreign capital. Even if a segment of
this class manifests nationalist xenophobia or resentment against imperialism, it
has no other choice than to accept its condition as a dependent bourgeoisie. (The
clearest case for these propositions is in Quijano's analysis of contemporary Peru-
see 1971b). Let us now examine four formulations of dependency theory which
relate to the above propositions. These formulations relate to directions in the
literature which we might label 1) the development of underdevelopment; 2) the
new dependency; 3) dependency and development; and 4) dependency and
imperialism.
The Development of Underdevelopment. The bulk of writing during the past
decade has focused on the development of underdevelopment. The thesis was most
explicitly set forth in the early writing of Andre Gunder Frank (1966 and fully
elaborated in 1967). He emphasized commercial monopoly rather than feudalism
and pre-capitalist fonus as the economic means whereby national and regional
metropolises exploit and appropriate the economic satellites. Thus, capitalism on a
world scale produces a developing metropolis and an underdeveloped periphery.
This same process can also be found within nations between a domestic metropolis
(a capital city, for example) and the surrounding satellite cities and regions.
Frank's theoretical perspective has been neatly summed up and critiqued by
Emesto Laclau (1971). The summary includes the following theses: First, de-
velopment does not occur through a succession of stages, and today's developed
countries were never underdeveloped, although they were once undeveloped.
Second, underdevelopment is part of the historical product of relations between
the underdeveloped satellites and the present developed metropolises. Third, the
dualist interpretation must be rejected because capitalism has effectively and
completely penetrated the undeveloped world. Fourth, metropolitan-satellite re-
lations are found within countries as well as in the imperialist world order. Fifth,
Frank hypothesizes that development of satellite.s is limited by their dependent
status; satellites experience their greatest growth only when their links to the
metropolis are weakened, say during depression or world war; the most under-
developed regions are those which were closely linked to the metropolis; originally
latifundia were capitalist enterprises responsive to the growing demand in the
national and international market. These ideas emerged in his earlier works cited
123
above and were refined in a series of essays, reprinted as an anthology (Frank,

1969) .
While the relationship of dependence and underdevelopment was implicit
in Frank's earlier writings, explicit analysis of the relationship came later (for
exanlple, in 1970 and 1972b). During the interim his ideas were closely scrutinized
by critics, especially on the left. T'hree such critics who are not mentioned by
Frank in subsequent rejoinders to critics (1972a and 1972b), exemplify the dia-
logue that ensued. \Vhile subscribing to the basic theses and tenets of Frank's
\\'ork, Petras argues for a clearer definition of such terms as underdevelopnlent and
surplus. He calls for analysis of inlperialisnl and class structure which direct the
metropoles and satellites. Eugene Genovese asserts that "Frank's abilities as an
historian, not to nlention a logician, leave something to be desired: his evidence
fronl the colonial period will not pass muster, is crudely interpreted, and does not
prove a thing" (1970: 325). He then goes on to argue the existence of a dual
society. Stirton Weaver attenlpts to denlonstrate how bourgeois economic theory
nlight contribute to a class analysis, and he criticizes Frank for making only pass-
ing reference to class structure in his analysis of Chilean underdevelopment
(\Veaver, 1971).
Such criticisnl represents no nlore than a glinlpse into the multi-faceted
attacks on the Frank theses. Let us sum up the principal argunlents. First, there
is the view that underdevelopIllent nlust be understood in ternlS of classes, that
the description of class structure seenlS overly schenlatic. Second, dependency is
considered as purely an external relationship inlposed on Latin America from
abroad rather than as an internal integral elenlent of Latin American society.
'I'hird, Frank's arglullcnt is static-it is necessary to deIllonstrate how the forms of
dependency ha\'e changcd in spite of its persistence. Fourth the ternl dependency
lacks specific and well-defined content, and it must be operational. Frank acknow-
ledges all these problenls and attenlpts to resolve thenl in a later book in which he
also retains the ternl bourgeoisie and adds "lunlpen" to it (1970b:I-12). Despite
this refineIllcnt, other critics continued to nlanifest new perspectives, pronlpting
Frank to again respond. Frank's statcIllent is included in the present number of
Latin A171erican Perspectives. In his reply to critics fronl the rightwing, traditional
~Iarxist left, and new left, he refers to the inadequacies of the old and new depend-
enc\' theories (1972a) .
. The development of underdevelopIllent thesis has influenced many interpre-
tations of contcnlporary Latin America. Keith Griffin (1969), Franz Hinkel-
anlnlert (1970a), and Rui Mauro Marini give us three contributions. Griffin
attacks the notions of a dualistic nlodel of growth. Next he refutes stage theories
of de\'eloplllent. l'hen he relics on the concept of underdevelopnlent, a product
of history as. he describes it-fronl the sanle process which produced development.
I Iis detailed and uscful analysis embraces social and econonlic structure, resource
transfornlation and foreign trade, capital iIllports, nlixed enterprise and foreign in-
\"cstIncnt, and inflation and exchange rate policy. Hinkelanlnlert analyzes two
dualities: that of traditional society and developed capitalist society; and that of
undcrde\'e1oped society and developing society. His principal thesis states that
"thc \\'orld capitalist systenl as a systenl of international coordination of labor
ilnpcdcs a large nunlber of countries frolll achieving an internal balance of labor.
,['hcse countries we call underdeveloped" (p. 14). Marini analyzes underdevelop-
Inent as a consequence of capitalisnl and illlperialisnl. I-Ie nlakes reference to the
idca of sllhilnperialisnl, illustrating this \vith the exanlple of Brazil since 1964.
124
Finally, his analysis moves to alternative revolutionary strategies. In this latter

respect, his discussion is unique, for unlike most interpretations mentioned above,
that of Marini attempts to relate description of underdevelopment as a condition
to action as a remedy.
Briefly, let us mention a number of essays which are influenced by and
contribute to theories of underdevelopment in Latin America. Alschuler (1973)
presents "a social theory of underdevelopment." lIe casts Latin America into
a diffusionist perspective and jargonistically sets forth propositions for possible
empirical inquiry. Cecelia Cervantes (1970) focuses on superexploitation, de-
pendence, and development; and he lists six types of dependency, describes each,
and attributes dependency in general to backward capitalism which has produced
underdevelopment. Florestan Fernandes (1970) believes that external domination
over Latin America is due to the evolution of capitalism. Jorge Graciarena (1973)
discusses the political alternatives available to Latin America as a consequence of
capitalist development, the alternatives being semifascist authoritarianism or
moderate reformism. Mauricio Lebedinsky (1968) examines the evolution from
underdevelopment to development. Hector Mala~e Mata (1972) deals with
unequal development and outside capitalization; the penetration of commercial
dependency; and external domination and internal support. Michael Meeropol
(1972) attempts a political economic analysis of underdevelopment. He echos the
theme of other essays by Weisskopf, MacEwan, and Weeks. Accordingly, the
peripheral countries are locked into a state of limited economic development, this
being the consequence of a booming export industry in the peripheral country
which is controlled by foreign interests. Capitalism in the poor countries is likely
to perpetuate underdevelopment because of increasing integration of the world
capitalist system and because capitalism cannot promote sufficient economic
growth for the entire population. Sergio de la Pefia (1971) offers conceptualiza-
tion and theory of development and underdevelopment. His historical interpre-
tation of Latin American underdevelopment stresses the forces opposing develop-
ment, especially in the post-1950 period. Sunkel and Paz (1970) focus on under-
development and suggest a theory of development.
The New Dependency. Much of the thrust of dependency theory emanates
from the notion of the new dependency. Types of dependence are identifiable
through periods. of history, according to Dos Santos (1970e:232). Colonial d~
pendency characterized the relations between Europeans and the colonies whereby
a monopoly of trade complemented a monopoly of land, mines, and manpower
in the colonized countries. Financial-industrial dependency consolidated itself at
the end of the nineteenth century with, on the one hand, domination of capital in
hegemonic centers and, on the other, investment of capital in the peripheral
colonies for raw materials and agricultural products which in turn would be con-
sumed by the centers. A new dependency based on investments by multinational
corporations emerged after the Second World War. Dos Santos labels this a
technological-industrial dependency. An elabora tion of theory on the new de-
pendency is found in several of his writings (especially Dos Santos, 1968; 1970c;
1970d) . The th rust of his argumen t is directed against prevailing bourgeois
assumptions about development in Latin America (1970a and 1970b); and it
attempts to relate traditional notions of imperialism to the internal situation of
the Latin American countries. Let us explore this latter concern.
The new dependency places limits on the development of Latin American
economics. Industrial development is dependent on exports which generate
125
foreign currency to buy imported capital goods. Exports in turn are usually tied
to traditional sectors of the econonlY which are controlled by oligarchies. Often
the oligarchies are tied to foreign capital; and they remit their high profits abroad.
Thus, it is not surprising that foreign capital controls the marketing of exported
products, even though dependent countries have attempted to impose policies of
exchange restrictions and taxes on foreign exports and have leaned toward the
nationalization of production. Industrial developnlent then is conditioned by
fluctuations in the balance of paynlents which in dependent countries often leads
to deficits caused by trade relations in a highly nlonopolized international nlarket,
the repatriation of foreign profits, and the need to rely on foreign capital and aid.
These conditions and relations of the new dependency have been related to
the colonial heritage of Latin Anlerica by Stanley and Barbara Stein who affirm
that "in backward, underdeveloped, or dependent areas of the globe, the heritage
of the past has shaped and is shaping current widespread poverty" (1970:189).
Elsewhere Stein has attempted to synthesize the econonlic historiography of
Latin Anlerica, in particular citing works that derive insight from an analytical
franlework of structuralisnl and dependence (Stein and Hunt, 1971 :231-248).
Vasconi (1969 and 1970), Murga (1971) and Quijano (1970b) elaborate on new
dependency theory, while Fausto (1971) reviews Dos Santos' contributions in
particular. Beyond these general contributions, the literature on the new depend-
ency falls into several categories: financial dependency, external dependency, and
cultural dependency are especially predominant. Let us briefly review each.
Concern with financial dependency is exenlplified by Paz (1970) who explores
in depth the consequences of denationalization of industry in the face of depend-
ency on foreign finance. Maria del Rosario Green carries the analysis in a dif-
ferent direction. In one study (1971) she probes the repercussions of foreign aid
and investnlent. In another study (1973) she critiques diffusionist developmental
theory and turns to a model of dependency in an exanlination of U.S.-Latin Anleri-
can rela tions which she traces through historical periods.
External dependency is a related thenle in the literature. In part, it derives
fronl the ECLA concern with inlport substitution as a remedy to dependency.
Celso Furtado has elaborated upon external dependency (1971) which he defines
as "the structural situation in which a peripheral capitalisnl prevails in certain
countries ..." It nlay exist in the absence of any direct foreign investment, and
conceivably, even in the relations of a socialist country with capitalist countries
conlnlanding the flow of new products and processes of production ... Once the
dependence has been created, the doors are open to the introduction of all the
{onlls of econonlic exploitation which typify the relationships between under-
developed and developed countries" (1974:4-5). French-Davis offers an "analysis
of exchange policies in econonlies undergoing developnlenf' (1970:273) and con-
cludes that neither a free nor a fixed policy would necessarily resolve the problenl
of external dependency. Osvaldo Sunkel (1967 and 1969) relates national de-
velopnlental policy to external dependency while Marcos Kaplan (1968) delves
into the political ranlifications and Rui Mauro Marini (1972) exanlines exporting
econonlies. l\1uller (1972) focuses on foreign technology and the econonlic depend-
ence of subsistence countries while Cannona (1972) gives us a brief assessnlent of
the inlpact of technology. .
l'he cultural and ideological ranlifications of dependency are dealt with by
Juan Corradi (1971) in a c0111prehensive article. He critiques the diffusionist
literature on developnlent in Latin Anlcrica and concerns hinlself, in particular,
126
\vith the culture and ideology. adopted by local elites. He rcla tes dependency to
such ideologies as developnlental nationalisnl and developnlentalisnl. Quijano
(1971) and Lalive d'Epinay (1971) focus on the question of cultural dependency
somewhat along these lines, while Silva Michelena (1970) and Sunkel (1969 and
1970) look at cultural dependency in the university systenl, respectively in Vene-
zuela and Chile. In another article Lalive d'Epinay (1972) goes a step further,
relating dependency to populisnl, nationalisnl, and millenarianisnl.
Dependency and Development. The notion that capitalist developnlent
takes place within dependent situations has evolved prinlarily in the writings of
Fernando Henrique Cardoso. Let us trace his line of argunlent (1972). Cardoso
begins with the assunlption that nlodern capitalisnl and inlperialisnl differs fronl
Lenin's earlier conceptions. Capital accunlulation, for exanlple, is nlore the
consequence of corporate rather than financial control. Investnlent by nlulti-
national corporations in Latin Anlerica is nloving away fronl raw nlaterials and
agriculture to industry. More often than not these corporations conlprise "local
and state capital, private national capital, and nlonopoly international investnlent
(but in the last analysis under foreign control)" (Cardoso, 1973b: 11). Thus
nlonopoly capitalisnl and developnlent are not contradictory ternls; and dependent
capitalist developnlent has beconle a new fornl of nlonopolistic expansion in the
Third \\'orld. This developnlent is oriented to a restricted, linlited, and upper
class-oriented type of nlarket and society. At the sanle tinle, the anlount of net
foreign capital in dependent econonlies is decreasing. New foreign capital is not
needed in some areas where there are local savings and reinvestnlent of profits in
local nlarkcts; further, dependent econonlies during tinles of nlonopolistic inlperial-
istic expansion are exporting capital to th~ donlinant econonlies.
This analysis leads Cardoso to a critique of other dependentistas. First, analys-
is "based on the naive assunlption that inlperialisnl unifies the interests and reac-
tions of donlinated nations is a clear oversinlplification of what is really occurring"
(Cardoso, 1972:94). Second, the notion of dcvelopnlent of underdevelopnlent and
the assunlption of a lack of dynanlisnl in dependent econonlies because of inlperial-
isnl are nlisleading (Cardoso, 1972:94). On the one hand, ne\v trends in inter-
national capitalisnl have resulted in increased interdependence in production
activities at the international level and in a nlodification in the patterns of de-
pendence that linlit developnlental policy in the peripheral countries of the inter-
national capitalist systenl (Cardoso, 1973a: 146). On the other hand, international
capitalisnl has gained disproportional influence in industry. vVhether or not
industrial fimls are owned by foreigners or nationals, in either case "they are
linked to nlarket investnlent, and decision-nlaking structures located outside the
dependent country" (Cardoso, 1973a: 146).
Cardoso's recent contributions to dependency theory draw heavily upon
infornlation in his earlier enlpirical investigation of entrepreneurs in Argentina.
Brazil, and Chile (Cardoso, 1971a). lIe advances our understanding of depend-
ency and power in La tin Anlerica (see especially Cardoso, 1972-1973; Garcia, 1971
and Faria, 1971 also would relate). Useful theoretical perspectives of dependency
and developnlent are stated elsewhere (Cardoso, 1968, 1971 b; Cardoso and Faletto,
1969) .
Cardoso's ideas have influenced others such as Ponlpernlayer (1973) who is
beginning his study and Schnlitter (1971 and 1972) who is skcptical about "nonn-
atively charged theorizing which credits dependencia with causing virtually all of
Latin Aluerica's ills" but \\'ho finds "probabilistic" enlpirical support for sonle
127
assertions about dependency. In his cntIque of Cardoso and others. O'Brien

(1973) suggests that the stress on developnlent relates to a strong enlphasis in the
dependency literature on natiopal developnlent and he asks "If dependency is
really nlore than a new fonll of nationalism wrapped up in sophisticated language."
Dependency and I111perialism. As nlentioned above, Lenin related inlperialism
to dependency. 1\ recent synthesis elaborates on this relationship. According to
Benjalllin Cohen (1973: 15), illlperialisnl refers to "any relationship. of effective
dOlllination or control, political or econolllic, direct or indirect, of one nation over
another . . ." 11lis relationship involves donlinance and dependence among
nations which are large and slllall, rich and poor. 1'hree principal forms of im-
pcrialisnl are evident through history. First, during the sixteenth and seventeenth
centurics European lllercantilisnl characterized th'e "old inlperialism." Second,
the European enlpire building of 1870 and thereafter represented a shift from
infornlal to fonllal nlechanisnls of control and influence in the colQnies during
a period known as the "new illlperialisnl" (see Fieldhouse, 1961, for a useful review
of ideas on the literature on the old and new inlperialisllls). Third, the breakup
of enlpires \vas acconlplished by analysis of nco-colonialisnl and what today might
be called "lllodern illlperialisnl." Analytically, the theory of nlodern inlperialisnl
moves in two directions. One elllphasizes the view fronl the metropolis and argues
that illlperialisnl is necessary for theadvanccnl(:~nt of capitalist econonlies. The
other stresses the view fronl the periphery and focuses on the detrinlental con-
sequences of capitalist trade and investIllent in the poorer econonlies of the world.
Both these theoretical directions incorporate analysis of dependency, al-
though the view frOlll the periphery ha~ provoked a variety of perspectives, sonle
being non-~'Iarxist and others Marxist. Sonle of these perspectives have attenlpted
to relate inlperialisnl to dependency, whilc others have refuted dependency alto-
gether infavor of an interpretation based solely on inlperialisnl. Recent events in
the ~,liddle East and the Arab oil embargo have pronlpted speculation about
U.S. dependency on such raw nlaterials as petroleun1. \Vllile lIenry Kissinger
places policy enlphasis on building an "interdepcndence" anlong nations, the
U.S. press talks of the need for self-sufficiency and frecdonl fronl the Arab oil
barons. 'Othcr vie\\'s have begun to rcflect on the qucstion of dependency between
the Sovict Union and other socialist na tions. Let us tnrn to all these considerations
in our asseSSlllent of the literature on depcndency and illlperialisnl.
/\lllong the 111allY recent efforts to relate depcndency and inlperialisnl to the
Latin /\ll1erican experience arc writings by ] Iinkclanlnlert. (1970b), Quijano
( 1972). and essays in the reader by Rhodes (1 ?70). \ Vhile ]-linkclanll11ert exanlines
elassical il11perialisnl and underdevc1~pnlent,(Quijano attcl11pts to relate inlperial-
ist donlina tion to the elass struggle.; Esteban (196 1) analyzes illlperialisnl and
capitalist <1evcloplllent within the contcxt of dependency in his ,case study of
Argentina. 130dcnheinler (1970) distinguishes between non-fvlarxist and l\1arxist
interprctations of inlperialisnl in nloving to\v,nd her. position that a Marxist
theory of inlperialisnl can conlplel11cnt a theory of dcpendcncy.
\\!hile theories of inlperialisnl assunle an inc-quality between nations, some
na tions donlinate o\"<:r dependent nations which erodes autollonlyand perpetuates
exploitation. Non-l\/Iarxist theories differ frOI11 Marx'ist theories of illlperialis1l1
on hvo leyels. First. non-~ 1arxist theorv tends to associate illlperialis1l1
with expansionisnl, thereby obscnring the sul)tle lllechanisnls through \vhich inl-
perialis111 has been in ternalizcd. (Sccond. llon-l\'larxist theory addresses itself to
political andnlilitary explanations- rather than to ecollolnic explanations in a
128
context of capitalist global expansion. These differences are evident in the liter-
ature.
Recent writings exemplify non-Marxist theories of imperialism. Non-Marxist
conceptualization is offered by Lichtheim (1970); Miller, Bennett, and Alapatl
(1970); and Pachter (1970). Recognizing that the role of multinational firms in
Latin America approximates that described by the dependentistas, Moore (1973)
emphasizes the policies of Latin American countries which forge CCa role of greater
autonomy with the international system." He acknowledges the increased willing-
ness of Latin American governments to break relationships with foreign investors;
to create indigenous multinational' enterprises; and to increase local input into
decision-making of these enterprises. Galthung's (1971) contribution also relates
to Latin America. He defines imperialism in terms of dominance and dependence.
Center nations have power over peripheral nations, with power based on interest
interrelationships. Three phases (colonial, neo-colonialist, and neo-neo colonial-
ist) and five types (economic, political, military, communication, and cultural) of
imperialism are explored. His schematic, sometimes jargonistic, presentation
seems to have stimulated German political scientists to delve into the relationship
of imperialism to dependency. Gantzel (1973) synthesizes their \\fork by identify-
ing types of dominance in: relations between capitalist nations; relations between
capitalist center nations and the periphery; relations between capitalist and
socialist centers; and relations between socialist societies. As to the latter, he
asserts that there is no real external dominance since CCthere is hardly any evidence
that the extensive annament and economic aid from the socialist centers . . .
has brought about such intensive penetration." As such he counters the argument
that dependency is indeed a reality among socialist states, a position advocated by
Ray (1973) and illustrated in the case of Cuba by Coure and Weinkle (1972).
Non-Marxist theories of imperialism have not carried much weight in Latin
America, which probably accounts for a dearth of such material. Marxist theories
of imperialism, however, have generated considerable impact, especiaIJy in Latin
American intellectual circles. Two principal lines of thinking have emerged in
recent years. One, initiated by Paul Baran and Paul Sweezy (1966), serves as a
modern substitute for the traditional Leninist approach to an analysis of monopoly
capitalism. The other line, offered by Harry Magdoff (1969), traces imperialism
from its beginnings to the modern period and attempts to relate the inlperialist
b~havior of private enterprise to U.S. foreign policy. l'he two lines begin with
different concerns but converge in their analysis of the large multinational corpora-
tions of modern capitalism and their home governments.
The stress of these writers on the thesis that corporate capital has replaced
finance capital as the dominant fornl of capital has not been without dissent from
economists who argue from a classic Leninist position. Such dissent is found in a
series of articles by Robert Fitch and Mary Oppenheimer (1970) and James Becker
(1971), while a useful synthesis of the split is in Janles O'Connor (1968 and 1971).
The concern with large corporations, however, has stimulated a plethora of studies
(from neo-classical to radical Marxist) on the multinational corpora tion (a biblio-
graphy is in Ajami and Osterberg, 1972).
The attempt to relate a theory of imperialism to dependency in La tin America
is represented by advoca tes as well as dissenters. Let us identify examples on both
sides. Caputo and Pizarro have presented the most exhaustive effort at linking
theories of imperialism and dependency (1971 b); they have applied their theory
to the case of Chile (1970 and 1971a). Cardoso (1972 and 1973b) also relates
129
theories of in1perialisn1 and dependency in working toward his· thesis that develop-
Inent and n10nopoly pcnetration in the industrial sectors of dependent econol11ies
are not incol11patible. Dissenters to this approach include \Varren (1973) and
\Veffort (1971).
Ct\SE Sl'UI)IES ANl) A1"TEMPTS TO APPLY DEPENDENCY THEORY

1'here has bcen little effort el11pirically to verify the assun1ptions of depend-
cncy theory. T'yler and \Vogart (1973) undertake a n10dest test along'lines of an
intcrnational conlparison. l11ey inquire into Sunkel's "general notion of the
relationship behveen increasing international integration of less-developed coun-
tries and their national disintcgration" and conclude that "therc is not sufficient
c\'idence to reject the dependency hypothesis" (p. 42). \Vhile rejecting "the norm·
ativcly charged thcorizing which credits dependencia with causing virtually all of
Latin f\n1crica's ills" Schlnitter (1974:99), feels that "the basis for a lllore subtle..
differentiated, and en1pirically testable theory have been laid" (p. 100) and in an
exploratory Inanner he has atten1pted to n1easure extcrnal dependence and its
in1pact on political outcon1es (Schn1itter, 1971).
Case studies supported with new inforn1ation and descriptive analysis are
nlore prevalent, ho\vcver. In this writer's opinion, Quijano's (1971) class analysis
of Pcruvian society is the n10st sophisticated, yet not definitive, effort to link
class structure and actions to the outside world. Bagll's study of Argentina (1949)
and Prado's of Brazil (1969) arc cxamples of historical treatn1ent which deal with
class relations, cxplanations of underdevelopn1ent, analysis of ties to the outside
world and their conscqucnccs; both were written wcll before the availability of
the currcnt depcndency studies.
Let us briefly· revie\v other case studies of dcpendency. Alfonso ( 1971 )
focuscs on petrolcun1 in an analysis ofdepcndency in \'enezuela. Hein and
Stcnzel (1973) suggest the basis for a n10re exhaustive study, illustrating with the
Sill1le country, Bertcro (1972) exalnines thc phannaccutieal industry as a case of
depcndency in Brazil. Bonaparte (1971) assesses thc thcsis of developnlent of
unc1erdc\"Clopnlent· in the poor Argcntine province of Estero. Camacho (1972)
directs attcntion to cultural donlination in thc undcrdcvc10pnlent of Costa Rica.
,,'hilc Lopcz Scgrcra ,( 1972) pro\'ides considerable dctail of depcndent capitalisn1
and undcrde\'clopnlcnt in Cuba bcforc 1959. 1'\\'0 inlportant studies of Chile
ha\"C noted the inlportance of nlatcrial and idcological dcpcndence upon conl·
nlunications (l\1attclart, 1970; and Mattdart, Castillo and Castillo, 1970). Meyer
(1972) exalnincs the inlpact of forcign aid and affirnls that dependency has
pcrsisted in l\ 1exico since thc sixtccnth ccntury. Petras (1973) cOlnbines interesting
cssa~'s on dcpcndcncy in i\rgentina, Brazil, and Chile. 'I'orrcs ){ivas (1969a, 1969b,
;lnd 1970) cxclnplifics his discussion of depcndency \"ith rcference to Central
Alllerica.
'rhe rclcvancy of dcpendcncy thcory is apparcnt in studies of other areas
ou tside Latin Alnerica, Sanlir Anlinl (1972) \\'fites about undcrdevelopn1ent and
depcndenc~' in Africa, I Ic studies "ho\\' the dialect re\"Cals itself between the major
colonial policics and thc strncturcs inherited fronl the past"· (1972b,505). Com-
pleted fonns of depcndcnce. he argncs, appcarcd whcn f\frica \vas n1ade the peri-
phery of the world capitalist s~'st<:nl in an inlperialist stage. \Villian1 l\1inter
( 1971?) exanlines theilllpact of depcndcncy in Angola. Certainly the nlost
cxhaustive account is pf()\°idcd by \ Valtcr Rodncy (1972) ,,'ho offcrs conceptual-
izations of dc\'elopnlent and underde\'elopnlcnt, thcn relates then1 to his thesis
130
that European colonialisnl led to the underdevelopment of Africa. Finally, Esseks

(1971) relates econonlic dependence to political developnlent in Africa while
Barbara Stallings (1972) tics Africa to Latin America, basing her analysis essential-
lyon the contributions of Latin Anlerican writers. 'fhese writers and their ideas
provoked Sanlir Anlin (1974) to critique the theory of underdevelopment. I-Ie
notes that econonlic gro\vth is an uneven process, analyzes the inequality of inter-
national specialization, and assesses the consequences of the international flo\v of
capital for the center and the periphery. l'he concern with underdevelopment
also extends to Asia, Gunnar Myrdal's, \vork serving as an exanlple. Rudebeck
(1969) critiques that work on the grounds that it provides a franlework for analysis
of internal aspects relating to underdevelopment but that it ignores external
aspects, especially as related to dependency and international capitalism.
SOME ·ASSUMPTIONS AND ISSUES

Our discussion has alluded to many deep issues which have influenced the
various theoretical directions in the dependency literature. Let us illustrate with
two exanlples. First, is the attention given to definitions and interpretations of
feudalism and dualism. This issue is raised by Fernandez and Ocampo in the
present nunlber. Gunder Frank attacks the application of these ternlS to the real
Latin America of today. I-lis controversial position has been extensively debated.
The curious reader nlight want to explore the follo\\ring sources for further
details: Beckford (1972); Cole and Sanders (1972); Laclau (1969, 1971); Novack,
(1970); Rweyemamu, (1971); Seligson (1972); and Singer (1970). Second,
there has been attention to the notion of uneven developnlent, also a widely
debated topic in the literature. The reader might initiate inquiry in this area by
consulting Bluestone (1972) and I-linkelanlmert (1970c).
In sumnlary, we can suggest several assumptions which most proponents of
dependency theory support, even though their \\fork may not yet have proven their
validity. \Ve draw these assumptions fronl the literature in the hope that they
might guide the reader to further understanding, constructive critique, and re-
finement of dependency theory. First, it is generally believed that dependency
theory provides a framework for explanations of underdevelopnlent and develop-
ment. Second, dependency theory offers a foundation for analysis of class struggle
and strategies to promote class struggle in the interest of resolving societal con-
tradictions and problenls. Finally, an understanding of dependency and the
adoption of certain strategies to break dependency leads to the restructuring of
societies, a restructuring which linlits capitalisnl and promotes socialism in the
seeking of a new and better society.
REFERENCES
Ajami, Fouad, and David Osterberg

1972 "The Multinational Corporation: An :\nalytical Bibliography," International Studias
Quarterly XVI (December), 549-562
Alfonso, Juan Perez.
1971 Petr6leo y dependencia. Caracas:: Sintcsis Dos ~lil
Almaguer, Tomas
1971 "Toward the Study of Chicano Colonialism," Aztlan, II (Spring), 7-21
Alschuler: Lawrence R.
1973 "A Sociological Theory of Latin American Underde\'elopment," Comparative Studies,
VI (April), 41-60
131
Amin. Samir
1972a "Underdevelopment and Dependence ia Black Africa: Historical Origin," Journal of
Peace Research, 2, 105-119
1972b "Underdevelopment and Dependence i:l Black Africa-Origins and Contemporary

Forms," The Journal of Modern African Studies, X, 4, 503-524
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139
PETROLEUM POLICY IN VENEZUELA: LESSONS IN
THE POLITICS OF DEPENDENCE MANAGEMENT
FRANKLIN TUGWELL
Pomona College and Claremont Graduate School
A Ithough the problem of dependence has recently become a

f i prominent theme in social science writing on Latin America,
analysts have devoted surprisingly little attention to the strategic
issues it raises for the practitioners of development statescraft
themselves. The literature on dependence is notable for absence of
any policy orientation; in most cases dependence is treated as an
omnipresent, but relatively autonomous "conditioning factor"
contributing to the regional pattern of persistent instability and
slow economic growth.! However, while dependence for most
Latin American countries is a function of enduring economic and
geopolitical circumstances, it is not immune to policy adjustment;
its scope, forms and direction of change can in most cases be
shaped and managed." A growing number of countries have begun
to experiment with strategies designed to do just this. Because
dependence and the problems associated with its control and
management are so important-they are equivalent in the political
economy of many underdeveloped countries to problems of
military security for the economic and political superpowers-they
deserve to be treated as a distinct and central area of policy-
oriented analysis. As Peter Evans (1971: 692) has put it: "For
most poor countries greater autonomy must mean increased
control over external economic relations, not their absence."
Venezuela provides an especially rich case for the examination
of dependence management. Although many countries in Latin
America are primary product exporters, Venezuela and its oil in
many ways symbolize the extremes of this condition. The figures
are well known: petroleum accounts for 90 percent of export
earnings by value, 25 percent of the gross national product, and 60
percent of the government's income. Production and export of oil
is controlled almost entirely by branches of the world's most
powerful and affluent multinational corporations, among them
Jersey Standard, Royal Dutch Shell, Gulf Oil and Texaco. Nearly
3,700,000 -barrels of crude leave the country every day, destined
140
PETROLEUM POLICY: VENEZUELA 85
to provide energy and raw materials for the more developed

societies of the world, especially the United States. 2
Venezuela's experience with petroleum is also instructive
because the government's relationship with the companies has
followed a course from extreme submissiveness through gradually
increasing self-assertion to the recently declared decision on the
part of the state to take complete control of the industry within a
decade. And, to the extent that the goal of shaping the impact of
the industry upon the country's development has been accom-
plished, it has been by means of a sequence of incremental and
legal policy initiatives. Finally, along the way, Venezuelan policy-
makers have experimented with a variety of different strategies
designed to capture income from the profits generated by petro-
leum exploitation and to control the conditions under which the
exploitation itself takes place. It is upon these strategies, and upon
the conflict between the government and the companies that was
associated with their implementation in the years after 1958, that
this essay will concentrate. 3
The Policy Setting:

Model for the Dynamics of Company-Government Conflict
In considering Venezuela's experience with petroleum policy, it is

helpful to start with a general look at the policy process under
investigation. 4 First, it is primarily a political one. Put another
way" determining the "best" or even an "acceptable" system of
petroleum development in Venezuela, contrary to common
assumption, is not-never has been-susceptible to "rational"
technical solution, nor can decisionmakers rely for guidelines on
the workings of an autonomous market mechanism. Rather, it can
only be handled via comple~ and continuous conflict and b.ar-
gaining between actors with incommensurate goals and differ-
ing and changing forms of power and influence, all under
conditions of great uncertainty. Although this is to some degree
true of all policy areas, it is true to an extreme degree in this
instance. As Michael Tanzer (1969: 20) has put it regarding the
international petroleum system as a whole: "This is an industry in
which the 'economics' are simple while the 'politics' are compli-
cated." Politics does not simply "intrude" into the choice process;
it is the essence of that process. The conflict and bargaining
141
86 COMPARATIVE INTERNATIONAL DEVELOPMENT
themselves are similar in many ways to the "mixed motive" and

"interdependent" bargaining games that have been described by
Thomas Schelling (1963). They also partake of many of the
characteristics normally identified with multisovereign relation-
ships (lkle, 1964; Kecskemiti, 1964).
Second, the process of interaction between private and public
authorities in this, as in many other examples of foreign-
dominated export dependence, is inherently unstable, evolving and
contains an internal dynamic of its own, pushing toward ultimate
replacement of the government-industry relationship itself by
some new form. To be understood, therefore, episodes of conflict
and bargaining must be analyzed within this context of meta-
morphosis. Fixed equilibrium points must be regarded as tempor-
ary and evaluated in terms of past and future changes. The timing
and form of change in the relationship is likely to vary and is
susceptible to a considerable degree of policy guidance, more so
than most of the writing on dependence assumes.
In order to understand the reasoning behind these statements it
is necessary to look carefully at the actors involved. Consider first
the petroleum industry. Although a large number of companies
operate in Venezuela, oil production is controlled almost entirely
by highly integrated subsidiaries of geographically dispersed
multinational corporations. s The parent companies operate in
every phase of the industry, from drilling and transport to refining
and marketing of finished products. They are financially well
endowed and work closely together in a basically oligopolistic
market setting. Much of the strength, independence and efficiency
of these organizations stems from their ability to seek profit
maximization over the entire range of their operations through
central coordination. From the point of view of a highly
dependent country like Venezuela this has widespread implica-
tions. It means, first of all, that Venezuelan policymakers cannot
assume that the profit calculations upon which their subsidiary
operates-and upon which Venezuelan taxes are collected-are
made in such a way as to maximize the taxable earnings to which
they have legal access. This applies to the price paid, the amount
of petroleum produced and even the form of production and
processing undertaken within the country. Each of the corpora-
tions operating in Venezuela controls an immense network of
economic activities, pays a host of taxes-many of which can be
142
discounted against each other-and sells thousands of products in

different countries. Profit maximization demands the determina-
tion of the optimum combination of -these activities to earn the
largest total sum of money for the overall operation, taking due
account of such things as security of resources, corporate growth
and managerial satisfaction.
A related ch~racteristic of multinational petroleum corpora-
tions, stemming from geographical dispersion, is their great
flexibility and adaptability. Each is capable of supplying its crude
oil 'needs from other locations if any area should become
unavailable or should production there become too costly. In
order to maximize profits companies must play prpducing
countries off against each other where practicable. There is a
compelling efficiency in this use of available opportunities to bring
costs down. As Michael Tanzer (1969: ch. 4) has pointed out, it
would be a breach of trust to corporate stockholders if managers
should fail to do so where possible.
To the country that is overwhelmingly dependent upon the
earnings of a few branches of such organizations, there can be
little security that the outcome of their economic activity will be
consistently beneficial unless the corporations are held under tight
control. This has been the concern of social scientists who have
watched this form of economic enterprise spread with such
astonishing speed in recent years. Whatever the national interest
regarding the economic activity is, the multinational corporation,
if it is efficient and responsible, does not, and should not, act to
enhance it-although it may do so purely by chance.
Another important ,characteristic of the petroleum companies is
the nearly unbelievable complexity of their operations (and their
profit calculations). The rapidly growing utilization of computer-
based data processing facilities has contributed to this complexity,
at least from the perspective of the outside observer. Add a
pronounced secrecy about every phase of operations to this
already bewildering formula, and it is easy to understand why so
few people outside of corporate offices feel they understand how
the industry works., It is also easy to understand the sense of
despair that so often grips the policymaker of a small dependent
country as he faces off against the industry.
Consider, for example, the problem of deciding whether a
corporation has charged an adequate price for oil in a recent
143
contract-a problem that was of central importance in company-

government conflict in Venezuela. This involves consideration of
such things as the kind of crude, state of reserves at source,
lifetime of production at source, point of destination, refining
schedules and national quota systems, all in comparison with other
kinds of crudes moving at different tanker rates over different
distances to different refineries, and considered in terms of the tax
considerations involved in taking more or less profit at the point
of the subsidiary, the refinery or the outlet. Shortcuts can, and are
devised for working out pricing policies. But coming to know the
going rate is far different from fig~ring out whether the rate for a
particular contract is the best available for the host country as a
return for its resources, and the problem may involve millions of
dollars.
From the point of view of Venezuelan policymakers, all of
these characteristics added up to high levels of continuing
uncertainty about the country's prime source of livelih'ood. It
meant that they had to assume that, given the need and
opportunity, their country's welfare would be sacrificed by ex-
ternally based decisionmakers: It also meant that for the most
part it would be impossible, for practical purposes, for them to
know whether or not this was being done-at least not by sitting
down and studying the matter.
Clearly these operational imperatives of multinational corpora-
tiOIl'S provide sufficient reason to avoid a continuing dependence
upon their subsidiaries, or several subsidiaries of several corpora-
tions, as was the case in Venezuela. But here, as in the case of
most oil producing underdeveloped countries, we are dealing with
a dependency that was established and became consolidated under
public authorities that knew little about these difficulties. And by
the time these questions came to the fore, Ithe relationship
between the government a!1d the companies had become one of
deep mutual dependence. Both contenders had established great
stak'es ,in the continuity of the production and the profit-making
process. In 1968, for example, the government received directly
from the companies nearly one and one-quart~r billion dollars in
taxes and royalties. This amounted to about $140 for each
Venezuelan. The com panies in turn had a su bstantial fixed
investment they wanted to protect.
The condition of mutual dependence did not stop the relation-
ship from changing; on the contrary, it is clear in retrospect that it
144
contained an inner dynamic that pushed it toward increasing state

control and increased Venezuelan participation in the division of
profits. This evolutionary process acquired much of its distinctive
character from the nature of the bargaining game itself, a game
whose rules and logic formed boundaries within which government
policymakers had to operate.
Foreign investment in extractive industries such as petroleum
requires attractive initial terms in order to induce companies to
take the risks involved in exploration and in bringing new fields
into production. These terms usually include the promise of high
rates of return, a promise which is normally contained in the
concessionary agreement. This agreement, which establishes the
legal regime under which resources are to be extracted, usually
also stipulates some payment to the state in return for the right to
do so. In Venezuela the state is the inalienable holder of all
mineral rights.
As a number of economists have observed (Vernon, 1970;
Mikesell, 1971), once the raw material has been discovered,
extractive facilities built and production brought under way, there
comes a time-usually within a few years-when the high rates of
return conceded in the original concessionary agreement begin to
appea.r unjustifiably generous. In many cases these are double or
even triple the earnings available in other. forms of investment.
This is especially true in petroleum, where historically the
profitability has been enormous. At the same time, the companies
become more vulnerable to demands for change in the distribution
of earning between themselves and the state. They have to an
extent become captives: their risks have been taken and they have
sunk capital in the enterprise. As a result of these changes, the
bargaining terms of the government and the foreign investors tend
to gradually shift to the government's favor, and as time passes it
becomes increasingly likely that the government will ask for, and
the companies will agree to hand over, a larger share of the
earnings. The result is that over time the relationship of the
government to extractive corporations tends to be a dialectical one
in which periodic clashes, clashes in which old agreements a~e
challenged and new ones worked out, alternate with relatively
quiescent periods. All the while, however, there is a steady
redistribution in favor of the state.
In practice, the relationship is usually much more complicated
than this image of two-person bargaining over profits would
145
indicate. And it is the complicating conditions that deny the

possibility of an eventual stabilization of the relationship, im-
pelling it instead to its own transformation. There is, first of all,
the problem of uncertainty: uncertainty pervades the relationship
and is a prime concern to both contenders. As indicated, the
government remains uncertain about nearly everything to do with
company activities: what they earn and how, what their short- and
long-term plans are, how they make their choices, how they will
respond to government policies. The companies are also affected.
To this point the perspective of the government has been s~ressed,
but it should be evident that as the bargaining process described
gets under way, corporate sense of security, especially about
future earnings, begins to erode rapidly. Contracts acquire a
special character in situations of this kind since it is ne~rly
inevitable that they will be called into question in one way or
another before their term is up. They represent a single moment's
agreement, the most recent readjustment in a continuing process.
Other government methods, such as retroactive tax claims, add to
the difficulty of predicting return on operations in any reliable
way.
Closely tied to uncertainty as a complication is government
intervention to control industry activities, including pricing,
choice of production methods and quantities, and determination
of product destinations. Governments seek controls on corporate
policies because they cannot abide the neglect of domestic
interests that is built into corporate decision making. Companies
hate such control because they impede profit maximization,
reduce flexibility and force upon them unwanted priorities.
Furthermore, they create even more uncertainty.
Still another complication is new investments. Continuous
large-scale extraction of resources periodically requires new
investments, sometimes large ones-to explore and prove new
fields; to introduce new production methods, such as gas
reinjection; or to redesign refining processes. The need for new
investments opens up subprocesses within the overall evolution of
company-government interaction in which the companies raise the
risk content, and therefore the price, of new money, and the
government, after the initial deal, has additional incentive to take
the high or "excess" profits that result. This cycle may be
expected to feed back into the smoother, long-term trend of
146
shifting government-company bargaining in several important

ways: first by changing the strategies of the con tenders toward
those techniques, such as tax incentives for investments, that will
compensate for its effect; and second, by reducing the time span
between the episodes of open conflict (adjustment of disequi-
librium) in the relationship, the latter because of the changing role
of time and risk in company calculation.
The most ilTlportant long-term effect of the need for periodic
reinvestment decisions is the creation of a degenerative tendency
in the industry itself. Reinvestment, along with production-source
flexibility, is the big bargaining card in the hands of the industry,
and it will be used to try to block the erosion of company
standing in the bargaining. As the tendencies in this relationship
work themselves out over time-as uncertainty feeds upon itself, as
the margins for adjustment begin to narrow, as short-term
calculations come to predominate and as reinvestment becomes
more costly-the physical health of the industry itself becomes the
final stake.
At this point the issue of transformation in the system of
exploitation may be expected to come to the fore; and policies
concerned with designing and implementing a new system are
likely to take on critical importance. The new form may be of
many kinds, ranging from total con trol by state agencies to joint
enterprises or intermediary solutions such as government-regulated
service contracts. Whatever the form, it is likely to involve a major
shift of decision making authority to the domestic arena, most
probably to the state itself. Only such a transformation can
ameliorate the conflicts and tensions that tend to build up over
time in the old relationship.
The Venezuelan Case: Theme and Variations
In broad outline Venezuela's experience conforms to this rough

model. Since the early twenties, when the government's share of
profits stood roughly at 16 percent, Venezuelan governments have
repeatedly revised their policies to increase their take of income
and their influence over company decisions. Major changes, which
involved long and often bitter clashes with tl'le companies,
occurred in 1942-43, 1958, 1966-67, 1970-71, and will surely
occur again in the future. Interspersed among these were numer-
147
ous minor readjustments. As a result, the government's overall

share of company profits has grown to nearly 80 percent, and its
influence over company decision making has also increased,
though not proportionately (see Table I).
This model only specifies some of the general reasons for the
overall trend in company-government relations; it does not
delineate either the. timing or the form of change. These vary
according to the quality of public policy guidance. This is true for
matters such as income division, kind and extent of government
control, and most important, the outcome or termination of.the
process of transformation itself.
The distinctive character of the politics of dependence manage-
ment in Venezuela is rooted in the character of the domestic
polity itself. Venezuela experienced rapid social mobilization
coincidental with, and related to the onset of petroleum de-
velopment. A system of Left-of-Center political parties emerged
as the organizational expression of increasing participation, and
this in turn led to pressure upon foreign corporations for a greater
share of profits as wel.l as security against unfavorable decisions.
This pressure continued to mount, although the political system
went through a series of contortions-one leading to the infamous
Perez Jimenez dictatorship-and a system based upon competitive
party politics only took solid form after 1958. On the whole, the
oligarchic and dictatorial governments (1935-45, 1948-58), while
concerned with income and willing to bargain for moderate
increases in profit shares, were generally unwilling to challenge the
privately dominated form of .petroleum development itself. The
democratic regimes, beginning with the famous Trienio govern-
ment of 1945-48, exerted much more pressure on· profits and
expressed the desire to manipulate and transform the system itself
in a fundamental way, though by incremental steps. During the era
of democratic politics since 1958, which is the principal basis for
this essay, the domestic political process did significantly affect
policymaking within the government as well ·as the conduct of
company-government bargaining itself. There has been a remark-
able degree of consistency in policy objectives over nearly a
decade and a half and three different administrations: those of
Democratic Action presidents Betancourt and Leoni, and now of
Christian Democrat Rafael Caldera.
148
Table 1 Financial Summary of the Petroleum Industry
(Millions of BolIvares and Percentages)
1949 1954 1959 1960 1961 1962 1963

Total income 2,920 5,093 7,138 7,112 7,324 7,802 7,799
Profit after income tax 704 1,412 1,335 1,283 1,477 1,694 1,679
Profit as % of income 24.11 27.72 18.70 18.04 20.17 21.71 21.53
Income tax 273 585 1,260 1,070 1,217 1,462 1,544
Royalty 628 873 1,444 1,503 1,552 1,703 1,731
Other taxes 155 118 87 66 54 60 56
Total share 1,056 1,576 2,791 2,639 2,823 3,225 3,331
% Government/% Industry 60/40 53/47 68/32 67/33 66/34 67/33 66/33
~ Fixed Assets:
~
\c Gross accumulated investment 7,641 10,212 18,803 18,987 19,280 19,417 19,35'3
Production as % of total 65.29 71.63 72.91 72.91 72.58 72.58 72.10
Net accumulated investment 5,033 5,534 10,375 9,772 9,266 8,664 8,086
New Investments 1,127 933 1,262 730 516 474 511

Total Assets: 6,859 8,569 13,383 12,610 11,984 11,208 10,368

Capital 5,586 6,787 10,739 10,406 10,117 9,248 8,549
Average capital 5,134 6,715 10,171 10,572 10,262 9,683 8,899
Profits as % of average capital 13.71 21.03 13.13 12.13 14.39 17.49 18.87
Profits as % of average
net assets 14.89 25.69 13.33 12.74 15.52 18.90 20.04
(continued)
Table 1 Financial Summary of the Petroleum Industry
(Millions of BolIvares and Percentages)
(continued)
1964 1965 1966 1967 1968 1969 1970

Total income 10,809 10,893 10,587 11,108 11,218 11,063 11,316
Profit after income tax 2,457 2,638 2,504 2,514 2,653 2,261 1,764
Profit as % of income 22.73 24.22 23.65 22.63 23.65 20.44 15.39
Income tax 2,251 2,323 2,260 2,752 2,754 2,751 3,282
Royalty 2,557 2,564 2,531 2,663 2,715 2,722* 2,851
Other taxes 54 50 45 45 44 53 44
Total share 4,862 4,937 4,836 5,460 5,513 5,526 6,178
% Government/% Industry 66/34 65/35 66/34 68/32 68/32 71/29 78/22
Fixed Assets:
~ Gross accumulated investment 19,872 20,342 20,518 20,673 21,635 22,655
~ Production as % of total 71.69 72.31 71.93 71.80 72.18 70.89
a
Net accumulated investment 7,778 7,553 7,043 6,576 6,853 7,361 7,097
New Investments 753 825 638 647 1,182 1,574 1,104
Total Assets: 11,100 11,319 10,462 9,627 10,208 11,270 10,958
Capital 8,431 8,481 7,617 7,160 7,627 7,664
Average capital 8,490 8,456 8,049 7,388 7,393 7,646 7,669
Profits as % of average capital 28.94 31.20 31.11 34.03 35.89 29.57 23.02
Profits as % of average
net assets 30.98 34.41 34.31 36.92 39.51 31.81
Sources and Notes:
Republica de Venezuela (1970) for figures to 1969.1970 data from Creole Petroleum Corporation (1971). The latter figures, which come from
official ministry publications, have been changed into bolivares at the rate of Bs. 4.40 to the dollar.
* Includes 13.80 million bolivares applicable to the period November 19S8/December 1968.
To a substan tial degree this consistency can be traced to the

leadership of Juan Pablo· Perez Alfonzo, who was in charge of
petroleum policy during the Trienio years and who held the post
of Minister of Mines and Hydrocarbons during R6mulo Betan-
court's administration, or until 1964. Perez Alfonzo brought to his
position a rather distinctive "philosophy" or outlook about
petroleum and its role in Venezuela that continued to influence
policy after he left the ministry. The most striking aspect of this
philosophy is that it challenged the entire structure and rationale
of private control of the oil industry, not only in Venezuela but
everywhere, as a system leading necessarily to despoilation of poor
countries and waste of natural resources (Perez Alfonzo, 1960,
1965,1968).
More conservationist than socialist, Perez Alfonzo repeatedly
asserted that oil had an "intrinsio" value as a world energy
resource, one not reflected in market prices, and the only way to
assure a just price was to place it under government control,
domestically as well as internationally. Beyond this, he also
believed that a kind of "soft" imperialism was at work· within the
international system, one not so much the product of hard and
fast economic laws of history as the natural result of political and
economic inequality. Finally, he felt that Venezuelan development
was reaching a point at which it was absorbing oil income
inefficiently, and that in the future growth of income should be
slowed down to rates equivalent to the country's overall growth
rate. He also felt that this would help decrease dependence upon
oil in the economy. This outlook, which contrasted sharply with
that of the oil companies and many of the government's domestic
critics, played an important part in shaping the content of policy.
Policy itself, broadly speaking, sough t three things: income,
control, and transformation of the regime of exploitation.
Policy in Action: 1958 to the Present
Petroleum policymakers in the years after 1958 experimented

with several alternative strategies to achieve these objectives, and
to achieve them in such a way as to avoid a traumatic disruption
of the earning process. For present purposes their efforts may be
divided into six phases. These are analyzed, in chronological order,
below.
151
1. Increased Taxation, the End of Concessions

and the Creation of the State Petroleum Corporation
Within months of the fall of Perez Jimenez in 1958 the

provisional government, headed by Wolfgang Larrazabal, hit the
petroleum industry with an unexpected raise in income taxes. This
provoked an unusually angry response from companies because it
broke the 50/50 tax' split the companies had come to rely upon as
a standard of equitable taxation everywhere (after Venezuela first
imposed it in 1946). Forty/sixty was the new standard, and it,
too, would go up.
When the Betancourt administration came into office in early
1959, Perez Alfonzo announced that no new concessions would b,e
sold and in the future other forms of exploitation would replace
them. In addition, he announced plans for the creation of a state
oil corporation, which soon came into being as an autonomous
agency unqer the Ministry of Mines and Hydrocarbons.
Industry reaction to these measures set the pattern for nearly a
decade. The companies warned that the government was destroy-
ing the industry by taking too much and creating great uncertainty
about the future. Pointing to the weakening international price
structure and lower productions costs in the Middle East, they
warned that Venezuelan production would be supplanted in its
traditional American markets and new investments in the industry
would be curtailed since the profitability of Venezuelan oil was
undermined. 6
2. International Control
What the companies said abou t the international price structure

was correct, and the strong downward pressure on prices was a
source of great concern to Venezuelans. The causes of this
pressure, which manifested itself in sudden cuts in crude prices in
1959 and 1960, are extremely complex. At· the risk of over-
simplifying it can be stated that the cuts were the result of a
cumulative oversupply of petroleum in the· world market caused
by the appearance of a large number of producers, both small- and
medium-sized, which itself was stimulated by the oil scarcity
following the Suez crisis of 1956-57. Faced with a vastly increased
demand for oil to power modern industry, the traditional cartel's
152
control over the quantity produced had begun to loosen, with a

resul ting weakening in the price.
In response to this condition, Venezuelan policymakers under-
took to insulate the country in several ways. The most original of
these was their attempt to modify the nature of the international
petroleum market itself. Beginning with an extended dialogue
between Perez Alfonzo and a Saudi sheik, Abdullah Tariki,
Venezuela took the initiative in the creation of the Organization
of Petroleum Exporting Countries (OPEC), an institution intended
to promote collaboration among the chief petroleum exporters of
the world. Formed in 1960, OPEC soon had a membership of
eight and accounted for nearly 90 percent of the oil entering
international trade. It was Perez Alfonzo's hope that these
governments would agree to the establishment of a comprehensive
international prorationing system, thus giving OPEC control over
the quantities of oil entering the market and thereby assuring
"adequate" and steady prices. Unfortunately, in spite of contin-
uous efforts on the par~t of Venezuelan oil diplomats, including
numerous meetings between Perez Alfonzo and his counterparts in
other countries, prorationing con trol never materialized. Conflicts
among the Middle Eastern members proved too numerous to
~ustain such coordination, although OPEC did subscribe to this as
an objective.
Venezuelan initiatives-and its example-did contribute to a
growing process of self-assertion in the Middle East and North
Africa that-in 1964 and then in 1971-led to substantial increases
in the "take" of company profits by the governments of the area.
In 1964, changes in the rules regarding determination of taxable
income are estimated to have cost the companies 400 million
dollars for 1964-66 alone, and the 1971 raises in tax levels will
almost surely bring still larger increases. Many observers feel the
governments are no longer bargaining for a greater share of profits,
but are now forcing prices up (for example, Levy, 1971: 668-9).
These tax hikes, the latter forced by the unified threat of global
oil embargo, shocked both the industry and consumer govern-
ments alike. Although changing domestic conditions in North
Africa and the Middle East plus growing oil scarcity were the
primary reasons for the actions, no one familiar with the oil world
would question Venezuela's role as a catalyst in setting up the
conditions of international cooperation which made them pos-
153
sible. And the benefits to Venezuela have been indisputable. 7
3. Direct Intervention in Pricing Policy
The same circumstances that provoked Venezuela's diplomatic

offensive led petroleum policymakers to consider active interven-
tion in decisions that had always remained in the hands of
individual companies. To begin with, they organized a new
institution within the Ministry of Mines and Hydrocarbons called
(somewhat mellifluously) Coordinating Commission for the Con-
servation and Commerce of Hydrocarbons (Coordinating Commis-
sion for short), to which they assigned broad power with respect
to the production and marketing of the country's petroleum. It
was a significant step; it was the first time in Venezuelan history
that the state had asserted its right to influence marketing
decisions.
Composed of a group of officials from the ministry, the
Coordinating Commissio~ was from the start a highly pragmatic
institution. Very few people at the outset had a clear idea of what
it proposed to do and what instruments it planned to utilize to
implement its decisions. From the statements of Perez Alfonzo,
however, it is clear that he foresaw a number of major roles for it.
He saw it first as a general monitor of the entire industry, working
with the rest of the ministry to keep a close watch over the
activities of the companies through information solicited from
them and gathered through many other channels. Second, he
expected it to serve as a control board which would, on the basis
of the information obtained, make recommendations or orders-as
the need might be-to prevent marketing decisions from exceeding
the broad limits set by government policy. As such it would make
decisions regarding production levels, destinations and even prices.
The principal model for the agency was the prorationing system
already established in the United States in which boards were
empowered to make key decisions about production levels in
order to prevent wasteful and destructive competition. Perez
Alfonzo hoped at this time that Venezuela would be able to
establish such a system for itself. A conservation enterprise at its
best, it would not only set broad percentage rates for production
increases, but would also distribute production quotas among the
154
various producers in the field. He even invited a member of the

most famous American prorationing board, the Texas Railroad
Commission, to come to Venezuela to assist in drawing up plans.
The success of any prorationing system depends upon the
capacity of authorities to achieve and maintain control of the
principal sources of supply to the market; otherwise it can only
have marginal influence over either quantity or price. In the
United States this kind of control has been largely established.
Venezuela does not have sufficient market autonomy to make this
possible without coordinate action in areas under the real or
potential control of other states. Although Perez Alfonzo hoped
that such coordinate action could be achieved, it did not exist at
the time of the creation of the Coordinating Commission. As a
result this larger role of the agency remained a latent function
which influenced its actions but could not be fulfilled without
complementary success in other areas of policy, specifically in
bringing together the other underdeveloped producers in a grand
international prorationing organization.
This is not say that the Coordinating Commission had no role at
all. On the contrary, there were a number of ways it could and did
pursue the broader aims of policy. To begin with, it quickly
assumed the position of a central monitor of the industry. Before
1959 information as a resource was neglected. Venezuelan experts
were well-informed about the technical aspects of production
within the country; they knew the principles of conservation and
the procedures for bringing up oil in the best way; but they had
very'little idea of what went on in the industry as a whole. After
1959 this changed quickly. The minister turned the Petroleum
Economy section of the Ministry of Mines into a central
information-gathering agency and instituted a system of world-
wide statistical collection. Newly formed ties with the Middle East
proved of tremendous help in this respect. The section also began
to make careful studies of the international petroleum system. The
resulting data was then used by the Coordinating Commission to
analyze the marketing decisions of the industry in Venezuela. In
addition, the commission began in early 1960 to require detailed
reports directly from the companies about their expected opera-
tions for the next six months, including, significantly, sales
contracts. However, the Coordinating Commission's main concern
155
was prices. Prices were under downward pressure, and a drop in

prices meant a corresponding drop in government income.
The term "posted price" in petroleum parlance refers in theory
to the price at which crude oil is commonly sold by producers to
the refiners for processing. However, in recent years "posted
prices" have rarely reflected the actual prices of crudes because of
the practice known as "discounting." It has always been custom-
ary for companies to give discounts of various amounts to large or
steady customers; and since the Suez crisis discounting has become
universal to the extent that there exists a flexible set of "ghost"
prices that fun parallel, but below, the prices officially posted.
Discounts are rarely made public, of course, but most people
familiar with the petroleum business would be able to cite the
"going" rates for crudes in the various areas 'of the world. Posted
prices retain their importance, but as a guide to discounts rather
than as realizable prices. Also, and perhaps more important,
posted prices are used for the purpose of taxation in most of the
major producing countries. Venezuela was an exception to this
during the period considered; instead taxes were paid on "realized
prices" or the prices actually paid by the buyers. As might be
expected in a buyer's market for petroleum, there was a strong
tendency, in the absence of cu ts in posted prices, for companies to
use the discounting system as a functional equivalent of dropping
prices. 8
The members of the Coordinating Commission were well aware
of this tendency, and they immediately took up the question of
discounting, bringing pressure upon companies to try to prevent
them from granting large or "abnormal" discounts in their sales
contracts. In meetings with company executives, members of the
commission discussed selected sales contracts-either pending or in
effect-and explained whether or not they felt that the companies
had granted abnormal discounts. They then urged them to make
revisions. The companies in turn pressed for specific, concrete
guidelines as to what the government considered "abnormal"
discounts and what it felt were acceptable, so that they could
make their marketing decisions on this basis. But the commission
did not respond, giving only vague estimates. As one member put
it, "the commission works with a minimum of ground rules and a
great deal of 'feel' for the marketplace." It preferred to stick to
pragmatic and flexible discussions about specific contracts rather
156
than to set down rigid rules. It defined abnormal as simply

"outside the normal limits of trade"-which is no definition at all.
The relationship that gradually took shape was one in which the
government focussed on certain cases and assumed that the
companies, under pressure from the conflict, would derive their
own lessons from the interaction and apply them across the board.
Needless to say, the procedure was far from satisfactory from the
companies' point of view.
The commission began its active scrutiny of sales contracts early
in 1960, and in the course of the spring announced several times
that it had come upon special deals by which Venezuelan oil was
being sold at prices lower than those prevailing in the market, and
that the matter was under discussion with the companies involved.
As far as this writer can determine, the negotiations taking place at
this time led to an adjustment satisfactory to the commission.
It was not until August 1960 that the authority of the
commission was directly challenged. This took the form of a
refusal by two small operators, Superior Oil Company and the Sun
Group, to modify several contracts the commission felt contained
abnormal discounts. The breakdown of negotiations in this case
brought the question of sanctions to the forefront for the first
time. The government was forced to take action or abandon its
efforts to prevent such discounts.
Consequently, the commission ordered the wells of the com-
panies shut in and their other productive activities stopped
pending modification of the contracts. Also, it issued a resolution
designed to justify the action and notified industry that the
shut-in procedure would thereafter be the basic administrative
practice in dealing with excessive discounting. Among other
things, the resolution provided that:
Whereas the Law of Hydrocarbons establishes that everything relative to

hydrocarbons is of public utility, and in .... Article 59 imposes the
obligation of concessionaires to carry out their operations in such a manner
that waste of these substances does not occur ....
Whereas abnormal discounts in the sale of hydrocarbons constitute an
economic waste contrary to the national interest, and could provoke the
deterioration of petroleum prices in the international markets ....
Therefore: This Ministry will order the suspension of production which in the
judgment of the Coordinating Commission for Conservation and Marketing of
157
Hydrocarbons is destined by concessionaires for sale at abnormal discounts.

The Commission will make recommendations after analyzing each case
(Republica de Venezuela, 1961).
Within ten days the two companies agreed to modify their

contracts and production was resumed. As it turned out, this was
the only occasion in its efforts to achieve active control of current
marketing practices that the commission resorted to such sanc-
tions.
On the whole, the government did obtain partial compliance
with its demands in this first period of surveillance. Representa-
tives of the larger corporations admitted that "marginal" dis-
counts-that is, the more extreme ones-were avoided when this
was possible because of the desire to avoid conflicts with the
government. The most important impact of policy was upon the
smaller companies and independents. The government clashed
with them repeatedly, as. has been described, and on one occasion
enforced its mandate. The control of the independents was mainly
a contribution toward the stabilization of the international price
structure-it meant very little for Venezuela in terms of income
saved because of the small volume of sales involved.
The phase of active control, in which the commission pursued a
policy of constant intervention in the current marketing decisions
of the companies, continued for another year and a half, or until
the middle of 1962. 9 Throughout this period surveillance of sales
decisions, accompanied by negotiation between the Coordinating
Commission and company executives, continued. But the vigor of
government action was declining. This decline, leading eventually
to the adoption of a new approach to the entire problem of
pricing and discounts, took place for several reasons. One was
basically administrative. The Coordinating Commission was never
able to keep track of the companies' marketing decisions. Its
leaders, though highly trained, lacked experience, and the commis-
sion itself lacked the staff and facilities it needed to do the
complex job it had assigned itself. At the height of its control
activities, it was relying heavily on the companies' reports about
their contracts, and judging these according to very general
estimates qf prevailing price structures. To do an effective job, it
eventually would have had to develop the resources to duplicate in
detail the marketing decisions the companies were making for
158
many hundreds of extant and future contracts. Since this was

impossible, it found itself on the defensive, with fewer facts at
hand than the companies.
In the absence of the ability to keep track of all industry
transactions in the detailed manner necessary, the government was
unwilling to provide fixed guidelines for the companies to use in
making their decisions. Instead, the commission turned to a kind
of sample-effort system which actually relied on the uncertainty
and insecurity it created to multiply the effects of token
surveillance. The companies were unhappy about this arrange-
ment: they felt that they had no security in making their
marketing decisions, and they constantly, but with little success,
pressed the governmen t to give them clear guidelines. Thus the
government was tagging along after the companies, urging them to
do its bidding while knowing full well that their claim that they
knew more about market conditions than the government was
quite correct.
The larger companies were able after a time to adjust their
competitive behavior to the new rules of the game and eventually
gained a substantial upper hand in the process of conflict
resolution. They did this through hard argument and the use of
only incremental changes in their discount practices. By the end of
1962 the majors were selling petroleum at about the prices they
would have chosen without the intervention of the Coordinating
Commission. Unlike the independents, they were not inclined to
give very large discounts anyway-that is, discounts that clearly
crossed the ambiguous government thresholds. Also, they could
more easily manipulate downstream variables to compensate.
Fi~ally, they knew that the government would be unlikely to shut
in their own production since it would cost many millions of
dollars and, if it lasted more than a few days, would entail losses
to the government beyond recuperation through discount adjust-
ments of any magnitude.
After three years of experimentation with active control
methods, Venezuelan policymakers began to feel that their goals
could probably be better accomplished some other way. While the
establishment of a true international prorationing system might
easily have justified this approach, it had become clear that little
could be done this way while external conditions remained the
same. The year and a half following the fall of 1962 was a period
159
of transition in which policymakers, aware of the weaknesses of

their experiment in active control, began to search" for alternatives.
4. Retroactive Taxation
The Coordinating Commission continued for a period to review

the contracts for the sale of petroleum, though in much less detail.
But instead of trying to take up particular contracts and force
revisions in them, it began to make broad complaints about prices
in general and hinted that it might levy retroactive taxes in the
future on sales it felt were made at unacceptable price levels, i.e.,
at prices lower than ones obtainable. 1 0 At the same time, the
Ministry of Mines and Hydrocarbons set to work reviewing the
prices paid by the companies in the past. In 1963 this led to a
relatively small back-tax claim for the year 1957. The companies
disputed the validity of the claim and refused to pay it. In spite of
this reluctance, the Leoni administration after 1964 took up and
elaborated the practice of retroactive taxation as an alternative
strategy for exerting pressure upon the companies. By 1965 the
total amount of claims, covering only the years up to 1960,
reached more than 110 million dollars.
The claims had two purposes. To begin with, administrators
hoped they would exert pressure on the companies to keep their
prices at the highest possible levels in order to avoid further claims
in the future; second, when paid, they would add a substantial
amount of money to the treasury. The companies firmly resisted
this new direction of government policy, steadfastly refusing to
pay. At the end of 1965, facing a deadlock, the government and
the companies agreed to conduct high level negotiations in an
effort to find some solution.
Meanwhile a vigorous public debate began in Venezuela about
the conduct of petroleum affairs, and while the impact of
domestic politics on policy is not the principal subject of this
essay, the positions taken by the industry and its allies and the
government provide a clear view of the conflict and are worth
summarizing.
It was pointed out earlier than when the junta government in
1958 abruptly raised Venezuela's taxes wjthout consulting the
companies, the majors stated (El Nacional, December 26, 1958: 1)
that they would be forced to reconsider their future investment
160
policies in the country. In its efforts to circumscribe company

freedom in marketing decisions, the coalition government gave the
companies little cause to change their minds, and they soon
decided to engage in a program of graduated disinvestment in the
Venezuelan industry.
As a result of this decision, exploration and drilling activity
slowed and net capital investment decreased. Employment de-
clined also-some 25 percent in the 1960-65 period. Production
levels, which the ·government had expected to incre'!se so fast it
planned to limit them to the optimum per year of 4 percent,
dropped to an average well below this figure. These trends stirred
up a great deal of controversy within Venezuela, where critics of
the government charged that it was "killing the goose of the
golden eggs."
When asked about these trends, the companies explained that
the general "climate of investment" in Venezuela was unfavorable,
and that they had no security in planning for the future. With the
concessions system terminated, and no "viable" alternative created
to replace it, their future role was in question and they had no
incentive to do further exploration or to increase their investment
levels. They also pointed out that the petroleum of the Middle
East and North Africa had become more "competitive" than the
Venezuelan product because of high taxation levels, and that the
capital that had been diverted from Venezuela was in fact going to
these "more promising" areas (EI Universal and EI Nacional,
passim).
Government spokesmen responded to this criticism by challeng-
ing the contention that the reduction in the levels of exploration
and inves·tment by the companies was caused by the end of the
concessions system and the failure of the government to replace it
with a new system. They pointed out that existing concessions,
which would not run out for two decades, were for some
3,700,000 hectares of which only 508,000-or about one-seventh
-had been explored, proven or actually utilized by the companies
holding them. They also noted that Venezuela had a well-
established petroleum economy and did not require the kind of
massive investments needed in earlier phases of exploitation (Uslar
Pietri, 1966:82-3). They did admit that the drop in investment
and activities was excessive, but charged that the explanation had
little to do with comparative cost calculations, but rather lay in a
161
strategic decision on the part of the companies designed to

pressure the government into changing its policies. The evidence
strongly supports this contention, at least as far as short-term
calculations were concerned. l 1
A careful examination of the claims and counterclaims reveals
that both parties understood the steps being taken and the reasons
for them; but that the basic conflict was built into their
relationship. The companies felt that their measures were both
legitimate and necessary in terms of their own interests. The
government, on the other hand, felt that the measures were not
necessary and indeed represented a freedom of action that was not
legitimate insofar as it allowed the industry to judge, according to
its own private standards, whether or not it would thwart the
hopes and plans of the government of the entire community. It
was not inclined to supply the security demanded by the
companies under existing circumstances, because it believed that
binding itself in this way would allow the companies to enlarge
this freedom. Yet the deadlock remained, and something had to
give if both parties were not to suffer severe and unwanted
deprivations. The companies were still making good profits and
the government was receiving essential income; the condition of
mutual dependence, established very early in the game, still
obtained. Furthermore, the health of the industry had clearly
come to the fore as a central stake for the first time.
5. More Taxes, Reference Prices
and Promise of Service Contracts
The deadlock was eventually broken through intensive bargain-
ing in which the contenders again located a new-albeit temporary
-point of equilibrium. In the bargaining process itself the
government committed a serious tactical error in seeking a
comprehensive tax reform in which both the companies and the
domestic economic elites would have to pay more. The resulting
alliance weakened the government and forced it to seek a quick
solution in order to strike a separate bargain with the companies
and thereby undermine its domestic opponents. However, it was
able to gain some objectives. The agreement contained the
following basic elements:
A. Tax Claims! 2
The overhanging issues of back tax claims were resolved by a
162
compromise in which the companies accepted the obligation to

pay the claims, but in which the amount of money they would
pay was considerably smaller than the amount of the total claims.
The companies agreed to pay a sum of 700 million bolivares
(about 155 million dollars), the major portion in installments over
a period of five years and the rest to be made up in the form of
public works to be performed by the companies for the
government. The government, in turn, agreed to consider the
claims for the years up to and including 1965, paid. Recall that
the sum of the government's claims for the years up to 1960 alone
had reached a sum of approximately 110 million dollars, so the
government, in theory at least, was giving up a considerable legal
claim. However, since the companies had refused to accept the
legality of the claims, the government was faced with the prospect
of having to take the issue to the Supreme Court with the massive
task of proving its contenti9ns about company sales-and there
was considerable doubt that it could have done so in any clear
fashion. For the year 196.6, which was not covered by the
agreement-it was scheduled to go into effect in the beginning of
1967-the companies agreed to pay taxes on prices no lower than
those prevailing in 1965, thus assuring that the government would
not be forced to accept any drop in prices, for tax purposes, in the
intervening period.
B. Prices
The long and bitter controversy over the prices for which
Venezuelan petroleum was sold-the central concern in the work
of the Coordinating Commission and the heart of the back tax
claims themselves-was the subject of the most important of all
agreements concluded at this time. The companies and the
government agreed that for a period of five years (1967-71) all
crudes and products exported from Venezuela would have a set of
reference prices to serve as the basis for taxation. These would be
set by negotiation five years in advance, and though it was implieG
that the companies would be free to sell at whatever prices they
wanted to, they would always pay taxes according to the reference
schedule. In case realized prices should rise above the reference
levels, taxes would then be paid according to the higher realized
prices. The government announced that a list of reference
prices-which were above the current realized prices-had been
163
agreed upon by the companies, and furthermore that they would

by agreement increase annually during the five-year period. l 3 The
prices themselves were to be kept secret.
The reference price system represented, more than any other
part of the agreement, a modification of petroleum policy. For the
government-implicitly but clearly-abandoned its intention to
intervene directly it:I marketing decisions to press up the price
level. Even more serious, depending on future market conditions,
the companies would now be free, if they felt it necessary, to give
very large discounts and to contribute to a deterioration in the
world price structure. The change was not in fact a great one since,
as has been noted, the Coordinating Commission had already
largely abandoned its efforts in this realm. And the government
would have the opportunity of judging the course of prices
periodically every five years when the time came for the
agreement upon a new schedule of reference points.
The direct benefits the government expected from this com-
promisory system were quite substantial. As the minister of mines
pointed out, the country had been suffering for years from a
steady deprIvation of income owing to dropping realizations. For
the next five years this trend would be reversed with prices, for
tax purposes anyway, increasing steadily.
C. Production Levels: A Gentlemen's Agreement

During the negotiations the government also attempted to
obtain from the companies an agreement about the levels of
production to be maintained, but the companies refused to bind
themselves legally on this point. However, though it was not
announced publicly, the companies did make a "gentlemen's
agreement" to increase their production figures to a rate of 3-4
percent for the coming year at least, and to keep this up, if
possible.
D. Current Taxation
In return for the companies' agreement to the new reference
system and to the payment of back tax claims, the government
announced that it would modify the new taxes it had proposed as
part of the tax reform so as to lighten somewhat the new levies on
the incomes of the companies. And incentives to promote
reinvestment, exploration, drilling and secondary recovery were
164
included. However, the companies would have to face still another

tax hike: from 65 to 68 percent of profits.
In explaining the changes in the tax proposal, Minister of Mines
and Hydrocarbons Perez Guerrero stated that he had been
instructed by the president to be flexible in negotiations about the
possibility of a modification in the original plan for an increase in
the income taxes on the companies if the overall results of the
agreement would provide the same increase in funds the govern-
ment had intended to obtain with the reform. He said that the
agreement had achieved this. He went on to estimate that as a
result of the taxation changes in the new agreement-that is the
new but lower tax-and reference prices combined,- the govern-
ment would receive an estimated increase of 350 million bolivares
a year (approximately 77 million dollars)" 4 Altogether, govern-
ment officials estimated that the 1966 agreement would add
approximately 850 million bolivares (or 193 million dollars) to the
country's treasury for each of the five years the agreement was to
last. 1 S
E. The Conditions of Exploitation

In his address to the nation disclosing the agreements on taxes
and prices, President Leoni also announced that the Ministry of
Mines and the CVP had been working on a series of formulas for
service contracts. He said that in view of the "climate of mutual
understanding" between the government and the companies, the
possibilities for the conclusion of service contracts were very good.
Late in October the minister of mines presented (El Universal,
October 27, 1966: D-l) a detailed sketch of the general conditions
the government felt would be acceptable for service contracts. The
variations suggested included mixed companies limited to extrac-
tion; integrated mixed companies; and service contracts in the full
sense of the term. All were to be under the supervision and control
of the CVP. The purpose of the new arrangements, as the minister
explained, was to be "the attainment of a broad operative
participation of the Venezuelan state, through the CVP, along
with a more adequate financial benefit for the nation."
When measured against the objectives of government policy the
1966 agreement contained a temporary admission of failure-
failure in both the strategy of direct intervention via the
Coordinating Commission, and in the strategy of indirect interven-
165
tion via retroactive taxation. There were, however, incremental

benefits. One of these was increased income from back taxes as
well as new taxes and reference prices. Another was the
acquisition of an acknowledged role in pricing matters, partly as a
result of company agreements to pay ba~k taxes, but mainly as a
result of the reference pricing system which would hereafter be an
important additional instrument of policy, one much more
satisfactory than either direct intervention or retroactive claims. A
more subtle gain was in the form of information: the agreement
constituted an admission by the companies that Venezuela was
still a going concern in terms of earnings. They agreed to a
significant and immediate income tax hike and some loss of
freedom in return for small and very short-term gains in certainty.
6. Higher Taxes and Reference Prices, Gas Nationalization

and the Reversion of Concessions
The 1966 agreement provided the basis for only a short pause in
the conflict. The years following witnessed a steady rise in tension
and a general acceleration of the pace of change. The 1983 date at
which most of the old concessions agreements will expire began to
loom large in everyone's minds. It became clear that the handling
of the transition to a different mode of resource development was
at hand, and this would require the most careful preparation if it
was to be done without major disruptions. At the time of writing,
the moves and countermoves in the latest-and probably next to
last-phase in the old relationship were just getting under way.
Venezuela was fortunate in this period because events in the
international arena proved extremely helpful. As mentioned
earlier, the other OPEC members, taking advantage of the Suez
closure and the shortages of oil, successfully pressed claims for
large tax jncreases. Oil prices rose, as did tanker rates, and
Venezuela's comparative advantage improved. Domestically, a
good deal of initiative in pressuring the companies passed to the
Congress, where Caldera did not enjoy a ruling majority.
A. More Taxes
Late in 1970 the Venezuelan Congress passed still another
increase in the basic income tax, raising the effective government
166
share of profits to an estimated 80 percent, this to be retroactive

for the entire year of 1970.
B. Higher Reference Prices

At the same time Congress authorized the president to act
unilaterally to set reference prices. Previously these were set only
after negotiations with the companies. In March 1971, Minister of
Mines and Hydrocarbons Hugo Perez La Salvia announced that the
reference prices were increased by nearly 30 percent, and that the
structure of these prices was modified to provide for higher taxes
on "sweet" (low sulphur) oil as well as refined products.
c. Gas Nationalization
In April 1971 the president nationalized all of Venezuela's
natural gas reserves.
D. Concessions Reversion
In July 1971 the president signed into law the now famous
Hydrocarbons Reversion Law. Although the form in which the
law's provisions will be implemented remains unclear at this
writing, it provides that: (1) all concessions and other properties
owned by the companies in Venezuela will revert to state
ownership in the early 1980s, when the concessions run out; (2)
unexploited concessions land (about 70 percent) will be returned
to state control in the course of the next three years; (3) the
companies will be required to post a bond with the government-
which will not be ta~ free-amounting to 10 percent of the value
of their installations,· in order to guaran tee that these are in good
condition when turned over to the state;. and (4) company
operations within Venezuela hereafter will have to be approved,
and the government will have the power to tell the companies
where and when to drill new wells. It was generally understood
that the administration would make some efforts to soften the
impact of these provisions. Company responses have been few,
presumably awaiting further clarification.
E. Possible Further Measures

As 1971 drew to a close there was widespread speculation
within Venezuela that the government would soon take over the
two-thirds of the domestic petroleum market remaining in private
167
hands and turn it over to the state corporation. Even more

significant, journalist sources were predicting that the government
would extend its powers to the realm of production quantities for
the first time. Crude production increases averaged only 2.4
percent per year during 1966-70, and many felt the government
would try and force the companies to meet the 4 percent annual
increase rate that is the national goal.
While the government was piling taxes, restrictions and controls
upon the industry in rapid succession, the first solid moves were
under way to begin new oil development under the system of
government-sponsored "service contracts." Following negotiations
begun in 1968, the first substantial contracts were signed in the
summer of 1971. The conditions: 85-90 percent profits plus a
major voice in operations for the state. Whether this system is the
one that will ultimately replace concessions is still unclear.
However, the fact that bargaining on these terms for further
exploitation is even possible is a sign that the profits are still
substantial enough to attract foreign investment, even to a highly
controlled relationship.
Conclusions
The first conclusions to be drawn from this case concern the

definition of the problem of dependence itself. Two common
approaches seem especially unfortunate in the Venezuelan context
in that they involve a misperception of the forces at work and do
little to clarify the range of alternatives open to policymakers. The
first of these-the technocratic approach, found often in the work
of economists and technical advisors-neglects the political process
that is the heart of decisions about dependence. Although the
interdisciplinary work of Albert Hirschman and others has
heightened general awareness of the multidimensionality of
developme~t policy problems, critics often fail to adopt this more
complicated outlook.
The second, a more abstract theoretical approach coming from
the Left, denies that there is any choice at all, postulating instead
a condition of extreme and increasing submiss~veness. This is also
mistaken. As we have seen, there are a number of "built-in" or
structural tendencies in the process of interaction between foreign
companies and governments in cases of major export dependency.
168
These tendencies seem to lead to an increase in domestic

self-assertion and eventually to a transformation of the inherited
relationship itself toward a form marked by greater domestic
control-that is, to a widening of the range of choice for national
policymakers rather than the reverse. What both of these
approaches tend to neglect is how available options can be
identified and implemented in practice.
Some of the most interesting conclusions from Venezuela's
experience relate to this, or to what might be called the
cybernetics of dependence management, Le., the role of informa-
tion and learning and its impact upon control possibilities in the
bargaining process. If uncertain ty was a pervasive and in tegral
characteristic of the relationship, information and the ability to
"read" and learn from interaction was a precondition for success.
This is generally true for interdependent bargaining of this kind.
The kinds of criticism that have been directed against policy-
makers attempting to work with problems in this category indicate
that there is little understanding of the proportions of this
problem. Until ,very recently no Venezuelans knew how the
industry worked as far as its large-scale decisions were concerned.
The notorious "policy of silence" and the general secretiveness of
multinational corporations contributed significantly to this. Perez
Alfonzo and his Middle Eastern counterparts complained fre-
quently that the companies "treated them like children." How-
ever, as they became more determined to shape the impact of the
industry upon the country, Venezuelan policymakers found a
variety of means by which to improve their informational stand.
The acquisition of new data became a prime occupation of the
Petroleum Economy Section of the Ministry of Mines and
Hydrocarbons. Data about domestic operations were extracted-
practically subpoenaed-by formal demands. And the OPEC
proved invaluable in facilitating accumulation and transfer of data
about company operations at the international level. Playing
countries off against each other became noticeably more difficult
as a result. The change in the international bargaining climate
which proved so beneficial to Venezuela in handling its own
problems can be attributed as much to the rising level of
understanding about international oil as to the growing self-
assertiveness of dependent governments. Indeed Venezuela's petro-
leum diplomacy stands as one of the most creative parts of its
169
overall effort, and its success one of the most important lessons to
be drawn from the case.
Ultimately, the most important source of information and
understanding was the bargaining process itself. Herein lie the
most importan t conclusions of this essay. The nature of the
relationship was such that only forceful and admittedly experi-
mental initiatives seemed to provide policymakers with an
accurate sense of the range of choice available to them. How much
income could be extracted? How much control could be
imposed? What were the best ways in which to extract income
and force government priorities upon the corporations? Answers
to these questions were unavailable· in the absence of continuous
experimentation.
The series of experiments which ended in the reference pricing
formula are especially instructive in this regard. While a reference
system of a different kind had been in use for years in calculating
royalties, policymakers discovered its attractiveness as a means of
control only after failing with two other forms that were more
flexible and direct: active control via the Coordinating Commis-
sion and retroactive taxation. Each of these, or both together,
would have left the government free to squeeze out every marginal
penny while constantly pressing the com'panies to price according
to government wishes. But they were unmanageable. The govern-
ment could not supply itself with the knowledge and expertise, at
acceptable costs; that were required for such direct intervention.
Venezuela's problem in this respect is similar to that faced by the
Federal Communications Commission in the United States when it
announced that it did not have the resources to determine the
fairness of Bell Telephone rates. Organizationally, in both cases,
the regulated and the regulators were so unequal that direct
control of this kind was impossible; other approaches and
instruments were necessary.
The stress here upon conflict, experimentation and bargaining
as a means of eliciting information and helping shape adequate
policies will be recognized immediately by those familiar with
Charles Lindblom's (1959, 1965) work as an example of the
benefits of "muddling through." It will also be familiar to those
acquainted with the orien tation toward development decision
making that has been so persuasively expounded by Albert
Hirschman (1963). In particular the case of Venezuelan petroleum
170
provides an example of what Hirschman (1967) has called the

principle of the "hiding hand." By this he means that there is
usually more creativity and problem-solving ability around than
we realize and that this creativity is activated by going ahead with
projects even if we are unsure of our ability to handle them.
Indeed, our inability to grasp the full range of difficulties that will
arise may be viewed as a blessing in disguise, since we might not
have undertaken them if we had been aware of what we were
getting into. What Hirschman is stressing is that new efforts to
control a portion of the world often generate commitment,
thought and learning that otherwise would have remained unused.
Responsibility, education and competence can grow together and
reinforce each other.
These thoughts lead to the observation that, at least in the
middle stages of dependence management, an aggressive and
openly experimental strategy is likely to be the best in dealing
with foreign companies; that uncertainty and the absence of a
"sure" technical program for maximizing measurable goals ought
not to deter self-assertion. On the contrary a measure of
self-assertion may very well be necessary to help clarify the
meaning of self-interest and help design and implement strategies
to promote it.
Sustaining such an approach over an extended period of time
may be very difficult. A government following a strategy of this
kind is likely to encounter domestic political problems as a result.
It will be susceptible to charges from the Right that it is
irresponsible, its policies aimless or dangerous. Certainly the
companies and their allies did their best to generate such opinions
in Venezuela. Critics on the Left may portray it as weak, a sellout
to the forces of international capitalism.
In attempting to implement a strategy of this kind the role of
theory or ideology is critical. It provides a filter for information, a
source of new bargaining positions and acts as an overarching
guide and justification for policy as a whole. Such a theory, a
coherent and enduring interpretation of the international petro-
leum system and of the proper role of petroleum in the country's
development, provided the backbone for Venezuela's policy
initiatives for nearly a decade and a half, ·-and persists to the time
of this writing. It was an invaluable and unusual asset. Most of the
"accepted" analyses of development problems originate in de-
171
veloped countries and take the point of view of those countries or

the international economic system of which they have been the
chief beneficiaries. It is very difficult for policymakers in less
developed countries to generate a concrete, coherent but "dissent-
ing" understanding of these problems and hold to it in the
presence of a very extensive and technically elegant literature
justifying existing relationships.
The role of a strong and consistent theory in petroleum policy
matters in Venezuela adds support to Nathaniel Lefrs (1968)
argument, based on his work in Brazil, that the form and content
of elite ideology can be of central importance in determining the
quality of development policy. In dependence management
matters, it would seem especially important in determining
whether a moderate, incremental and experimental approach is
possible or whether policymakers will turn to a more extreme
response, either submissiveness or xenophobic reaction.
It is important in evaluating policy performance to adopt a
dynamic perspective. It may be desirable, for example, to pay a
price at anyone bargaining point, or even over a whole period, in
order to secure a more favorable outcome later in the evolution of
the relationship. A key to success is the ability to tolerate a
considerable degree of ambiguity while learning from the bargain-
ing process in preparing for the next phase. This learning process is
surely the most difficult dimension to account for when consider-
ing the adequacy of policy. Viewed in this perspective, Venezuelan
policymakers did quite well. Whether they will continue to do well
is a different matter. The strategy of assertive experimentation and
"muddling through" may become increasingly costly as the
lifetime of the old petroleum regime nears its end. As this
happens, as control and direction replace bargaining and conflict,
new and different patterns of thought and action will be
necessary.
It is past time in Venezuela for this new orientation to come to
the fore. The service-contract system as it exists is a small-scale
operation; it will do little more than sustain production rates for a
few more years. Its future is still quite ambiguous and many feel
that as presently envisioned it does not constitute an' alternative
mode of petroleum development. Similarly, the future role of the
state corporation remains to be clearly defined. A lot of
alternatives seem available to Venezuela, but they must be studied
172
PETROLEUM POLICY: VENEZUELA I 17
carefully as the date for concessions reversion nears. As it has in

other phases in the politics of dependent management, the
coun try is breaking new ground. If the state is to take control of
petroleum, as seems sure, it must begin to develop the necessary
administrative capabilities immediately. A new and more elaborate
petroleum diplomacy will be needed, not only to win markets but
to prevent rising self-assertion among the producing countries
from taking the form of destructive competition. Whatever the
form of the replacement system, managerial problems will be truly
immense. For Americans this woulcJ be like suddenly having the
U.s. government take over the affairs of the top 200 corporations.
Regulation of domestic petroleum bureaucrats may prove as
formidable, though in different ways, as handling multinational
corporations. Yet this may have to be done within a much more
contrary domestic political context, for the process of fragmenta-
tion going on within the party system may erode the unity and
consistency of policy direction which has been such an important
precondition for success in the past. Passing the reversion law may
have marked the transition from the phase of bargaining and
conflict to the phase of regulation and reconstruction, but there is
every reason to believe that Venezuela still faces the most difficult
time of all in the management of its dependence.
NOTES
1. Short but clear treatments of the dependency theme may be found in Dos Santos
(1970) and Bodenheimer (1971). Exceptions to this neglect of policy are Sunkel (1969)
and the work of Raul Prebisch, generally.
2. Here and elsewhere in this essay the principal data sources on petroleum and the
Venezuelan economy are Republica de Venezuela (1970 and earlier annual issues) and
Creole Petroleum Corporation (1971 and earlier annual issues).
3. Although I do not deal here with the political process by which government policies
were chosen, a more extensive and integrated treatment of this may be found in Tugwell
(1969).
4. The conflict between foreign investors and host governments has attracted consider-
able attention in recent years, although most of the work has been done by economists.
See Evans (1971), Vernon (1970) and Lituak and Maule (1970). On the petroleum
industry in particular, see Penrose (1968), Mikesell (1971) and Tanzer (1969).
173
5. On multinational corporations see, in addition to those cited in the preceding notes,

Vernon (1969), Kindleberger (1970), Nye and Keohane (1971) and Hartshorn (1968).
6. For details on the new legislation, see EI Nacional (Dec. 20, 1958:50-1). Industry
reaction is amply reported in EI Nacional and EI Universal (Dec. 23-26, 1958, passim).
7. A more detailed treatment of Venezuelan oil diplomacy and the OPEC can be found
in Tugwell (1969, ch. 5).
8. The fact that taxes in the Middle East were paid on posted prices is a factor that
tended to set a limit on how far discounting would go. In Venezuela this was not the
case since this tax-push did not exist.
9. The last time the government vetoed current contracts containing abnormal discounts
was in July 1962. Even by this time it was evident that the Coordinating Commission
had begun to lose touch with the ongoing marketing process. For more information on
these see EI Nacional (July 20, 1962: 1, July 26, 1962: 1). Information on these and
subsequent activities was obtained from interviews with petroleum company representa-
tives as well as officials from the Ministry of Mines and Hydrocarbons. Among the latter
were Juan Pablo Perez Alfonzo and Alirio A. Parra M. in early 1967.
10. As the focus of attention shifted from current discounts to back taxes, the work of
the Coordinating Commission, both in quantity and quality, quickly declined until it
passed entirely out of the spotlight of petroleum policymaking.
11. The evidence supporting this contention is of two kinds. First, the companies
themselves stated that if it were not for the ambiguity and insecurity, the conditions
about which the opposition was so concerned might not exist. Second, and this will
become evident below, the companies later agreed to reverse the trend of events in the
face of increased tangible costs in the form of back tax claims and price fixing for
taxation purposes, as part of a bargain in which the intangible conditions were largely
cleared up.
12. The following description, unless otherwise indicated, is based on the Leoni speech,
the text of which can be found in EI Nacional (Sept. 29, 1966: D-1-2), and the
elaboration by Manuel Perez Guerrero (EI Nacional, Oct. 8, 1966: C-8) as well as an
interview with Perez Alfonzo (EI Nacional, Jan. 5, 1967).
13. Note that the reference price system is quite similar to the system which had been
worked out earlier for payments to the government deriving from the sale of royalty oil.
14. C.C. Pocock, the president of Shell of Venezuela, estimated (EI Universal, Jan. 8,
1967: D-l) that as a result of the new taxation system the split in profits between the
companies and the government would rise immediately to about 72/28 and by the end
of the five-year period, with the annual increases in reference prices, to about 75/25 in
favor of the government. Compare Pocock's comment with Table 1.
15. This figure was arrived at according to the following calculations: (1) increase in
income due to growth in production at rates of gentlemen's agreement-about 350
million bolivares a year; (2) increase due to taxes plus reference system-another 350
million boltvares a year; (3) annual payments on the back tax claims-about 150 million
bolivares a year.
16. Ironically, it seems likely that cases of extreme dependence of this kind are much
more prone to this kind of transformation than other forms. It may very well be that a
cumulation of less "visible" linkages to external decision centers can have the
debilitating effect postulated by the dependency model. Like other aspects of
dependence, however, this remains to be investigated.
174
REFERENCES
BODENHEIMER, SUSANNE
1971 uDependency and Imperialism: The Roots of Latin American Under-
development." In K.T. Fann and D. Hodges (eds.), Readings in U.S.
Imperialism. New York: Porter Sargent.
Creole Petroleum Corporation
1971 Data on Petroleum and Economy of Venezuela: 1970. Caracas.
DOS SANTOS, THEOTONIO
1970 "The Structure of Dependence." The American Economic Review,
Papers and Proceedings 60 (May): 231-6.
EI Nacional
1955-70 Caracas.
EI Universal
1957-68 Caracas.
EVANS, PETER B.
1971 "National Autonomy and Economic Development: Critical Perspec-
tives on Multinational Corporations in Poor Countries." In Robert O.
Keohane and Joseph S. Nye, Jr. (eds.), Transnational Relations and
World Politics, a volume of International Organization 25 (Summer).
HARTSHORN, J.E.
1968 Oil Companies~and Governments. New York: Praeger.
HIRSCHMAN, ALBERT O.
1963 Journeys Toward Progress. New York: Twentieth Century Fund.
1967 Development Projects Observed. Washington, D.C.: Brookings.
IKLE, FRED
1964 How Nations Negotiate. New York: Oxford University Press.
KECSKEMITI, PAUL
1964 Strategic Surrender: The Politics of Victory and Defeat. New York:
Atheneum.
KINDLEBERGER, CHARLES (ed.)
1970 The International Corporation. Cambridge, Mass.: MIT Press.
LEFF, NATHANIEL
1968 Economic Policymaking in Brazil. New York: Wiley.
LEVY, WALTER J.
1971 "Oil Power." Foreign Affairs 49 (July-): 652-69.
LINDBLOM, CHARLES
1959 "The Science of Muddling Through." Public Administration Review
19: 78-88.
1965 The Intelligence of Democracy: Decision-Making Through Mutual
Adjustment. New York: The Free Press.
LITUAK, LA., and CHRISTOPHER J. MAULE
1970 Foreign Investment: The Experience of Host Countries. New York:
Praeger.
MIKESELL, RAYMOND F.
1971 Foreign Investment in the Petroleum and Mineral Industries: Case
Studies of Investor Host Country Relations. Baltimore: Johns Hopkins.
NYE, JOSEPH S., Jr., and ROBERT O. KEOHANE (eds.)
1971 Transnational Relations and World Politics, a volume of International
Organization 25 (Summer).
PENROSE, EDITH
1968 The Large International Firm in Developing Countries. London: Allen
and Unwin.
PEREZ ALFQNZO, JUAN PABLO
1960 Venezuela y su petroleo: lineamientos de una poIltica. Caracas:
Imprenta Nacional.
1965 La dinamica del petroleo en el progreso de Venezuela. Caracas:
Universidad Central de Venezuela et ale
175
1968 El Pentagono petrolero. Caracas.

Republica de Venezuela
1961 Venezuela y la OPEC. Caracas: Imprenta Nacional.
1970 Petr6leo y otros datos estadisticos. Caracas: Ministerio de Minas e
Hidrocarburos, Oficina de Economia Petrolera.
SCHELLING, THOMAS
1963 The Strategy of Conflict. New York: Oxford University Press.
SUNKEL, OSVALDO
1969 "National Development Policy and External Dependence in Latin
America." Journal of Development Studies 6 (October): 23-48.
TANZER, MICHAEL
1969 The Political Economy of International Oil and the Underdeveloped
Countries. Boston: Beacon.
TUGWELL, FRANKLIN
1969 Petroleum and Public Policy in Venezuela: A Study of Conflict and
Interdependence. New York: Columbia University, unpublished Ph.D.
dissertation.
USLAR PIETRI, ARTURO
1966 Petraleo de vida 0 muerte. Caracas.
VERNON, RAYMOND F.
1969 Sovereign ty at Bay.
1970 "Foreign Enterprises and Developing Nations in the Raw Materials
Industries." The American Economic Review, Papers and Proceedings
60 (May): 122-6.
176
Multinationals, State-owned Corporations, and the
Transformation of Imperialism: A Brazilian
Case Study*
Peter Evans
Brown University
Recent challenges to the versions of the theory of imperialism that

were popular in the sixties have created an interesting and potentially
fruitful debate. Stunting industrialization on the periphery was a prime
consequence of imperialism as it was described by Baran, Frank, and
a number of Latin Americans known as "dependency theorists."1 In
direct contradiction to this view is the idea expressed most forcefully
perhaps by Bill Warren that the consequence of imperialism is the ever-
increasing penetration of the capitalist mode of production in the Third
World and that, therefore, imperialism foments industrialization rather
than stunting it. 2
A model of the international capitalist corporation-the logic of
* A research grant from the Programa de Pesquisa em Ciencias Sociais no

Brasil of the Ford Foundation in Brazil helped make possible the research reported.
I would also like to acknowledge the support of a Howard Foundation Fellowship
during the period in which I was writing up the results. Neither the Howard Foun-
dation nor the Ford Foundation should be considered in any way responsible for
the content of this paper. This paper was written in early 1975 and represents my
understanding of the situation in the petrochemical industry at that time.
1 Paul Baran, The Political Economy of Growth (New York: Monthly Re-
view Press, 1968); Andre Gundar Frank, Capitalism and Underdevelopment in
Latin America (New York: Monthly Review Press, 1967). Among the well-known
works in the tradition of the "dependency theorists" are Fernando Henrique Car-
doso and Enzo Faletto, Dependencia e desenvolvimento na A merica Latina (Sao
Paulo: Zahar Editores, 1970); Teotonio Dos Santos, "The Structure of Depen-
dence." American Economic Review 60 (May 1970): 231-36; Raul Prebisch,
"Center and Periphery," in Leading Issues in Development Economics, ed. G. Meir
(Oxford: Oxford University Press, 1964); Celso Furtado, "The Concept of Ex-
ternal Dependence in the Study of Underdevelopment," in The Political Economy
of Underdevelopment, ed. C. K. Wilber (New York: Random House, 1974);
Oswaldo Sunkel, "National Development Policy and External Dependence in Latin
America," Journal of Development Studies 6 (October 1969): 23-48.
2 Bill Warren, "Imperialism and Capitalist Industrialization," New Left Re-
view 81 (1973): 3-46. Fernando Henrique Cardoso's analysis in "Dependency and
Development in Latin America" (/\iew Left Review 74 [July-August 1972]: 83-95)
shares Warren's point of view in certain respects, especially as regards the possi-
bility of industrialization and imperialism going together.
43
177
Economic Development and Cultural Change
its interests, the nature of its behavior, and the extent of its power-
is one of the fundamental building blocks of both theories. The role
of the Third World state is also a central element in both theories, but
they see the state very differently. Underestimation of the potential
power and influence of the Third World state was clearly a flaw of the
Baran-Frank theory of imperialism. Using an essentially colonial image
of the state, this version of the theory did not take into account the
possibility that the state might succeed in modifying the behavior of
multinational firms in such a way as to increase their propensity to fos-
ter industrialization. Theorists like Warren, while recognizing the po-
tential importance of the Third World state, seem to have abandoned
the most basic insight of the Baran-Frank model of imperialism, namely,
that capitalism on the periphery, in part precisely because of the role
of the state, must be different from capitalism as it appears in the
metropole, either actually or historically.
The study of imperialism is the study of the penetration of capi-
talism in the nations of the periphery. It must also be the study of how
capitalism is transformed as the result of being implanted in the social
formations characteristic of Third World countries. I will argue here
that the possibility of a symbiotic nexus between international capital
and the Third World state is fundamental to both the successful pene-
tration of capitalism in the Third World and to the transformations
which accompany this penetration. I will argue further that the nature
of this nexus can be most easily seen in the cooperation between state-
owned corporations and multinational corporations.
To illustrate the argument and provide some empirical backing
for its plausibility, I have chosen to concentrate on the analysis of
a single case: the Brazilian petrochemical industry. The petrochemical
industry is not an enclave industry which simply exports the natural
resources of the Third World country to the manufacturing centers of
the metropole. Nor is it the sort of final-assembly, light-consumer-goods
industry that typifies the early stages of import substitution. The de-
velopment of a petrochemical industry represents massive capital in-
vestments and the implantation of advanced technology. It represents
a fundamental sort of industrialization.
In developing this case, I hope to show that the state in a Third
World country may be neither the supine instrument of international
capital nor the beleaguered representative of the "national industrial
bourgeoisie." The state, and more concretely the state-owned corpo-
ration, may instead be a valued and in fact necessary partner in the
implantation of capitalism. An active and somewhat autonomous par-
ticipation by the state does not rob capitalism of its fundamental char-
acteristic of being production for private profit. It does significantly
alter the shape of capitalist industrialization, solving certain contradic-
tions and introd ucing others.
44
178
Peter Evans
Petrochemicals: The Growth of a Basic Industry

Even a superficial glance at statistics outlining the growth of the Bra-
zilian petrochemical industry over the last 10 years and projecting its
growth over the next 5 years leaves two conclusions clear. First, the
industry in Brazil has grown faster than it has grown in the developed
countries, despite the fact that petrochemicals grew rapidly in the
United States and other rich nations. Second, Brazil was already in the
process as early as 1968 of becoming something other than a typical
"less-developed" or "underdeveloped" country, and by the end of the
seventies, its industrial plant, at least in this industry, will be impressive
even by the standards of the developed countries.:~
Looking at the evolution of three major plastics in tables 1 and 2
illustrates the process of growth. Table 1 shows Brazil with an output
in 1962 more or less at the level of other underdeveloped countries,
outputs running 25-50 times smaller than U.S. outputs and several
times smaller than European (English) outputs. Brazilian production
had to operate with more or less archaic, small-scale, high-cost meth-
ods. Vinyl chloride monomer, for example, was produced from calcium
carbide, a process which was not only considered obsolete but also
resulted in manufacturing costs for vinyl chloride about double the
more modern processes available. 4 In 1968, Brazil was still in a very
weak position relative to the United States and Europe, but its po-
sition in tenns of a broader international spectrum had already begun
to change. It fit in somewhere between Australia and Canada at that
time and was beginning to leave the "underdeveloped" countries (Ar-
gentina and India) behind. But 1968 was still prior to the real con-
struction of a petrochemical industry in Brazil.
By 1973, the major new products that were to form the base of
the chemical industry in Brazil had come on-stream. Their effects can
be seen in the increased outputs of the products considered in table 1.
By 1973, Brazil is already in a position similar to that of Britain in
1962. If it is not in a position to achieve the scales of the United States,
it has already gone to the point where it would be misleading to con-
sider it simply as an "underdeveloped" country. If the projected out-
3 For an overview of the contemporary Brazilian petrochemical industry, see
Instituto de Planejamento Economico e Social (IPEA), Mercado Brasileiro de
produtos petroquimicos, Serie estudos para 0 Planejamento, no. 3 (Brasilia: IPEA,
1973), and Perspectivas da indllstria petroqui,nica no Brasil, Serie estudos para 0
Planejamento, no. 9 (Brasilia: IPEA, 1974); Orfila Lima Dos Santos, "Aspectos da
industria petroquimica e seu atual estagio no Brasil" (paper presented at the Uni-
versidade Federal do Piauf, December 1, 1973); Rinaldo Schiffina, "Problems and
Prospects of the Petrochemical Industries in Brazil," mimeographed (New York:
United Nations Industrial Development Organization lUNIDO], 1969).
4 UNIDO, The Brazilian Synthetic Polymer Industry, Petrochemical Indus-
try Series, monograph 1 (New York: UNIDO, 1969), p. 2, and Selection of Proj-
ects and Production Processes for Basic and Intermediate Petrochemicals in De-
veloping Countries, Petrochemical Industry Series, monograph 2 (New York:
UNIDO, 1969), pp. 3, 14.
45
179
puts for 1980 are realized, then Brazil at the end of the seventies will
be roughly where England was at the end of the sixties (see table 2).
Even more dramatic is the rise in the output of basic inputs like
ethylene and benzene. In the sixties, much of Brazil's plastics produc-
tion had been based on the importation of petrochemical inputs. The
petrochemical industry that came into operation in the beginning of the
seventies was not "import substitution" at the level of final products
but the creation of basic industrial capacity. Nor can the future growth
predicted for the seventies be disparaged on the grounds that high
growth rates are easy when the starting point is small. Brazil's per-
formance in the seventies looks like the performance of a European
country in the sixties.
What lies behind the growth of the petrochemical industry in Bra-
zil? No simple geographical or technological explanation provides any
TABLE 1
THE EARLY PHASE OF THE BRAZILIAN PETROCHEMICAL
INDUSTRY: SOME INTERNATIONAL COMPARISONS
(Three Major Plastics)
1962 1968
Developed countries:
United States:
Polyethylene ............. 702 1,909
Polyvinylchloride (PVC) ..... 522 1,044
Polystyrene ................ 412 1,242
United Kingdom:
Polyethylene ............... 90 410
Polyvinylchloride (PVC) ..... 121 283
Polystyrene ................ 38 99
Small developed countries:
Canada:
Polyethylene ............... 55 135
Polystyrene ................ 29 50
Australia:
Polyethylene ............... 17 41
Polystyrene ................ 9 14
Brazil:
Polyethylene ............... 12 50
Polystyrene ................ 11 24
Underdeveloped countries:
Argentina:
Polyethylene ............... 6 20
Polystyrene ................ 5 73
India:
Polyethylene ............... JO 13
Polystyrene ................ 5 8
SOURCE.-IPEA, Mercado Brasileiro de produtos

petroquimicos, Serie estudos para 0 Planejamento, no. 3
(Brasilia: IPEA, 1973), figs. A.7-A.9.
NOTE.-AII figures are in thousands of tons per year.
46
180
Peter Evans
TABLE 2
RECENT AND PROJECTED GROWTH OF THE BRAZILIAN PETROCHEMICAL
INDUSTRY
(fhree Major Plastics and Some Basic Inputs)
INSTALLED CAPACITY PLANNED OUTPUT

1971 1973 1975 1980
Major plastics:
Polyethylene .............. 98 195 195 373
Polyvinylchloride (PVC) ... 50 118 239 289
Polystyrene ............... 36 43 83 159
Some basic inputs:
Ethylene ................. 33 193 343 741
Benzene.................. 22 149 149 316
Methanol ................. 19 48 52 117
SOURCE.-IPEA, Mercado Brasileiro de produtos petroqu;nlicos,

Serie estudos para 0 Planejamento, no. 3 (Brasilia: IPEA, 1973), and
Perspectivas da industria petroqu;mica no Brasil, Serie estudos para 0
Planejamento, no. 9 (Brasilia: IPEA, 1974), tables 11.8, VILlI, A.1.2,
A.I1.I.
leverage. Brazil had, throughout the fifties and sixties, very poor luck
in its search for petroleum. It has no obvious comparative advantage
in petrochemicals at all. The development of the industry cannot be
attributed to the unseen and unconscious accretative results of a general
process of economic development. The industry requires massive invest-
ments, each closely integrated with the others. Any economic analysis
which avoids looking concretely at the actors who created the industry
will arrive at an explanation that is not only shallow but probably very
misleading. The petrochemical industry was produced by a complex
social structure, a network composed in the first instance of multi-
national corporations, state-owned corporations, and locally controlled
corporations. It is in terms of the interests of these corporations, their
strengths and weaknesses, and the interactions among them that the
growth of the petrochemical industry must be explained.
The Fifties and Sixties: Private Initiative and State Participation

The corporate elements from which the petrochemical industry would
eventually be constructed were already in existence in the fifties. Petro-
bras, the state-owned oil monopoly, came into being in 1954. As a
result of pressure from a broad coalition of nationalist forces that in-
cluded everyone from the Communists to the student movement to the
military,5 Petrobras was given a monopoly of refining and exploration
of oil. Distribution was still largely in the hands of multinationals (Esso
and Shell), and a few locally owned private refineries were allowed to
continu p to operate. But the major power in the oil industry was clearly
Petrobras.
5 See Gabriel Cohen, Petro/eo e nationaUsmo (Sao Paulo: Difusao Europeia
do Livro, 1968).
47
181
On the other side of the industry, the production of plastics and

other petrochemical products to sell to other industries was dominated
by giant international chemical companies based in the United States
or Europe. Union Carbide, Kopper and Borden, Solvay, and Rhone
Poulenc were all major producers. In some cases, they sold their
products to local companies who would use polyvinyl chloride (PVC)
to make plastic containers, or nylon fibers to produce textiles, or for-
maldehyde resins to make plywood. In other cases, the buyers were also
multinationals; the auto industry, for example, was a major customer.
Three things are important. First, the industry outside of oil refining
was strictly private. Second, there was an unfilled gap between the out-
puts of Petrobnis's refineries and the developing market for plastics,
synthetic rubber, and other final products. Third, the most likely candi-
dates to fill this gap by producing basic and intermediate petrochemi-
cal products were either Petrobras, by integrating forward, or the multi-
nationals, by integrating backward.
For political reasons as much as anything else, the industry re-
mained in an impasse until the mid-sixties. Petrobras was primarily
concerned with the search for new reserves; its frustrating but persis-
tent efforts at exploration absorbed vast amounts of capital and the
energies of its management. The multinationals were reluctant to make
any investment in basic petrochemical facilities for different reasons.
First of all, the importation of inputs was hardly a disaster in terms of
their interests as long as they had parent companies interested in ex-
porting. As long as none of their competitors threatened to set up facili-
ties for local production, they were in a comfortable position, just as
the theorists of imperialism .like Baran and Frank have pointed out.
In addition, the ambiguous nature of Decreto/Lei 2004, which created
Petrobras, made the multinationals wary of making major investments
in petrochemicals. The limits of the monopoly were unclear. A multi-
national that put itself heavily .into basic petrochemicals ran the risk
that the government might decide th~.t basic petrochemicals were in
fact part of the legally defined Petrobras monopoly. With the increasing
nationalism of the early sixties, such fears seemed even more justified.
The military coup of 1964 did not break the impasse, but it set
the stage for breaking it. In 1965, soon after the coup, there was an
explicit statement that petrochemicals would be the domain of private.
enterprise. Union Carbide stepped forward and proposed the construc-
tion of a naphtha cracker with a capacity of 120,000 tons a year of
ethylene, double Brazil's consumption of polyethylene, polystyrene, and
PVC combined. The cracker would use the Wulff process, the most
advanced in the world according to Union Carbide. Most of the ethyl-
ene produced by the Wulff crackers would be used by Union Carbide
itself in the production of roughly 90,000 tons of polyethylene.
Ultimately much more important than Union Carbide's initiative
48
182
Peter Evans
was, however, a project put together by local entrepreneurs. The local

group had an unusual base. It started with one of the small, locally
owned refineries that had been created before Petrobras and allowed to
remain in private hands. Despite its small size (about 25,000 barrels
per day), the group's Capuava refinery was the largest of the private
refineries and the only one located in the industrial center of Sao Paulo.
The Capuava group realized that, while their base in the refining busi-
ness gave them a foot in the door, they did not have sufficient strength
to enter into the production of basic petrochemical inputs on their own.
Their first attempts to attract a powerful partner centered on multi-
nationals. They tried two companies, both primarily petroleum com-
panies, neither of which was at that time very heavily involved in Brazil.
One of the companies, Phillips Petroleum, decided to join the project
and help build a naphtha cracker with an initial capacity of 167,000
tons per year of ethylene, later to be expanded to 300,000. The Capu-
ava group also brought in other local capital, including the financial
group headed by Walter Moreira Salles.
The most interesting of the Capuava group's overtures, however,
was to the state. They wanted Petrobnis, on whom they would depend
for their supplies of naphtha, to become involved as a partner in the
project. Petrobras could not since it was legally inhibited from entering
joint ventures on a minority basis. After considerable negotiation, a
solution was discovered. In December of 1967, a new state-owned com-
pany, Petroquisa, was created. Though it was a wholly owned subsidi-
ary of Petrobras, Petroquisa was allowed to enter joint ventures on
a minority basis. The Capuava group's new petrochemical complex
would be its first joint venture. At about the same time, for reasons
that still remain unclear, Phillips "decided not to proceed,"6 leaving the
state as the Capuava group's main partner in the project.
The entrepreneurial efforts of the Capuava group, under the lead-
ership of Paulo Fontainha Geyer, did not end with pulling together a
coalition to build the central Petroquimica Uniao complex. In order for
the complex to be profitable, they needed customers, more customers
than were currently available, so the group went out and recruited
multinational associates who could become users of the chemical feed-
sto~ks produced by Petroquimica UnHio. Four companies were set up
to buy Petroquimica Uniao's output. One of them was wholly owned
by the Capuava group and its local allies. Three of them were joint
ventures with multinationals, and one of them was a three-way split with
multinationals, the state (Petroquisa), and local capital all participat-
ing. In addition, another joint venture with a multinational was brought
in to supply chlorine, which, in combination with ethylene, is a prime
ingredient in making vinyl chloride.
Later, the Capuava group and their most important local allies (the
6 UNIDO, Selection of Projects and Production Processes, p. 4.
49
183
Moreira Salles group) joined Hanna Mining in a holding company,

UNIP AR. The complex of companies surrounding Petroquimica Uniao
became known as the UNIPAR group. At the time it was created in
the late sixties, the UNIPAR group represented an almost unique exam-
ple of local capital, state capital, and multinationals bound together by
buying-and-selling relationships and equity interlocks to form a single
interdependent system of companies. Figure 1 illustrates schematically
the structure of the UNIPAR group.
Looking at the sequence of events that led to the creation of the
UNIP AR group, three points seem worth underlining. First, the entre-
preneural impetus came from local capital. If the national bourgeoisie
is eventually squeezed out of the petrochemical industry in Brazil, it will
not be because they were not willing to engage in entrepreneurial ven-
tures and take risks. Paulo Geyer and the Capuava group are universally
acknowledged, both by Brazilians and foreigners in the industry, to have
taken a risk that few multinationals would have dared, despite their
greater resources. The creation of Petroquimica Uniao was not just
daring, it also turned out to make sense in terms of what was needed
for the development of the industry at that time. Several companies ex-
plained to me that, at the time Petroquimica Uniao came on-stream,
they had reached the limits of what they could do with the outmoded
processes that they were then employing and that, without the new
supplies of ethylene and other basic inputs that Petroquimica Uniao
provided, they would have been stymied. 7 At a certain point then, local
private enterprise had a key role to play in the development of the Bra-
zilian petrochemical industry.
Complementing this first observation is the obvious one that local
private enterprise, even in its most ambitious form, could have no illu-
sions about entering an industry like petrochemicals on an independent
basis. Finally, it should be noted that the state entered, not because
Petrobnis was anxious to take over the petrochemical industry but be-
cause the private sector was anxious to gain its participation. Neither
empire building on the part of the state technocrats nor any ideological
commitment to state participation brought the Brazilian state into the
petrochemical industry; rather, it was the logic of the situation, a logic
that was even clearer to the "national industrial bourgeoisie" than it
was to the state itself.
7 Most of the original information and ideas in this paper are the result of
series of interviews conducted with the top managements of roughly two dozen ma-
jor petrochemical firms in Brazil during the fall of 1974. Where the names of
individual companies are cited, however, the source of the information is not inter-
views with these companies: it is either the published, publically available sources
which are cited as references or it is common knowledge in the industry. When
information from the interviews has been used, it has been attributed to "a multi-
national manager" or a similarly anonymous so·urce. I have used this strategy as a
means of protecting my informants as individuals, a somewhat difficult task when
one is engaged in a critical analysis of the system of which they are a part.
50
184
BRASIVIL
N--UNIPAR 50% PVC

CARBOCLORO COPAMO MVC M--Huls-Bayer
N--U~IPAR 50% COPAMO COPAMO COPAMO
17.5%
COPAMOCOPAMO
COPAMO
M--Dl.amond M--Huls-Bayer 17. 5% ---MVC HULS-BRASIL
Shamrock 50% M--Solvay 65% 5 PVC
N--UNIPAR 0%
M--Huls-Bayer 50%
ethylene
POLIOLEFINAS
~
00 N--UNIPAR 23.7%
Va
S--Petroquisa 28.1%
PETROQUIMICA UNIAO . 1 . . 11 polyethylene
M--Natl.ona Dl.stl. ers 28 1
.
N--UNIPAR 50% ethylene ) M--IFC 20.1%
N--Grupo Ultra 15%
S--petroquisa 25% proplyene EMP. BRASILElRA
M--IFC 10%* proplyene
b;;nzene~ DE TET!&1ERO raw material for nylon
N--UNIPAR 100% and other synthetic fibers
FIG. I.-The UNIPAR group, 1971. N == national capital, S == state capital, M == multinational capital,
M VC == vinyl chloride monomer, PVC == polyvinyl chloride. Asterisk indicates participation by the IFC is ""0
n
purely financial and involves no active involvement in the company. There is a small participation by Hanna r;
""1
Mining in UNIPAR itself which is of a similar nature. Source: BANAS, Brasil Industrial, 1972 (Sao Paulo:
Editora BANAS, 1972),3;137. m
<
~
Vl ::3
VJ
The Seventies: The State as Entrepreneur

The development of the petrochemical industry in the sixties was char-
acterized by an impressive initiative on the part of local capital and the
entry of the state. Neither of these developments prevented multination-
al firms from continuing to hold a central position in the industry, but
the main thrust in the industry's transformation came through the cre-
ation of the Petroquimica Uniao complex and the UNIPAR group. In
the beginning of the seventies, the importance of Petroquisa began to
grow, while both the pioneering multinational (Union Carbide) and the
pioneering local group (UNIPAR) ran into difficulties that dislodged
them indefinitely from positions of real leadership in the industry.
The first startling development was the failure of Union Carbide's
Wulff cracker. What had been considered "start-up difficulties" in Wulff
units wherever they were tried 8 turned out to be fundamental flaws.
Wulff crackers just did not work. In Brazil, millions of dollars of invest-
ment had to be simply written off, and the technology had to be aban-
doned. The multinational entry had lost on the ground that should have
been its forte-the ability to supply sophisticated technology. Union
Carbide ended up dependent on Petroquimica Uniao to supply it with
ethylene for its polyethylene operations. While it remained, and will
remain in the future, one of the largest chemical companies in Brazil,
Union Carbide lost the central role in the petrochemical industry that
it might have had if the Wulff technology had worked.
The decline of the UNIPAR group was less sudden but more
thorough. The group's problems started with the inevitable delays, cost
overruns, etc. on the construction of the Petroquimica UnHio complex
which made the costs of the products higher than anticipated. In ad-
dition, despite the UNIPAR group's best efforts, the downstream mar-
kets for its output were still not all ready by the time the plant came
on-stream. Petroquimica UnHio had to pay the price of being a pioneer.
Other problems, entirely independent of petrochemicals, had repercus-
sions on the Capuava group's financial position and, therefore, its ability
to sustain its commitments in the petrochemical industry.
In 1974, only 2 years after Petroqufmica UnHio had come on-
stream, the market for basic petrochemical products had grown so much
that it was time to double Petroqufmica UnHio's output. The Capuava
group's banking operations were not going well. In addition, the More-
ira Salles group, which had the other major share of the stock of UNI-
PAR, decided it was no longer interested in being involved in petro-
chemicals. One way out might have been to expand the Capuava group's
profitable refining operation, but this would have meant reversing the
long-standing policy that oil refining should be a state monopoly. The
UNIPAR group was in difficulty, and the only escape was to turn to the
multinationals or Petroquisa.
8 UNIOO, Selection 0/ Projects and Production Processes, p. 4.
52
186
Peter Evans
By mid-1974, the pioneering local group had been dethroned.

Petroquisa took over Petroqufmica Uniao, leaving UNIPAR only a mi-
nority holding. The original base, Refinaria Uniao, was made part of
Petrobreis itself. 9 The Moreira Salles shares of the UNIPAR holding
company were sold to an Italian group, and C-apuava had also lost its
banking operations. Entrepreneurship was not enough to gain local capi-
tal a central place in the petrochemical industry. At the end of 1974,
the only thing that the Capuava group had left of its petrochemical
empire was voting control of the UNIP AR holding company, and even
this was maintained by only a slim majority.lo
Petroquisa, on the other hand, had moved into a central position.
Its importance was reinforced by other transformations outside the
sphere of the UNIP AR complex of companies. Phillips Petroleum de-
cided to get out of the nitrogenous fertilizer business in Brazil, and so
Petroquisa, in what was generally considered to be a "rescue operation,"
ended up as a major partner in UltrafertiI, Brazil's largest producer of
ammonium nitrate, DAP, and -sulfuric acid. An earlier decision by Petro-
breis to maintain exclusive control of synthetic rubber production led
Firestone to give up its major interest in the production of styrene, and
Petroquisa took this over as well. l1 The state may have been drawn
into the petrochemical industry by private interests in 1967, but by 1974
it was a ubiquitous participant in the vast petrochemical complex that
had grown up around Sao Paulo.
Participation in Sao Paulo turned out to be only a dry run for an
even more ambitious effort on the part of Petroquisa. In 1972, Petro-
quisa created a new subsidiary of its own, COPENE (Petroquimica do
Nordeste, S.A.), 12 and began to draw up plans for an entirely new
petrochemical industry to be located in the northeast of Brazil. That
Petroquisa was 'willing to try to implant a full-blown petrochemical in-
dustry thousands of kilometers from the major markets of Sao Paulo and
Rio, in the middle of the backward northeast, was an indication of the
new state company's growing self-confidence. That private firms, both
local and multinational, were willing to join in the venture showed that
Petroquisas's capacity was highly estimated by others as well.
Organizationally, Petroquisa, through COPENE, was to play the
same role in the Polo do Nordeste that the Capuava group had played
in the creation of the Petroqufmica UnHio complex. COPENE itself
would be in charge of the central cracking unit supplying ethylene,
propylene, benzene, etc. It would also supply steam and electric power.
COPENE was also responsible for putting together a set of user com-
9 HQuem e Quem na economia Brasileira," special edition of Visiio, vol. 45,
no. 5 (1974).
10 Ibid. 11 Ibid.
12 COPENE, Polo Petroquimico de Nordeste (Rio de Janeiro: COPENE,
1974); Otto V. Perroni, A a~iio da Petroquisa na implallta~iio do Polo Petroquimico
do Nordeste (Rio de Janeiro: Petroquisa, 1972).
53
187
panies to surround the central unit. These companies in combination

would become owners of 50% of the stock in COPENE itself. The
tripartite alliance of multinational, state, and local capital that had been
experimented with in Sao Paulo became the normal modus operandi
for the new complex.
In 2 years of negotiations, Petroquisa managed to put together a
set of companies which, when they all go on-stream, will double Brazil's
petrochemical industry and be the biggest single impetus to industrial-
ization that has been attempted in the northeast region. Surrounding the
COPENE central complex, 20 processing units have been planned, or-
ganized into 17 separate companies. Of them, 10 follow the new tri-pe
(three-footed) form; that is, they represent three-way alliances between
state capital, local capital, and multinational firms. Five others involved
two types of capital (local and multinational, state and local, or state
and multinational) ; one is yet to be defined, and one is a wholly owned
Petrobnls subsidiary.
The linkages created in the new northeast complex do more than
bind state, local, and multinational capital. They also bring together
capital from different developed countries. A dozen different multi-
nationals based in at least six different developed countries are involved
in the ownership of the Polo do Nordeste. In addition to the dozen
multinationals involved as owners, 14 others are involved as licensors
of production processes. In one company, for example, the stock is
shared among a European multinational, a Japanese firm, and two local
firms; the process they will use is licensed from an American firm. In
another case, ownership is divided among a Japanese firm, Petroquisa,
and a Brazilian firm. The Brazilian firm, in turn, has two major Ameri-
can firms as shareholders; the process to be used is licensed from still
another American firm. Superimposed on these interconnections is the
additional interdependency created by the fact that one firm's outputs
are other firms' inputs.
When the Polo de Nordeste comes into full operation, the model of
industrial organization that emerged almost unconsciously in the petro-
chemical industry of Sao Paulo in the seventies will have reached its
full fruition. On the most macroscopic level, it is a model with profound
implications for the ways in which "semideveloped" countries can relate
to the imperialist metropole. On a more organizational level, it shows
how corporations, state and private, national and international, can
become the vehicles of the transformation of relations between the
metropole and the periphery. It is a model whose strengths and contra-
dictions deserve close analysis.
The Attraction of the Tri-pe

Looking at the evolution of the current model in petrochemicals as a
sequence of events, its current form might seem fortuitous, a historical
54
188
Peter Evans
accident. I would argue that fortuitous factors have played little role in
determining the current configuration, that there are good structural
reasons for why it evolved in the way that it did, and that the current
tri-pe model reflects the interests of both the Brazilian state and the
multinationals in a way that few other arrangements could.
On the part of the state, the tri-pe presents one solution to the
most obvious problem that a less-developed country faces trying to build
an industrial base: how can it gain continuous, long-term, reliable ac-
cess to new technology without giving up control of the industry to
foreigners? Licensing agreements tend to be one-shot affairs. Even if
they are more long term, there is always the question of how the tech-
nology that is provided relates to the actual state of the art in the in-
dustry. Technology that is simply sold is not likely to be as advanced
or as completely conveyed as technology that is brought along by a com-
pany that will participate in the profits of the new venture.
One way of getting the technology is, of course, simply letting
&. firm come in and bring its technology with it. But unimpeded entry
by foreign capital makes it difficult for locals to gain real access to or
control over the technology once it is implanted. What the parent
charges the subsidiary for technology, which among possible technolo-
gies is chosen, and other decisions regarding the use of the technology
are decisions internal to the foreign firm unless there is some local equity
participation. Gaining real access to a firm's technology requires being
treated as a "partner," and that, in turn, means having a share in both
the ownership and the management of the firm.
Another obvious reason for interest in the tri-pe on the side of the
state is that international participation probably makes it easier to raise
capital. This includes not only capital from whatever firm is directly
involved in the venture but also improved access to international finan-
cial markets. A third issue is that of management expertise. Any attempt
on the part of the state to create a petrochemical industry on its own
would have stretched the managerial talents of Petrobnis's personnel
even further than they are currently stretched. Aside from the concrete
and direct advantages that the state gained from entering into joint
ventures with multinational. firms, there is a more diffuse but perhaps
more important reason for pulling the multinationals into joint ventures.
The "Brazilian model" of development is an explicitly capitalist one.
It requires the enthusiastic participation and support of multinational
firms. 13 In addition to the pragmatic advantages to that part of the elite
that controls the state apparatus, there seems to be a certain genuine
ideological preference for a "controlled free-enterprise" model, rather
than an explicitly state capitalist one. Encouraging the participation of
13 Peter Evans, "The Military, the Multinationals and the 'Miracle': The P~
litical Economy of the 'Brazilian Model' of Development," Studies in Comparative
International Development 9, no. 3 (1974): 2Cr45.
55
189
multinationals in the petrochemical industry should be understood not

just in terms of the logic of the industry itself but also in terms of the
state's general desire and necessity not to alienate the multinationals.
From the side of the multinationals, the tri-pe presents a comple-
mentary set of advantages. The most concrete is simply in terms of hav-
ing a secure source of raw materials. The petrochemical industry in Bra-
zil, at least in the early seventies, has been a sellers' market; what you
produced could be sold, but the problem was getting the raw materials,
dependable sources of electrical energy, and so on that you needed.
If you cannot control the raw materials yourself-and, given the Petro-
bnis monopoly, no multinational can-the best way to gain secure ac-
cess to petrochemical inputs is a partnership with the state.
At the same time, it should be pointed out that production of basic
raw materials can be a very risky venture economically, as Union Car-
bide and the Capuava group discovered. In the Polo do Nordeste, for
example, Petroquisa must have the central processing unit ready for the
users, yet, until all of them come on-stream, costs will probably sub-
stantially exceed the returns. The element of risk is, of course, even
higher when the effort is to construct a new complex in a site complete-
ly removed from the industrialized part of the country. The opinion of
at least some of the multinational participants in the Polo do Nordeste
is that it is ~n adventurous idea and that the strongest point in its favor
is that the government is behind it. The fact that Petroquisa is a major
participant and equity holder in the venture is the best insurance the
multinationals could have that the government will continue to stand
behind the venture.
Having Petroquisa as a partner also increases a company's feelings
of security in dealing with other parts of the state apparatus. Here again
some appreciation of the context in which the petrochemical industry
is set is necessary. The Brazilian economy is controlled by an extensive
combination of regulations and bureaucratic agencies. 14 The head of
one multinational told me that he considered Brazil practically a social-
ist country because the state was so heavily involved in the economy.
Another said, "It's like doing business with the Russians. You have to
play by their rules." Not only are wages and prices of most products
strictly controlled, but investment decisions are, to a large extent, de-
termined by a complex system of incentives and import restrictions.
The bureaucracy with which the multinationals must deal is by
no means monolithic. It operates under a variety of constraints and
pressures, and the results are not necessarily even consistent. The local
manager for one of the world's largest chemical companies commented
that, even when you are involved in a joint venture with Petroquisa and
14 See, for example, Werner Baer, Isaac Kerstenetzky, and Annibal Villela,
"The Changing Role of the State in the Brazilian Economy," World Development
1, no. 11 (1973): 23-34.
56
190
Peter Evans
have the full support of the government in principle, "It's a formidable

bureaucratic wall you face. " While convinced that the government
was extremely sympathetic to foreign firms, he felt that he needed every
bit of support his allies within the state apparatus could muster in order
to protect his technology, open the possibility of remitting his profits
back to the United States, and protect him in general from the possible
damages that might be inflicted by other parts of the state bureaucracy.
There is another even more general sense in which multinationals
feel that partnership with the state is to their advantage. They are aware
that all Third World "investment climates" are not as favorable as Bra-
zil's, and they are aware that the climate might change even in Brazil.
Chile and the fate of the copper mining companies is an oft-cited exam-
ple. It is, in part, because of their awareness of such possibilities that
the attitudes of multinationals toward joint ventures have changed so
dramatically over the last few years. Multinationals like to have full
control over their investments, other things being equal. As recently as
5 years ago many in Brazil were leery of joint ventures. The idea of
a major multinational chemical company accepting a minority position
in a venture that would utilize its own technology would have seemed
radical, if not revolutionary, 5 years ago. Now it is not. One of the
companies explained, "We like to run our own show, and we don't need
the money or technology, but we think that they [the Brazilians] have
a point. It is better to share with local capital and let the state har-
monize the operation than to have it all taken away from us later on."
The multinationals have good reasons to collaborate with the Bra-
zilian state, just as the state has good reasons to collaborate with the
multinationals. One of the central features of the overall model is,
however, the fact that it leaves the multinational free to operate inde-
pendently in many areas. Union Carbide, the original pioneer in Sao
Paulo, is not participating in the Polo do Nordeste and has no joint
ventures with Petroquisa. Dow Chemical, a more recent entrant in Bra-
zil, is investing in a number of new projects, most of them on the basis
of total control by Dow itself and none of them involving joint ventures
with the state. Subsidiaries of Cities Service and Atlantic-Richfield are
making new investments without giving up any of the ownership. Bor-
den Chemical's Brazilian subsidiary has been operating in Brazil for 25
years without ever letting more than a token amount of the stock control
out of its hands.
There is no hard-and-fast rule which allows prediction of which
companies will choose to operate independently and which will choose
direct collaboration with the state. It seems, however, to be the case
that newcomers to Brazil or companies not well established in petro-
chemicals have been the most willing to enter into tri-pe arrangements.
Most obvious is the case of the Japanese. In eight of the 17 companies
in the Polo do Nordeste, the multinational partner is a Japanese firm.
57
191
For Mitsubishi, Sumitomo, and other Japanese giants, the new Polo
has been a means of entering a market that was previously dominated
by Americans and Europeans. Shell and Dupont are also examples.
Both companies have been in Brazil for a long time, but neither had
made substantial investments in petrochemicals. Collaboration with Pe-
troquisa was a way of gaining a basic position in the industry at a time
when other companies were more firmly entrenched. It appears, then,
that the state has been able to develop a pool of new multinational
partners at least in part because of the wider range of multinationals
desiring entry into the Brazilian market.
Just as certain companies are more likely to enter into partnership
with the state than others, certain types of production are more likely to
involve state participation and others are more likely to be left to the
multinationals. As a rule of thumb, it is the case that the participation
of the state diminishes as production moves closer to the final consumer.
Looking at the companies involved in the products derived from ethyl-
ene and benzene shows that, with the exception of synthetic rubber,
most of the products of the third or fourth generation are produced by
foreign-owned firms. Further along the chain of transformation, as, for
example, when PVC is molded into plastic toys or containers, a large
number of locally owned firms join the multinationals. Thus, the dif-
ferentiation that existed in the old structure of the fifties and sixties
still persists. It is only the gap in the middle of the chain that has been
filled in by the tri-pe and other sorts of joint ventures.
The state has chosen to concentrate its efforts in what it considers
the more basic or strategic areas of production. This makes sense from
the multinationals' point of view as well. In the production of basic
products, technology tends to change less rapidly simply because the
products themselves remain the same. The more exotic the technology,
the greater the relative advantages of the multinational and probably
also the higher the rates of profit. Fine chemicals, for example, are
likely to be more profitable than basic chemical feedstocks. At least
some multinationals' managers are willing to admit that they have been
left the "filet mignon" of the petrochemical industry, though they are
likely to claim that their concentration in these areas is almost involun-
tary and simply the result of the kind of know-how that they have to
offer.
One of the prime strengths of the tri-pe model is, then, that it is
not compulsory; the multinational still has the option of operating profit-
ably in a wholly owned situation if it prefers. For multinationals that opt
for direct collaboration, the main attraction is security. Participation by
the state through Petroquisa limits the risk of its multinational partners
whether risk is defined in purely economic terms or more generally
to include "political" sorts of risk as well. For the state, collaboration
secures participation by the multinationals but leaves the state in a po-
58
192
Peter Evans
sition to direct and control the process of industrialization. The tri-pe

is a rather ingenious way of harnessing the multinational to local capital
accumulation.
The Limits of the Tri-pe

One of the most obvious conditions for the success of the tri-pe is a
favorable international context. Brazil was fortunate to be trying to
attract international investment at. a time when the alternative outlets
for investment were in short supply. Few countries, either among the
developed nations or in the Third World, can offer the combination of
"political stability" and a growing market that Brazil has been able to
offer. In part, Brazil is finally beginning to reap the benefits inherent
in her large size. Brazil also benefits because socialists and some nation-
alists in other countries have chosen to put welfare considerations ahead
of accumulation, making their "investment climates" less attractive.
A firm commitment to the principle of private profits, both at the
level of ideology and in practice, combined with a powerful, predict-
able state apparatus are not easy to find in the contemporary Third
World. Multinational managers are not likely to mention the repressive
capacity of the Brazilian state as a central positive feature of Brazil's
good investment climate, but the fact remains that it is essential. The
strictly centralized system of wage controls, for example, would be very
difficult to maintain if the state's ability or willingness to engage in re-
pression were any less.
Complementing the state's repressive capacity is a very impressive
technocratic apparatus which manages state-owned corporations and
associated government agencies. The men who staff this apparatus have
been called the "burguesia do estado," or state bourgeoisie. 15 Continued
collaboration between this group and the multinational managers is cru-
cial to the viability of the tri-pe. If the men who control positions of
power within the state apparatus were to decide that their interests lay
in either antiforeign policies or anticapitalist policies, the close coop-
eration that now binds together the state and the multinationals would
be hard to maintain.
At present, the ideological similarity between state managers and
multinational managers is striking. It is general consensus that Petro-
bras, and particularly Petroquisa, operates "just like any other com-
pany"-"just like any other company" means being "hard nosed," hav-
ing a "strong profit orientation," and so on. It is recognized that Petro-
bras or Petroquisa may have to take long-range social consequences
into account more explicitly than a private company would when it is
making major investment decisions, as, for example, in the decision to
15 Credit for originating this term seems to be due to Fernando Henrique
Cardoso. See, for example, his "As tradi~oes do desenvolvimento-associado," Es-
tudos Cebape 8 (April-June 1974): 41-75.
59
193
create the Polo do Nordeste. But both Petroquisa employees and multi-
national managers acknowledge, at the same time, that having Petro-
quisa as a partner is just like having anyone else as a partner. Petro-
quisa is as interested in the famous "bottom line" of the balance sheet
as any private company.
If Petroquisa personnel concede nothing to their multinational coun-
terparts in terms of devotion to profitable operations, they also concede
nothing in terms of the skills required to produce them. Petrobnls has
been in operation for a generation and is universally considered an excel-
lent school for petrochemical managers. Those who were trained in this
school generally feel that the "Petrobnis system" is as good as, or
better than, the administrative methods of any international firm. Were
ideological differences to appear between the burguesia do estado and
the multinational managers, there is no reason to believe that the
burguesia do estado would feel awed by the. possibility of managing the
enterprises currently under the control of the multinationals.
The position of the burguesia do estado might become problematic
to the tri-pe at some point in the future. Much more problematic at
present is the position of the third partner in the tri-pe, local capital.
There are a few local groups that have acquired enough managerial and
technical expertise to make a real contribution to a petrochemical ven-
ture. The best example is probably the Grupo Ultra, which arose out
of what was originally a bottled gas empire; it was reorganized by Relio
Beltrao, formerly minister of planning in the military government of
Costa e Silva, and has become one of the strongest local enterprises in
the petrochemical industry. Not incidentally, important members of its
middle- and upper-level management were trained by or worked for
Petrobnls. The UNIP AR group is another example of a local group
with a legitimate claim to expertise. In some other cases, however, the
participation of the local partner appears based mainly on the fact that
the state wants to avoid the impression that it is deserting the national
industrial bourgeoisie.
The local partner in a tri-pe often turns out to be a company which
has no previous industrial experience in petrochemicals. Sometimes it
may be a company or even an individual who has somehow secured
a legal right to exploit a particular raw material or undertake a par-
ticular industrial project. In such cases, there is likely to be the feeling,
especially on the part of the multinational partner, that the local part-
ner is getting a Hfree ride." The curious position of the local members
of the tri-pe is perhaps most evident when the roster of participants
in the Polo do Nordeste is examined. Only about one-third of them have
industrial experience in petrochemicals. The rest are banking groups,
construction companies, or, in some cases, plastics or textile firms that
are users of the products being produced. 16
16 COPENE (n. 12 above).
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Peter Evans
The attitudes of the multinationals toward local partners is in

direct contrast to their attitudes toward the state. If the local partner is
competent and cooperative, they are grateful. If he is not, they are
resentful. But, except in the case of a few local companies like those
mentioned above, they do not seem to have great expectations of con-
tributions from the local partner. Yet, at the same time, the possibility
of local capital being squeezed out of the industry is seen as something
to be avoided. Everyone likes the idea of participation by local capital
in principle, even if they are not impressed by their own local partners.
What is to be avoided is too direct a confrontation of the state and
foreign capital. It is generally agreed that a 50/50 split between the
state and the multinationals would be a bad thing.
The tri-pe may be seen, then, as a tripartite structure erected to
escape dealing with an underlying logic that is dualistic. In strictly eco-
nomic or technical terms, joint ventures between the state and the multi-
nationals would make the most sense. In fact, this is a situation which
is never offered as a normative model and rarely occurs in practice.
The aversion of all parties to a dualistic interpretation of what is going
on in the petrochemical industry reflects a fundamental contradiction
inherent in the structure that has evolved. Ostensibly, both nationalism
(in the sense of locally directed development) and capitalism (free,
though unquestionably highly regulated, private enterprise) are highly
valued. In fact, efforts to achieve nationalist ends seem to lead in the
direction of state capitalism, and supporting "free enterprise" might
easily appear to be supporting international capital and, therefore,
giving up nationalist goals. It is for this reason that the third partner,
the local capitalist, is so important.
There is still enough nationalist sentiment in the army and the elite
as a whole so that the burguesia do estado cannot afford to appear to be
"selling out" to the multinationals. Any direct partnership involving
only the state and the multinationals might be interpreted in this way.
Thus, if the state and the multinationals were the only partners, the
pressure to take a "hard line" would be much greater. This, in turn,
would open up the possibility of the state being interpreted as anti-
capitalist by both the multinationals and local industrialists. The role
of local capital in the tri-pe is thus essential. The contradiction between
the necessity of including local capital and the inability of local capi-
tal to provide any special contribution would appear to be an important
source of instability in the model over the long run.
The precarious position of local capital would become an even
more salient problem if Brazil were to move toward even a limited form
of "bourgeois democracy." If it were easier for the local capitalist to
pressure the state, it would be correspondingly harder for the state to
maintain its good relations with the multinationals. Local capital would
be likely to engage in nationalist appeals that, no matter how self-
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interested their origins, would have some popular appeal, making it even
harder for the state to maintain the difficult stance of being nationalist
but simultaneously the loyal partner of international capital.
A similar problem revolves around the effect of competition on the
structure that has been developed. As was mentioned earlier, one of the
features of the petrochemical industry, at least through the first semes-
ter of 1974, has been that it was essentially a sellers' market. When
this is combined with the fact that prices, especially of products used as
inputs by other industries, have been strictly controlled by the govern-
ment, the result is an industry in which competition is rather muted.
The muted nature of competition is even more important, given the
fact that most of the basic products are produced by only one or two
companies. If one of the producers is vertically integrated, it may end up
supplying its own competitors. In the case of PVC, for example, a
subsidiary of Solvay produces over half Brazil's output. Vulcan, S.A.,
currently a subsidiary of Occidental Petroleum, is one of its major cus-
tomers; on the other hand, Vulcan's biggest competitor in the sale of
products made from PVC is Plavinil, also a subsidiary of Solvay. Yet
the nature of competition in the industry up to this point has been such
that Solvay has occasionally reduced the amount of PVC it supplies
Plavinil in order to make sure that its other customers, like Vulcan,
do not suffer excessive shortages.
As long as local outputs are substantially less than local demands,
as is still the case for most basic products, the possibility of impor-
tation provides an important check on the behavior of local producers.
I asked one multinational manager, whose only supplier of an important
input was also his competitor, whether he worried about being cut off
from supplies. He said that he was not because, if his supplier/ com-
petitor ever cut him off, the government would simply allow him to
import his inputs, which would be to his advantage in any case since
international prices (without duties) were lower than local ones.
What would happen to the structure if capacities exceed demand
and competition becomes more serious? The role of the state as mul-
tiple partner and moderator would clearly become much more compli-
cated. Once the Polo do Nordeste is completed, the state will become
its own competitor, via different partnerships, in a number of different
ventures. In the case of polyethylene, for example, Sumitomo will be
producing 100,000 tons per year in one company; National Distillers
will be doing the same, and Petroquisa is a partner in both ventures.
It is unclear what Petroquisa's role should be in the case of serious
competition between the two companies, but it would seem difficult to
maintain the fiction that they were simply two competing capitalist
firms.
As ingenious a mechanism for enabling collaboration as the tri-pe
may be, its capacity to resist hard times is still untested. There are no
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Peter Evans
obvious barriers to the maintenance of cooperation as long as demand

for petrochemical products in Brazil continues its current spectacular
rate of growth. The question is what will happen during periods in
which the market is stable or declining. It is then that the anomalous
position of local capital and the rather curious combination of oli-
gopoly and oligopsony that characterize the structure of the industry
are likely to strain the model. If, under such conditions, the tri-pe begins
to disintegrate, the resultant structure is likely to bear a closer resem-
blance to an explicitly "state capitalist" model.
The Tri-pe and the Transformation of Imperialism

Paul Baran believed that capitalism could not produce development in
less-developed countries because of the peculiar characteristics that it
took on under the aegis of imperialism. The growth of Brazil's petro-
chemical industry illustrates that imperialism is not necessarily incom-
patible with industrialization. It also gives some indication of the sorts
of transformation that are necessary in order to achieve this compati-
bility. Most of the change is not on the side of the multinational corpo-
ration but on the side of the state. Through a variety of restrictions,
regulations, pressures, and, most prominently, incentives, the state has
been able to maneuver the multinationals so that they are willing to
implant basic industries. Even more radically, the state has become
a major participant in directly productive activity, as in the case of the
petrochemical industry.
The new role of the state implies, in turn, a restructuring of the
elite. The core of the "ruling class" in a country like Brazil will increas-
ingly be found in the burguesia do estado, the men who fill the state
apparatus. The men of Petrobras are archetypal of this group. They
combine technical training, like engineering, with long managerial expe-
rience. They consider themselves administrators, not entrepreneurs, re-
gardless of the entrepreneurial ventures that they instigate and direct.
They share a culture and a set of values with the multinational managers,
who are also employees in large-scale organizations and not "private
entrepreneurs." The largest and most successful of the local corporations
are also staffed by men of this type, men with long training in large
organizations, private and public. The consensus among these men is
thoroughgoing. There may be conflict between various members or seg-
ments of the elite, but it is of the same order as conflict between U.S.
Steel and Bethlehem. If anything, the structure that has been created
in Brazil is more tightly knit and closely interconnected than equivalent
structures in the United States or other developed countries. At least,
this is the case in the petrochemical industry.
The integration of the multinationals and the state may surprise
those who take their espousals of "free competition" too literally, but
such expectations seriously underestimate the flexibility of the multi-
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197
national corporation. Looking at responses to the Brazilian situation,

it seems that multinationals are not at all attached to the "anarchy of
capitalist production." They appear to find a situation in which the state
takes a large responsibility for the organization of production quite
amenable to their interests. Complementing this conclusion is the ob-
servation that state-owned corporations, at least under the kind of cir-
cumstances that exist in the Brazilian petrochemical industry, have
equally little difficulty adapting to a profit orientation.
Theories of imperialism in the sixties often assumed implicitly that
difficulties in implanting capitalism in the Third World are such that
countries on the periphery would have to adopt socialism in order to
achieve "development. "17 Such Manichaean analysis is clearly out-
moded. Capitalist development in Brazil has required some redefinition
of what is meant by capitalism. In other countries with less-favorable
circumstances, or even in Brazil itself if conditions were to change, the
alterations required would be more fundamental. Nonetheless, the re-
sult is not a crisis for capitalism on the periphery but rather the gradual
construction of an increasingly state-capitalist framework. Looking at
the example of the petrochemical industry, it seems that the way out
of each impasse, the successful strategy for each major development,
has required movement in the direction of state capitalism. So far, at
least, the movement toward state capitalism has been compatible with
participation by international corporations and, therefore, with impe-
rialism.
Prognosticating the rise of state capitalism in collaboration with
international capital is perhaps a more pessimistic prediction than Bar-
an's. It implies the continuation of accumulation directed by a minority
and the continued domination of the process of accumulation by capi-
tal. The fact that the capital involved is more "public" than in a "free-
enterprise" version of capitalism does not change the fact that it is
managed by a small, tightly knit group whose interests may well diverge
significantly from those of the mass of the population. In Brazil at least,
rapid industrialization under an approximation of this. model has been
accompanied by increasing inequality, rising infant mortality, new out-
breaks of epidemic diseases, and increasing hardship for large portions
of the population. The prognostication is a pessimistic one, not only
because the model's welfare consequences are disappointing. It is also
pessimistic because it suggests that "anti-imperialism" in the traditional
nationalist vein will only strengthen the new burguesia do estado and
move the system further in the direction of state capitalism. If the goal
is to humanize the process of capital accumulation and bring it under
the control of as broad a constituency as possible, the success of the
petrochemical industry offers little in the way of a positive model.
17 See Peter Evans, "National Autonomy and Economic Development," In-
ternational Organization 25, no. 3 (1971): 675-92.
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198
CONSENSUS AND DIVERGENCE:
THE STATE OF THE LITERATURE
ON INTER-AMERICAN RELATIONS
IN THE 19705
Jorge I. Dominguez
Center for International Affairs, Harvard University
INTRODUCTION I
"We went to visit neighbors and found brothers."2 So began the text of the
Rockefeller report on United States-Latin American relations in 1969. The phrase
captures not only a part of the governor's personal style, but also some themes
of inter-American relations. Many scholars and public officials in the United
States start their analyses and their policies from the following premises: there is
a special relationship between the United States and Latin America, a positive,
cooperative, warm, quasi-familial bond quite beyond the ordinary interstate
bond; and there is a mutuality of interests among these countries of the Western
Hemisphere that resembles family ties in the best sense. In case these premises
are not self-evident, it is appropriate to use a rhetorical style more positively
effusive than perhaps the facts may warrant.
"We would sum up, as follows, our aspirations for victory: destruction of
imperialism by means of eliminating its strongest bulwark-the imperialist do-
main of the United States of North America."3 So wrote Ernesto (Che) Guevara
in his public statement to the Organization of Solidarity of the Peoples of Africa,
Asia, and Latin America in 1967. This statement, too, captures not only a part of
Guevara's style but also other themes of inter-American relations. The premises
of these alternative policy prescriptions and analyses could be thus summarized:
there is a special relationship between the United States and Latin America,
because the latter has suffered the brunt of oppression and aggression from the
former, but there is no hint that Latin America may have benefited from its long
association with the United States; the cause is larger and broader than merely
inter-American relations, for what is at stake is the future of imperialism as a
global phenomenon, where the Latin American connection is but the first step
in a course of action; and the times require speec!. of execution, courage, and
commitment. Here too, in case the premises are not self-evident, there is a
rhetorical style more gripping and demanding than perhaps the facts may war-
rant.
The thoughts and styles of scholars are often couched in different lan-
guage, pursuing different objectives, and relying upon different methods. But
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Latin American Research Review
the abyss between the assumptions of Rockefeller and Guevara is frequently in

evidence in the world of scholars writing about Latin America. This is perhaps
best illustrated within the pages of a volume, edited by Julio Cotler and Richard
Fagen, with regard to the Alliance for Progress. As Cotler and Fagen themselves
note, there is no consensus among the authors of their volume on the intentions,
implementation, and consequences of that endeavor. 4 If scholars on inter-
American relations cannot agree on that, a reasonably important item in the
collective modern history of the Americas, can they agree on anything?
Indeed, there are some important elements of consensus in the analysis
of inter-American relations among people who often emphasize their disagree-
ments and who, in fact, disagree on important questions. Such agreement can
help to chart both research and policy attention. The presence of agreement
cannot be exaggerated, nor is it the purpose here to foster the view that scholars
and public officials generally agree, within and between each set. Moreover,
notwithstanding useful efforts to formalize and synthesize "schools" or ap-
proaches employed in the study of inter-American relations, there is more vari-
ety in approach and in substantive findings within all identifiable schools, and
within Latin America and the United States, than is often recognized. 5 The
awareness of variety should avoid premature pigeonholing of scholars and schol-
arship in a field that can benefit from collaboration and criticisms among many
who disagree in part, but not absolutely.
The first section of the essay explores elements of consensus among schol-
ars studying inter-American affairs, and considers consensus on three broad
questions. First, what are the stakes in inter-American relations? This requires
an exploration of the composition of the international agenda in the hemisphere,
including the ranking of issues within the agenda. Second, who acts to affect the
stakes in inter-American relations? This requires not only an identification of
participants in setting the agenda and setting policy, but also a consideration of
the degrees of autonomy that participants may have from each other; if one
actor is dominated or severely constrained by another, the form of its participa-
tion will be strongly affected. Third, who prevails in inter-American relations?
There is need to know what are some of the outcomes of inter-American rela-
tions, and who benefits from them.
These are, of course, classic questions: what are the issues? who governs?
what difference does it make? The inter-American relations literature poses
common tentative answers to these questions to a degree that is not often
recognized. The answers may not be entirely correct; some of the questions
pertaining to the validity of the answers are considered in this essay, but most
are not. The principal purpose here is to describe in a somewhat ordered fashion
the state of the literature. The testing of the propositions emerging from this
literature is beyond the scope of the present work.
The literature on inter-American relations, however, is better known for
its divergences than for its consensus, as noted in the opening phrases of this
essay. Thus, the second section explores this subject. Eight perspectives on inter-
American relations are sketched. The questions explored in the section on con-
sensus surface once again, but additional questions are considered to facilitate
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LITERATURE ON INTER-AMERICAN RELATIONS
the delineation of the perspectives. Any effort to classify scholarly work includes
an element of arbitrariness. It is plain that the boundaries among these perspec-
tives are fuzzier, in practice, than may appear from the reading of this essay.
Although the perspectives are presented as if they were mutually exclusive,
they are not, of course. At the end of the essay, a hierarchy of commendable
approaches is suggested, drawing from five of the eight perspectives. Such an
eclectic use of these different perspectives is possible precisely because some of
the boundaries among them are not so sharp. Moreover, they can be applied at
different levels of analysis: the inter-American system or the government of
each nation-state. Thus scholars employ different perspectives depending in
part on the level of analysis. Yet it remains useful to consider the eight perspec-
tives separately also; they are not identical; they are not merely subcategories of
other perspectives; there are disagreements on approaches, hypotheses, and
conclusions; and there is often confusion when scholars are lumped together at
a very high level of aggregation as if they all agreed-this has happened particu-
larly to writers on dependency.
A joint discussion of consensus and divergence within a scholarly litera-
ture concerned with a similar set of issues suggests a hypothesis on the sociology
of knowledge. Contact across perspectives and national boundaries, leading to
scholarly agreement, is often identified with specific individuals of considerable
subtlety and intellectual reach. Most scholars within a given perspective may
emphasize their orthodoxy, while the leading scholars within that perspective
are moving toward coincidence with the leading scholars of other perspectives.
These processes may be an ordinary part of social scientific life, where most
scholars engage in their normal, orthodox scientific pursuits, while the leading
scholars, who established that orthodoxy in times past, are edging toward he-
retical innovation.
This is not an exhaustive bibliographic study of pertinent works on inter-
American affairs, on their impact on development, or on international relations
and foreign policy. Items were selected for discussion that meet five criteria
(though they do not exhaust the universe within the criteria): they deal with the
post-1970 political world in inter- American relations (except as noted in the
text); they are broad in scope, and deal with a variety of countries; they are
explicitly international, dealing with relations across national boundaries, rather
than with the impact of international relations on internal development; they
have some public policy implications for governments; and they are examples of
high-quality scholarship.
CONSENSUS
Stakes
There is virtually universal agreement that the stakes of inter-American relations
include a very high economic content. This consensus has existed for a long
time. In the context of general studies of world politics there had been at times a
need to justify discussions of international political "economy (often called "low
politics") on the same plane as the politics of security, war, force, and threats
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(often called "high politics").6 That distinction has not been at the forefront of
research on inter-American affairs. Recent empirical research, relying upon
quantitative methods, has also supported the long-standing view that economic
stakes are a principal factor explaining U.S. foreign policy behavior in Latin
Anerica, though not the only factor, because politico-military stakes are also
important. 7 However, there is discussion on a related subject: how much impor-
tance should be accorded to "high politics"? The Linowitz Commission report
notes: "In the past, broad U. S. policies toward Latin America, such as the
Alliance for Progress, often reflected concern over possible threats to U.S. secu-
rity from Latin America." The commission report goes on to argue: "At present
and for the foreseeable future, Latin America poses no such threat. Military
security, therefore, need not be the overriding goal and ordering principle for
U.S. policy in Latin America. Economic issues instead will be the critical ones
during the coming years."B The main substantive recommendations of the com-
mission report in the political realm aim to brush away the debris of decades of
U.S. foreign policy in Cuba, the Panama Canal, regional organizations, economic
sanctions, and general political-military world view. 9
That prescription, however, does not yet reflect the facts. Though there is
some policy movement in the U.S. government on some of these questions,
there is also evidence of considerable continuity. The Rockefeller report had
outlined a rationale and a set of policy recommendations on military and security
matters very much linked to the assumptions and concerns of the cold war.]O
While the conventional wisdom suggests that the Rockefeller report was not
implemented (and indeed much of it was not), this underlying rationale was still
in evidence in one of the major issues in inter-American relations of the early
1970s. It is now clear that U.S. policies, hostile to the Allende government, were
implemented prior to, and somewhat independent from, U.S.-Chilean disputes
over the takeover of Anaconda and Kennecott copper mines. The rationale for
those policies was anti-Communism (the absolute independence from copper
socialization cannot be demonstrated in full, nor is it likely; presumably Secretary
Kissinger and his associates anticipated such a takeover from the kind of govern-
ment they foresaw). There were varieties of hostility to the Allende government;
th~re was considerable bureaucratic dispute within the U.S. government about
what should and should not be done, but there was hostility. The ideological
and security elements, although not identically shared, not fully coordinated,
and mixed with economic elements, retained not only substantial importance,
but also autonomy as an important rationale for U. S. policies. Thus political and
economic elements are both independent from each other and sources of con-
tamination for each other. Though these assumptions are not shared unani-
mously either within the executive branch or in the Congress of the United
States, they are rather widespread. 11 The touchstone of these attitudes in the
Congress has been the Panama Canal: to a substantial degree, opposition to a
new treaty is fanned by the same cold war rationale, though not exclusively by
it, as well as by concerns related to the economic and social importance of the
Canal for the U.S. government, private enterprises, "Zonians," and others.]2
An interesting twist added by the Linowitz Commission report, with
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scholarly support, would further intermingle economic and political relations.

The commission report recommends that the political-security rationales for
arms transfer policies be downgraded or eliminated: thus they recommend the
termination of grant military materiel assistance programs in Latin America, and
the discouragement of arms purchases. The commission report also recommends
that legislative restrictions on arms transfers that discriminate against Latin
America be repealed: "Conventional military equipment should be available to
Latin American countries on a competitive, commercial and non-discriminatory
basis." 13 While the arguments for this position carry persuasiveness, and while
this may be the "best" policy under the circumstances, the attempted depolitici-
zation of a highly political "transfer," and its subsequent commercialization,
may have the effect of contaminating politics and trade even more. The probable
outcome would be to increase the economic elements of arms transfers without
eliminating the political content, because arms transfers are inherently political.
On the Latin American side, there has never been much doubt that eco-
nomic issues rank high on the inter-American agenda and that politics and
economics are joined. Nevertheless, the point is often forgotten that Latin Ameri-
can scholars have explicit political-military dimensions in their analyses, typically
integrating the economic and the political. They do not just emphasize economic
aspects. For example, Osvaldo Sunkel, who has written extensively about the
transnational economic trends and forces linking central and dependent coun-
tries, has also written about differences in political ideologies and interests within
the United States, which could be used to Latin America's advantage. In this
case, there is not only substantial political content to the analysis, but also a set
of specific policy suggestions for maneuver for dependent countries aware of
political competition in a central country.t 4 Helio Jaguaribe's analysis of inter-
imperial politics links changes in political, economic, and military global constel-
lations to their consequences for Latin America. He explicitly discusses the
degree of political maneuverability for dependent Latin American countries af-
forded by both the political and military characteristics of the international sys-
tem, and by the political competition within the United States. IS
A third, and last, example of the contamination of politics and economics
is the redefinition of national security by some Latin American military to include
the internal and the international, the military, the political, and the economic.
The Peruvian armed forces may have gone furthest in this direction, but elements
of this view have become very widespread. Thus, retired General Juan Guglial-
melli put forth three different but linked propositions about the role and func-
tion of the armed forces in Argentina, and presumably in other countries, in the
founding two issues of Estrategia. Guglialmelli argued first, that "no country can
foreclose the possibility of armed conflict with neighboring countries"; second,
that "the most typical form of external aggression in Latin America has been
economic aggression"; and, third, that though the armed forces should preserve
internal order, they ought to "pay attention to the kind of order they are pre~erv
ing, because an order without change" leads to the status quo, underdevelop-
ment, and violence as a consequence thereof; "repression can only suppress the
external forms of discontent, but not their bases"-development is required to
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Latin American Research Reviezv
do that. 16 In this view, a national security policy requires a policy linkage between
internal and international levels, and between political and economic scope. The
presence of economics does not wash out the role of force, even the role of
international war. The issues are important and contaminated.
Participan ts
There is a consensus that states can act in international affairs, autonomous both
from foreign countries and from social and economic class and group pressures;
this is an emerging consensus, not a fully crystallized one, and it is only about
the present, not about the past. Anibal Quijano argues that, for internal and
international reasons, military-technocratic regimes have achieved a larger mar-
gin of relative autonomy. "At the same time, the state-controlled by these
social forces-was increasing its relative autonomy with respect to the basic
classes of the national society." This is, in Quijano's view, a relatively recent
phenomenon. 17 The new state is also more autonomous because it is stronger
and more competent to govern, that is, to make certain that its policies are
implemented. Fernando Henrique Cardoso has also stressed both directions of a
possible. and relative state-society autonomy: just as the state, especially in
military technocratic hands, has a degree of autonomy relative to the society,
there are also elements of society that managed to escape the state's control,
even under authoritarian conditions, facilitating a substantial degree of plural-
ism. Is
This stress on the possible and relative autonomy of the state does not
mean that Latin American scholars, in particular, have abandoned the view that
the state responds to the interests of the elites, national and transnational. A
useful formulation of the emerging view is provided by Marcos Kaplan. He
finds the Latin American state "emerging and affirming itself" and argues that:
The state and its bureaucracy tend to be converted into a separate
social conglomerate with its own interests and an appreciable de-
gree of independence, a conglomerate that assumes a role as arbi-
trator among classes, factions, and groups. Its action is dual and
ambiguous: on the one hand, it operates as an expression of the
system and an instrument of the dominant classes, and its action
corresponds, ill the final instance, to their interests; on the other
hand, there is not total identification between the state bureaucracy
and a given class, nor is the former mechanically or instrumentally
subordinated to the latter (Kaplan's stress). 19
Until fairly recently, the predominant view among scholars of U.S. foreign
policy was that states mattered the most and, in more extreme form, that only
states mattered in international affairs. Most of them, therefore, do not have to
be persuaded that it is possible for states to have relative autonomy from social
and economic forces, nor is it necessary to elaborate on their views here. What is
somewhat newer is the clear perception by U.S. scholars that Latin American
states are not only autonomous but also much stronger than in the past. This is
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best reflected in the subtitle of the book edited by Luigi Einaudi: Latin America
takes charge of its future. 2o
It is also useful to rely upon U. S. studies to note another rather recent
change in scholarship, supporting a different aspect of an emerging consensus:
though states matter and can have autonomy, they are not the only significant
actors. Transnational forces and organizations-trade, multinational enterprises,
churches, guerrilla organizations, etc.-have a significant impact upon interna-
tional relations. 21 Einaudi notes how U. S. corporations often gain their influence
over foreign policy by manipulating the symbols of nationalism within the United
States. 22 Einaudi, Michael Fleet, Richard Maullin, and Alfred Stepan have writ-
ten about transnational relations within the Roman Catholic Church, discussing
both intra-Latin American and inter-American Catholic relationships, especially
attending to the impact of religious beliefs upon international and national poli-
tics and economics. 23 David Ronfeldt and Einaudi have also continued to pay
attention to transnational violence from guerrilla and similar groups, though
stressing a much more sober and analytical perspective on these organiza lions
and processes than had been the case in this literature. 24 Herbert Goldhamer's
comprehensive study of non-Latin American powers in Latin America pays
considerable attention to economic stakes, participants, and instrumentalities. 2s
And Henry Landsberger has written about relations among international labor
organizations in the Americas.
Outcomes
There is also an emerging consensus that private interest groups, especially
business groups, do not always prevail in the formulation and implementation
of foreign policy. This underlines the tension among actors and actions in foreign
policy. Quijano has argued that, in more recent times and only then, the
"national-imperialist state" (e.g., the United States)finds that lithe mere defense
of the interests of each North American imperialist firm operating in these
countries could aggravate the contradictions and the political-social conflicts
within these countries." Thus imperialism "must inevitably tolerate the sacrifice
of the interests of this or that individual imperialist firm."27 In addition, private
influence does not always prevail in the formulation and implementation of
foreign policy in the client state. For example, Carlos Estevam Martins calls the
government of Brazil, under Castelo Branco, "subimperialist" within a more
general "liberal-imperialist" framework. This subimperialist liberal-imperialist
government, among other things, systematically set aside the protests formu-
lated by the Center for Industries of the State of Sao Paulo against the making of
rules more favorable to foreign capital. 28 To be sure, the Castelo Branco govern-
ment is described as subimperialist, in part, because it is responsive to interna-
tional private enterprise even at the expense of national private enterprise. But
in that process of response and rejection, the Brazilian state acquired a substan-
tial degree of autonomy as an intermediary among competing private interests.
It is not simply responding to private pressure.
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The behavior of multinational enterprises in Latin America has been re-

ceiving increasing public and scholarly attention in the United States. The U.S.
Senate helped to expose the activities of ITT in Chile. However, though good
studies are not abundant, they begin to suggest possible lines of inquiry consis-
tent with the proposition that private business interests do not always prevail.
Theodore Moran's study of multinational copper enterprises in Chile shows that
Anaconda and Kennecott had lost most important political allies within Chile
years before they were expropriated by the Allende government. These enter-
prises gradually lost their ability to prevail over the Chilean state as their bar-
gaining leverage eroded; the foreign enterprises thus were decreasingly able to
prevail and decreasingly able to find local political support. On the home front,
the United States government was hostile to Chile, but it did not use all of the
possible pressures it could have brought on Chile after the socialization of Ana-
conda and Kennecott and, in particular, it did not apply the "mandatory" legal
sanctions of the Hickenlooper Amendment. Franklin Tugwell's study of the
politics of petroleum in Venezuela reaches similar conclusions, notwithstanding
clear differences between Chile and Venezuela. Tugwell himself notes that both
the Venezuelan and Chilean cases "demonstrate the danger of automatically
assuming a united front among private powerholders in Latin America." In
\!enezuela, as in Chile, there was a growing estrangement between the multina-
tional petroleum enterprises and the Venezuelan private sector, so that the for-
mer stood alone as the Venezuelan state proceeded to take them over in the
mid-1970s. More generally, Tugwell writes about the "degenerative instability"
of the relationship between the Venezuelan government and the multinational
petroleum enterprises. This results not only from the mistrust and uncertainty
built into the system of concessions, but also (as Moran would concur) from lithe
shift in bargaining power to the state that occurs as foreign companies sink their
capital in extractive enterprise and become more vulnerable to government de-
mands for a greater share of profits."29
Charles Goodsell's study of U.S. enterprises in Peru is congruent with
this view. Standard Oil of New Jersey's bargaining leverage gradually eroded,
culminating in state takeover. Though the United States government applied
pressure on Peru over a long time, as it would on Chile, the more extreme legal
sanctions were not applied and a settlement was eventually reached. Within
Peru, the U.S.-based multinational enterprises did not agree among themselves
about a specific strategy, nor did the U.S. embassy agree with them in many
instances. 3o
If private business does not always prevail, the other side of the coin is
that, in crisis situations, the United States government attempts to defend its
hegemonial preeminence within the inter-American system. This "defense of
the system" hypothesis specifies that the U.S. government will act to constrain
the foreign policy behavior of Latin American countries if, bu t only if, either one
of two thresholds is crossed. One threshold is the possible establishment of a
close alignment with an enemy, whether the Axis powers in World War II, or the
Soviet Union or China since then. Another threshold is a violation of the property
principles in international capitalism. The first points to U. S. behavior in Guate-
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mala (1954), the Dominican Republic (1965), Chile (1970-73), and, of course, Cuba
since 1959. The second threshold points to U. S. government behavior in virtually
all instances of the takeover of foreign-owned property by Latin American gov-
ernments; the principle that SOlllC compensation must be paid has been adhered
to by the U.S. government, even if a great many compromises have been made
on the amount, the timing, and the form of compensation. A Latin American
country need not fear a serious impairment of its relations with the United
States if it does not pay prompt, full compensation in cash; but relations will be
impaired if no compensation is forthcoming. In instances of these violations, the
U.S. government has acted strongly in inter-American affairs to defend the
"rules of the game" according to its own norms. If these two thresholds are not
crossed, the behavior that the U.S. government is willing to allow within the
boundaries of the inter-American system is quite diverse. Thus this hypothesis
seeks to specify both the presence and the absence of U.s. foreign policy "ag-
gressive" behavior under certain conditions.
Quijano places this proposition at the core of his analysis. The United
States, in his view, though willing to sacrifice individual firms for tactical reasons,
will attempt to defend the system of international capitalist production.]1 Some
of the evidence of "moderate" U.S. government behavior is consistent with this
hypothesis. For example, though the United States government did not inter-
vene militarily or even invoke economic sanctions, supposedly mandatory in
U. S. legislation, to intervene in the investment disputes with Peru in the 1960s
and Chile in the early 1970s, it applied substantial pressure on both countries to
force them to settle on acceptable terms with the expropriated firms (or, in the
case of the Belaunde government of Peru, to influence the pre-expropriation
bargaining). The pressures were more severe in the Chilean case. The Peruvian
case led to a compromise settlement in 1974 (as a result of the Greene Mission),
which upheld both the Peruvian expropriations and the principle of property
compensation. 32
The Linowitz Commission report suggests that the "defense of the sys-
tem" hypothesis is broadly shared, even by persons not then within the U.S.
government. Though the commission report is, ordinarily, a very conciliatory
and noncoercive document, it changes tone concerning investment disputes:
"arbitrary and unilateral disrespect of contractual obligations by any government
must not be condoned," though the commission report does not want to apply
automatic sanctions and prefers that the U.S. government become directly in-
volved as little as possible. Yet, the commission report is not at all prepared to
abandon U.S. government intervention in investment disputes: "It is not
enough to assert that 'international law' protects foreign investors, nor can we
realistically urge U.S. or other foreign companies to accept without any dip-
lomatic recourse, the a pplication of host country la ws and practices to their
companies when those practices contradict prevailing international norms."3]
The things the commission is not prepared to accept or to ask others to accept
have, of course, politicized inter-American investment disputes over time. The
ability to "take the longer view," including the willingness to rise above the
interests of an individual U.S. firm for the sake of defending a "good investment
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climate," is not unique to the U.S. government. Other organizations, including

the Council of the Americas (an organization of U.S. enterprises operating in
Latin America), show evidence of similar behavior. 34
A somewhat open question in the literature is whether the "defense of
the system" hypothesis is peculiar to a c~pitalist state, such as the United States,
or whether it is common to the behavior of all major powers. In an inter-American
context, the issue pertains primarily to the Cuban-Soviet relationship. It has
been argued that both the United States and the Soviet Union attempted to
"defend the system" in their relations with Cuba, before and after 1960, though
in different ways and for different purposes. 35 More generally, Jaguaribe's writ-
ing suggests that this kind of behavior is, indeed, shared by all major powers. 36
Another important outcome on which there is substantial consensus is
that private economic interest groups do prevail often enough in the formula-
tion of government policy. The immediately previous discussion is evidence of
substantial, though not unlimited, private influence on the formulation of U. S.
foreign policy. R. Harrison Wagner has also shown how the influence of private
interests on governmental economic policy has been effected in the United
States. The institutionalization of a decentralized U. S. foreign economic policy
allows interested nongovernmental groups and individuals to participate in poli-
cymaking ..17 Moreover, though single enterprises do not systematically block
the will of the executive branch of the U. S. government, they have done so at
times by using their leverage within the U. S. Congress to block legislation that is
necessary 'to implement important foreign policy decisions. For example, Ste-
phen Krasner has shown that the General Foods Co. was able to prevent the
effective adherence of the United States to the International Coffee Agreement,
pending the resolution (to General Foods' satisfaction) of a dispute over the
importation of soluble coffee from Brazil into the United States. 38 There is also
evidence that private economic interest groups prevail at times over the formu-
lation of foreign policy by Latin American states. Krasner has also shown the
substantial weight of private producers on Brazil's foreign coffee policy.39 David
Bushnell has noted the same behavior in Colombia, where coffee producers are
the principal interest group affecting Colombian foreign policy and inter-Ameri-
can relations. 4o Similarly Robert Clark has shown that the private business
sector's organization in Venezuela, FEDECAMARAS, had a very substantial
effect in shaping Venezuelan policies toward Latin American integration in the
1960s, sabotaging prointegration efforts. 41 And Olga Pellicer de Brody has shown
the impact of Mexican private entrepreneurs on the formulation of a policy that
was not of direct material importance to them (Mexican policy toward Cuba) but
was perceived to affect the general climate of U. S. -Mexican relations, itself of
substantial importance to Mexican entrepreneurs. 42 The latter instance is rela-
tively rare (a~d, indeed, this article is cited again and again, not only for its
quality, but also, apparently, because it is difficult to find other instances). On
the whole, entrepreneurs seek to influence foreign policy primarily when it is in
their clear and evident interest to do so. There is, therefore, a fairly generalized
consensus that states-both in the United States and in Latin America-are
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"penetrated" by private interests, some national and some transnational, and

that these do prevail over policy formulation often enough.
There is also an emerging consensus that there is no easy "mutuality of
interests" between the United States and Latin America. There is, at the very
least, a problematic response to the question: Who benefits in inter-American
relations? Those who believe that the United States is an imperial power per-
ceive no broad mutuality of interests. However, even some who may believe
that there is a mutuality of interests have come to appreciate the difficulties in
implementing policies yielding joint gains that may be perceived to be equitable
for all participants. Let us focus on the views of liberal elite members in the
United States who have held government office. Former Assistant Secretary of
State for Inter-American Affairs, William D. Rogers, testified that "this Hemi-
sphere has a long relationship built on unique and common, cultural and his-
torical experiences. The relationship is an uneasy one now. The nations of Latin
America are extremely sensitive to what they think they see as threats to their
developmental aspirations."43 The report of the Commission on United States-
Latin American Relations states that "the United States should no longer as-
sume, as it often has, an easy or permanent mutuality of interest between
ourselves and the countries of Latin America and the Caribbean. Common in-
terests do indeed exist, but they need to be nurtured. At the same time conflicts
and points of tension cannot be ignored."44 Conservative nationalists in the
United States have also come to the view that confrontation, rather than shared
interests, is the norm and the fact of inter-American relations. The views of
former Secretary of the Treasury John Connally on U.S.-Latin America relations
and the Nixon administration's decisions on expropriation of U.S. property
illustrate this emerging nationalist perception in the United States. 45
If the old argument about mutuality of interests has little life left in it, an
emerging hypothesis is that there is a mutuality of interests between particular
classes. The modified mutuality of interests hypothesis suggests that joint inter-
ests in the integrated development of factors of industrial production in both
Latin America and in the United States are perceived by industrial entrepreneurs
in both areas. * In the short run, there may be specific policy differences; certain
enterprises and even certain economic sectors will feel threatened by either
national or international actions. In the long run, the modern industrial sectors
*1 do not agree entirely with this consensus. While it may be true that Latin America and
the United States may realize joint gains in the integrated development of their industries,
a good deal more needs to be said about the characteristics of that integration. Will Latin
America produce high technology products, too? Second, I am unpersuaded that all in-
dustrial entrepreneurs perceive those common interests; scattered data from several large
Latin American countries-which 1expect to analyze further in the future-suggest to me,
at least provisionally, profound divisions among national entrepreneurs concerning atti-
tudes toward multinational enterprises. Those national entrepreneurs who oppose multi-
national enterprises within the borders of their countries (and they are not an insubstantial
number) put forth views that go well beyond short-term policy differences: they suggest
strong long-term opposition to multinationals. They do not like competition from multina-
tionals and they do not perceive how their own firms can survive faced with foreign
penetration of their markets.
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La tin American Research Revie1v
in Latin America and the United States perceive that they may realize joint
gains. The consensus breaks down, however, in specifying the distribution of
those gains, not only between the United States and Latin America, but also
among social classes within particular countries. This consensus also excludes
natural resource industries. Tugwel.1's study of Venezuela, Moran's of Chile, and
Goodsell's of Peru show that there was little solidarity between the multina-
tional natural resource enterprises and the national business enterprises. This
lack of solidarity was evident not only when the multinational subsidiaries were
taken over by the respective government, but also for·a number of years prior to
that time.
Sunkel has argued that the spread of transnational capitalism has led to
the integration of the modern sectors in industrialized and in less industrialized
countries and, consequently, to internal disintegration, particularly within the
latter. This is not a stagnant or static situation; on the contrary, it is inherent in
transnational modernity that there is considerable dynamic change. Sunkel has
drawn specific policy implications from this transnational structural analysis.
Thus he has analyzed the Alliance for Progress policies as a transnational modern
industrializing elite coalition between the United States and Latin America. 46
Gustavo Esteva's analysis of the international context of Mexico's development
and planning leads to similar conclusions. He argues that Mexico has overcome
the more "obvious and hateful" forms of direct dependence; nevertheless, the
roots of the new economic dependence are so profound that cutting them off
would tear out a fair part of otherwise desirable conditions: lito confront foreign
interests means often to confront our own interests. It is not a simple matter that
foreign relations would block development, rather, the problem is that the former
and the latter are so intertwined that it is impossible to conceive their indepen-
dent paths."47 Octavio Ianni, in a more formal Marxist framework, has also
argued that inter-American relations emphasize the transnational and hierarchi-
cal class interests of the international and national bourgeoisie in the United
States and Latin American countries. 48
A long-standing hypothesis about the process of U.S. policymaking is
quite congruent with this modified mutuality of interests hypothesis. The Latin
American Bureau of the Department of State (ARA) ordinarily engages in trans-
governmental coalitions with Latin American foreign offices and embassies in
Washington. There is a transgovernmental bureaucratic mutual interest in (a)
reducing conflict between the United States and Latin America; (b) combatting
the usurpation of the foreign policy fields by secretaries of the treasury or minis-
ters of finanace or other non-foreign policy bureaucrats; and (c) asserting the
primacy of politics over the interests of particular private enterprises. Thus the
Department of State acts as a broker on behalf of its Latin American bureaucratic
colleagues. The department may be neither adept nor successful, but there is a
general consensus about the main features of its behavior. These are, of course,
old themes in the study of inter-American relations; they were documented by
Bryce Wood in his study of the Good Neighbor policy.49 The rise of the bureau-
cratic politics mode of analysis among social scientists in the United States has
brought forth many case studies that support this generalization. Latin Ameri-
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can diplomats prefer to strengthen the hand of the Department of State within
the bureaucratic and executive-legislative milieu of the U.S. government and, in
turn, the Department of State behaves as a broker for Latin American govern-
ments before the Congress and other agencies within the executive branch,
albeit often unsuccessfully. 50 Thus a modified mutuality of interests hypothesis,
though with different content, is broadly shared now in analyses of inter-
American relations.
A corollary from the argument that the Department of State is often
unsuccessful in the performance of its brokerage role on behalf of its transgov-
ernmental clients-Latin American foreign policy bureaucracies-is that other
agencies and private interests within the U.S. government are likely to prevail.
The same literature documents the weaknesses of the State Department before
congressional committees, particularly when private interests are very active,
and before other agencies within the executive branch such as the Treasury
Department.
More generally, there is also ample consensus that U.S. dominance pre-
vails in inter-American relations. This hypothesis is particularly persuasive be-
cause scholars have reached it from different premises, using different approaches
and world views. Christopher Mitchell has argued "that both dominance and
fragmentation have characterized U.S. hemispheric policy, and that the latter
has helped cause the former." Lack of coordination within the U.S. government
gave many private bureaucratic interest groups "nearly direct access to frag-
ments of governmental power." In addition, "poor coordination helped preserve
the policy of dominance by obscuring the vision of the President and by placing
political obstacles in his path."sl The politics of fragmented decision, with con-
siderable private weight, were difficult to change. Faced with the statement that
the U. S. has exercised dominion in Latin America, Jorge Graciarena, criticizing
Mitchell, asked "of what importance is the discovery that North American policy
in the region has at times been implemented in an incoherent or contradictory
manner?" Instead, Graciarena argues that "the fundamental interests of the
United States as a nation and leader of the capitalist world rarely enter into the
debates of the political functionaries and bureaucrats, since these interests are
shared among them as a common assumption." There may be tactical disagree-
ments over policy implementation, but the fundamental characteristic is the
execution of a policy of domination, based on shared interests and values, by the
ruling elites in the United States. The U.S. prevails precisely because it is the
dominating power over subordinate client countries. 52 Note, however, the com-
mon finding among scholars who disagree sharply and directly with each other,
that the U.S. has exercised dominion and that it has benefited disproportionately
from inter-American relations over time and into the present day. Opposing
approaches arrive at the same conclusion, though in different ways. If-
Although the argument of U.S. dominance is quite pervasive in the literature, and broadly
It
shared even among scholars who otherwise disagree, there is a curious lack of effort to
relate these arguments about general U.S. dominion to particular policy outcomes. It was
stated earlier, for example, that the U.s. government does not defend the interests of
every firm based in the United States which may be engaged in a dispute with a Latin
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DIVERGENCE
A paradigm is a universally recognized scientific achievement "that for a time

provides model problems and solutions to a community of practitioners." A
paradigm structures the questions to be asked, the methods to be followed, and
the probable answers to be expected. S3 It is debatable whether there are para-
digms in social science, strictly speaking, because there is no universally recog-
nized high order theoretical achievement to provide the necessary substantial
prior agreement in social scientific endeavors. Social science, for this and other
reasons, differs from the natural sciences. Instead, a part of the apparent chaos
of social science stems precisely from the absence of a paradigm. Proponents of
different clusters of ideas set forth claims as if they were paradigms, but these
ideas are rarely sufficiently comprehensive, or rigorous, or persuasive, to lead to
their universal recognition as theoretical scientific achievement. The subfield of
the study of inter-American relations shares this debilitating condition with the
rest of social science. There are several clusters of ideas seeking to be born as
paradigms; they coexist, and they compete.
Liberal, Orthodox Dependency, and Bureaucratic Perspectives

Abraham Lowenthal summarized three "perspectives" on inter-American af-
fairs, and particularly on the Alliance for Progress, which he called "liberal,"
"radical," and "bureaucratic." The liberal perspective has accepted the general
and unmodified mutuality of interests hypothesis outlined earlier because it
assumes that values are shared in the Americas. Outcomes could, in principle,
benefit all, although there are short-term losers. It has argued a strong case for
the autonomy of the U.S. government over and at times against private interests,
whose role is minimized within the perspective; and it has argued that the U.S.
government has the competence to define and implement the national interest
rationally, coherently, and autonomously from particular private interests across
issue areas. Domestic politics are moderately important in policymaking. Dis-
putes between Latin America and the United States arise from confusion and
misunderstanding. 54 There is often considerable strategic concern with the poli-
cies of the U.S.S.R. and China, and there is a generally Widespread ideology of
anticommunism (a subject recently analyzed in particular by Yale Ferguson).5s
The radical perspective is premised on a basic conflict between "the U. S.
aim to dominate Latin America and the Latin Americans' urge to achieve sov-
American government. Yet, if a U.S.-based firm "loses" in its relationship with a Latin
American government, should one modify the U. S. dominion hypothesis in any way? If
the United States changes its views-as it has over the years--on such issues as the need
for an Inter-American Development Bank, or for an international coffee agreement, or the
return of Chamizal to Mexico, or Brazilian soluble coffee exports to the United States, to
adopt a position closer to Latin American views, does one need to modify a hypothesis
about U.S. dominion in policy outcomes? I am, therefore, not sufficiently persudaded that
consensus hypothesis has been specified or proven. At a minimum, one would need to
separate the "defense of the hegemonial system" hypothesis, which seems persuasive,
from others, and scrutinize these latter hypotheses more carefully.
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ereignty." This perspective has argued for a rather weak autonomy of the state
relative to private economic interests, who role is stressed. It rejects the mistake-
and-misunderstanding argument because values are not shared, and posits in
its place a rational, coherent, continuous, long-term pattern of intended domi-
nation. Some dependency writers, however, prefer to say little about how U.S.
policy is made; instead, they focus on the consequences of imperialism/depen-
dency for Latin America which, they claim, exhibit a structural continuity, not-
withstanding short-term disputes among policymakers. 56 This perspective
stresses the dependence of Latin America, economically, politically, militarily,
and culturally on the United States, and it relies heavily on Marxist analyses.
Imperialism dominates outcomes. Robert Packenham has noted four core pro-
positions in dependency theories: (1) a very low degree of client autonomy;
(2) some elites in the client states fully collaborate with the dominating state
and make dependency possible; (3) capitalism is the motive force behind de-
pendency; and (4) the consequences of dependency are negative for the depen-
dent country. 57
Lowenthal has also noted that the liberal and radical perspectives have a
number of points in common. In particular, many authors from both perspectives
assume that "policies are made by unitary, rational actors (analogous to indi-
viduals) choosing instruments in accord with established purposes."S8 Instead,
Lowenthal argues-following Graham Allison and others before him 5()-for a
bureaucratic perspective that "treats U.S. policy not as the choice of a single
rational actor, but rather as the product of a series of overlapping and interlock-
ing bargaining processes within the North American system, involving both
intra-governmental and extra-governmental actors." Lowenthal further notes
that although these processes take place within established parameters and are
1/
importantly affected by extra-bureaucratic constraints, including shared values,

their products are also very much influenced by events and procedures internal
to governmental organizations and often minimized (or overlooked) by liberal
and radical observers."6o
Two criticisms can be made of Lowenthal's helpful systematization. First,
there are bridges across these perspectives, including shared findings. It is in-
herent in an effort to systematize perspectives that important differences among
them are correctly highlighted; but one may be misled into overlooking the
points of contact, not only between liberal and radical perspectives (the latter
will henceforth be called the orthodox dependency perspective), but also be-
tween these and a bureaucratic perspective. Moreover, by emphasizing some of
the principal features of each, and giving weight within each to what is common
to it, Lowenthal has downplayed the degree of variation within each perspective.
The shifts within and among perspectives are consistent with the sociology of
knowledge hypothesis outlined in the introdt:ction.
Lowenthal's three perspectives are also found at two different levels of
analysis. The bureaucratic perspective addresses issues at the nation-state gov-
ernmentallevel; it seeks to shed light on decision-making processes. The ortho-
dox dependency perspective addresses issues at the systemic level; it seeks to
shed light on structural, system-wide processes, and especially their conse-
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quences or outcomes. The liberal perspective addresses issues at both levels;

although the principal orientation is toward the inter-American system as a
whole, mistakes and misunderstandings are often explained at the nation-state
governmental level, relying on methods that are quite similar to those of the
bureaucratic perspective.
One can specify some further divergences, particularly between the liberal
and the orthodox dependency perspectives, which set some clear limits to the
consensus ou tlined earlier concerning stakes and participants; there are also
substantial methodological differences.
The basic difference concerning the stakes of inter-American affairs is
that some scholars, most of them from the United States, insist on the primacy
of politics. Though virtually all scholars concede that there are important eco-
nomic issues that are a part of the stakes of inter-American affairs, some have
argued, and sought to demonstrate empirically, that politics and political stakes
have prevailed and that economic issues are on a secondary plane. There is a
long tradition of scholarship in this vein. Let us cite three scholars, writing about
different events, who agree on the specific emphases concerning inter-American
stakes. Dana G. Munro concludes his study of inter-American relations at the
beginning of the twentieth century with the generalization that "as we look back
on the story, however, it seems clear that the motives that inspired its [U.S.
government] policy were basically political rather than economic." Munro argues
that this proposition applies across presidencies, issue areas, countries, and
time; as a liberal, in Lowenthal's definition, he acknowledges that "many of the
American government's actions were ill-judged and unfortunate in their re-
suItS."6J
Bryce Wood's study of the U.S. Good Neighbor Policy reaches similar
conclusions. After studying a number of U.S.-Latin American disputes of un-
questionable economic content, Wood concluded that political considerations-
particularly the perceived need in Washington for Latin American collaboration in
war--overrode economic considerations and led to the sacrifice of the interests
of U. S. private enterprises in Latin America whenever the interest of these
enterprises collided with political priorities. 62 And, more recently, Arthur Schles-
inger, Jr. has criticized "the latter-day theory that the Alliance was cunningly
devised by United States capitalists to protect their investments and enlarge
their markets south of the border." Instead, Schlesinger quotes Lowenthal ap-
provingly that "far from reflecting big business domination of United States
foreign policy, the Alliance for Progress commitment emerged in part because of
the unusual (and temporary) reduction of corporate influence in the foreign
policymaking process."63 Other scholars would not choose to emphasize the
primacy of politics. On the contrary, they would emphasize the primacy of
economics. Yet another group of scholars, moreover, might argue that disputes
about the primacy of politics over economics, or vice versa, are not entirely
illuminating. Instead, they would emphasize their contamination as a long
standing feature of inter-American relations. Emphases, however, do vary, and
no vision of the field is complete without a full awareness of them.
There is also a substantial difference of opinion concerning the degree of
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autonomy of the state, though it has been argued that there is an emerging
consensus that states have substantial autonomy from social and economic forces.
Not all scholars agree. The alternative hypothesis is the "vanishing state." Not
only do economics have primacy over politics, but the autonomy of politics
disappears altogether. Dale Johnson has written that "foreign policy flows natu-
rally, and by and large rationally, from the structure described. The basis of
United States foreign policy is a conception of national interest as inherently
involved in the strengthening of international capitalism against the threats of
socialism and nationalism."64 In addition, he has also argued that "United States
private investment, aid program, foreign policy, military assistance, military
interventions, and international agencies, under the influence or control of the
international business community, are interwoven and oriented toward the pro-
motion and maintenance of influence and control in other countries. These are
the dimensions of imperialism."bs This is as clear a statement of core orthodox
dependency propositions as one can find. This view does not agree with the
emerging consensus discussed earlier; it does not fit what will be called the
unorthodox dependency perspective. It is important, nevertheless, to take into
account arguments such as Johnson's as evidence of dissent from an emerging
scholarly consensus.
Throughout this essay, there is evidence of substantial methodological
differences, whether consensus or divergence has been discussed. In a broad
sense, these are differences between Marxist and non-Marxist approaches (in-
cluding liberal, bureaucratic, and others to be discussed). Marxist approaches
tend to emphasize more the importance of economic stakes, participants, and
outcomes, and they tend to emphasize economic factors in the explanation of
politics. Non-Marxist approaches do not have so much of a common core; they
are generally more likely, however, to emphasize the autonomy of political
stakes, participants, and outcomes, and of political factors in the explanation of
politics, than Marxist approaches. Though methodologies differ in these impor-
tant respects, and they magnify the divergences, this does not prevent a degree
of consensus on important points. For example, as discussed in the first part of
this essay, Mitchell and Graciarena disagreed on the degree of coherence or
fragmentation of U.S. policy, on the degree of policy rationality, on the weight of
economic factors, and related issues, but they agreed on the fact of U. S. domi-
nance in inter-American affairs. Quijano and Kaplan, to cite another previously
discussed set of authors and writings, agree with those who emphasize bureau-
cratic approaches concerning the increasing relative autonomy of the state in its
relations with social forces, even though there are wide divergences in the stress
on the class interests represented by the state, the degree of social and economic
autonomy of the bureaucracy, and related issues. The methodological dif-
ferences, in sum, are important, but they do not altogether prevent substantive
agreement on important questions.
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Latin Alnerican Research Reviezv
Strategic, Unorthodox Dependency, Organizational Ideology, Presidential Politics, and

Political System Perspectives
There are at least five additional perspectives identifiable in the literature of inter-
American relations. Because of space constraints, these will only be sketched
and illustrated briefly here, without attempting to match the intellectual rigor of
the original authors, or of those who have systematized these or other approaches.
They can be found at different levels of analysis, and are discussed below with
these levels in mind. The five perspectives are called: strategic, unorthodox
dependency, organizational ideology, presidential politics, and political system.
Perspectives at a "high" or systemic level of analysis (e.g., liberal, strategic, and
both types of dependency) can accommodate-with limits-perspectives at a
lower level of analysis. A liberal may explain a mistake or misunderstanding in
terms of bureaucratic factors or political conflict; an unorthodox dependency
writer could admit the same further specifications at a lower level of analysis.
Orthodox dependency writers often admit analyses at a "lower" bureaucratic or
interest-group level, though they may say these are not terribly pertinent to the
truly important questions of structural continuity. Thus the perspectives that
focus on system-wide, often structural concerns, may be permissive toward
perspectives operating at lower levels of analysis (government of a nation-state),
because these can contribute to fill in the details; however, the former tend to
deny the sufficiency of these lower-Ievel-of-analysis perspectives. Similarly,
perspectives operating at a low level of analysis (bureaucratic, political) tend to
deny the necessity of using those operating at a higher level. These lower-level
perspectives come close to suggesting that the "higher" perspectives are fal-
lacious: findings at a higher level of analysis can be considered a spurious
correlation because, though they appear impressive at first, they have in fact
ignored all the truly necessary and pertinent intermediate variables. 66
There is no clear way out of the level of analysis problem. Unorthodox
dependency and liberal authors, in particular, operate often at both levels of
analysis. Orthodox dependency authors seem most scornful of the lower levels
of analysis; bureaucratic politics authors, at the other end the of spectrum, seem
most resistant to contemplating the possible necessity of higher levels of analysis.
In this essay, authors are classified according to what seem to be their principal
intellectual proclivities; yet readers should not be surprised to find an unortho-
dox dependency writer, or a liberal, traversing levels of analysis.
Strategic / This perspective is the oldest of all: strategic, rational, calculating,

cost-and-benefit conscious, unified actor analysis, with a stress on international
conflict. There is a surface methodological similarity with Lowenthal's liberal
perspective, including a rational, unified state actor assumption, and descrip-
tions of policies assuming a high order of coherence. However, while the liberal
perspective assumes a conclusion-mutuality of interests-the strategic per-
spective does no such thing. It is in the mainstream of the old orthodoxy of
international relations studies, based on the expectations of conflict and low
value sharing, prior to the emergence of dependence and bureaucratic politics
approaches in the 1960s as perspectives competing for paradigm status. AI-
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though the strategic perspective had been the orthodoxy of international rela-
tions studies in the United States, as Lowenthal points out, many who held to
this approach in the context of inter-American relations became "liberals"
because they tried to insist upon the mutuality of military, political, economic,
and cultural interests between the United States and Latin America. The single
most important feature of the inter-American uses of the strategic approach is
that economic and politico-military stakes are considered inherent in high poli-
tics, intimately linked, and hence appropriate for aggregated strategic analysis
across issue areas. Conflict, not harmony, is at the heart of the analysis. The
international system is the focus of the analysis in part because it is considered
the principal source of policy change. States can act autonomously, although
private interest groups playa moderate role. In the long run, outcomes are not
predetermined; they are shaped by skillful manipulation of the international
system.
Most of the genuine strategic thinking in inter-American relations has not
been done by U.S. but by Latin American social scientists. Among works of U.S.
social scientists, the chief recent exceptions are by David Ronfeldt, Luigi Einaudi,
Herbert Goldhamer, Robert Swansbrough, and Thomas Skidmore. 67 Because
the general approach in the U.S. is so well known, little will be said about it
here, except to highlight its specific inter-American aspects. Moreover, we will
focus on Latin American social scientists-Marxists and non-Marxists-because
they have been the principal contributors to the approach in the inter-American
context.
A number of Argentine authors are extraordinarily conscious of this ap-
proach and use it repeatedly. They are linked to the journal Estrategia. One
crucial focus of Argentine strategic analysis is the balance of power in southern
South America, and particularly between Argentina and Brazil. Although many
of these authors propose cooperative measures as an alternative to Brazilian-
Argentine competition, the underlying theme of the discussion is an acute
awareness of political conflict and of the utility of strategic thinking. 68 Similarly,
this journal has paid considerable attention to Argentine boundary disputes and
to the conflict with the United Kingdom over the Malvinas or Falkland Islands. 69
Within the context of this perspective, it is striking to consider the evolu-
tion of scholarly writings in Foro internacional. The articles in the journal's first
volume were overwhelmingly "liberal" in Lowenthal's sense, that is, the authors
were aware of conflicts with the United States that were perceived as a bad
thing, which rational people of good will could solve. 70 In the spring of 1964,
Maria Elena Rodriguez de Magis was the first author to break out of the liberal
mold of Foro's articles in a discussion of the emergence of international coim-
perialism between the United States and the Soviet Union. 71 The crisis of the
liberal perspective in Foro was perhaps best exemplified by Mario Ojeda's article
in a special 1966 issue on Mexican foreign policy. Ojeda, a perceptive analyst
within the strategic perspective but in contact with the liberal perspective, ana-
lyzed difficulties of Mexican foreign relations, particularly of relations with the
United States. He concluded: "It is difficult to decide to what extent they [prob-
lems in Mexican foreign relations] are deficiencies of the system, or of political
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economy, or even the logical consequences of the stage of development through

which the country is passing and which are solvable in the long run."72 As the
liberal perspective came under challenge, various aspects of the dependency
perspectives became more important. Maria del Rosario Green, Oscar Moreno
Toscano, and Lorenzo Meyer, among others, began to emphasize dependency
perspectives. These tended to be hospitable, however, to strategic analyses (with
political and economic content) in addition to dependency analyses. 73 More-
over, authors such as Ojeda and Pellicer de Brody continued to blend heavy
doses of strategic analyses with economic considerations in the early 1970s. 74
The trajectory of the journal, Estudios in ternacionales, in turn, differs from
that of the two previous ones. If articles in Estrategia remained strategic, and if
those in Foro evolved from liberal to strategic and dependency perspectives,
articles in Estudios internacionales had these latter two perspectives at and after its
founding in the late 1960s. The writings of 5unkel, which appeared there, have
already been cited; they stress the dependency perspective, but with hospitality
to strategic approaches. By the mid-1970s, however, articles in Estudios seemed
to have moved away from dependency studies toward more strategic analyses
of the role of middle or small powers in international affairs, and the possibility
of organizing counterblocks in international affairs to advance Latin American
interests. 75 Thus the strategic perspective-including political and military as-
pects, long of interest to students of international relations, al.ong with economic
aspects-is alive and well in inter-American relations, thanks more to the efforts
of Latin American than U.S. social scientists. 76
Unorthodox Dependency I This perspective results from a division of opinion

among dependency authors. Is hegemony not only an objective condition but
also intentional and subjective, on the part of the hegemonial state acting ra-
tionally and as a unified actor in monolithic fashion? Or is it more an objective
condition, no less real and no more trivial, but permitting substantial autonomy
for the dependent state, precisely because hegemony is not so rational, unified,
or monolithic? Jaguaribe has tended to argue the second view. Only the first
view, however, is fully within the scope of the orthodox dependency perspec-
tive. Jaguaribe has argued that "because of the pluralistic character of the Ameri-
can society and the multilinear relationships existing among its subsystems and
their integrating social groups, the American hegemony over the Latin Ameri-
can countries tends to be very broad, all pervasive, internally co-opted by several
domestic groups, but not externally unified, except in moments of crisis or over
issues concerning very relevant strategic interests." Thus U.S. domination "in-
volves a minimum content of pluralism and contradictions that tends to keep
open a margin of international permissibility." The U.S. empire, therefore, ac-
cording to Jaguaribe, has a "tolerance of ... the existence of areas of autonomy
within the empire."77
This perspective of a U.S. with a fuzzy but no less real design, tolerant of,
though not eager for, client autonomy, objectively characterized by client depen-
dence and subordination but subjectively neither greatly rational, unified, nor
monolithic, reeking with pluralism and contradictions among often incoherent
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policies, is an important bridge between the orthodox dependency perspective

and others. Nongovernmental private actors, and domestic politics generally,
play important roles. All states enjoy at least moderate autonomy. Stakes are both
economic and political. In the long run, outcomes are not predetermined, but are
shaped by the skillful manipulation of structures of international dependence.
This perspective, therefore, requires analyses at several levels, national and in-
ternational.
Unorthodox dependency also differs from the orthodox version concern-
ing outcomes. In particular, is development possible within the context of depen-
dency? Andre Gunder Frank answers in the negative. His thesis is that "capitalist
contradictions and the historical development of the capitalist system have gen-
erated underdevelopment in the peripheral satellites whose economic surplus
was expropriated, while generating economic development in the metropolitan
centers which appropriate that surplus-and, further, that this process still con-
tinues."78 In fact, says Frank, "no country which has been firmly tied to the
metropolis as a satellite through incorporation into the world capitalist system
has achieved the rank of an economically developed country, except by finally
abandoning the capitalist system."79 Presumably Frank would argue that no
country, under those conditions, is likely to do so in the future, either.
Fernanado Henrique Cardoso, perhaps the grandfather of dependency
theorists, has explicitly rejected this view. Thus, paradoxically, he too now
belongs in the unorthodox dependency perspective. Cardoso has argued, for
the case of Brazil, that "associated-dependent development" has been occurring
and is likely to continue. Cardoso argues that the international capitalist system
has changed: "Thus, to some extent, the interests of the foreign corporations
become compatible with the internal prosperity of the dependent countries. In
this sense, they help promote development." The view that "extractive exploita-
tion perpetuates stagnation," however accurate or inaccurate it may have been,
must now be rejected for the present and fu ture, in Cardoso's view. Foreign
investment in manufacturing "is consistent with, and indeed dependent upon,
fairly rapid economic growth in at least some crucial sectors of the dependent
country." In sum, associated-dependent development is "dynamic." This kind
of development, Cardoso notes, entails a number of serious costs, economic,
political, and social. 80 It is not an optimal type of development, it may not even
be good enough, but it is the real thing.
Some readers may question the classification of Cardoso as an "unortho-
dox" dependency writer because he has been so central to the original formulation
and spread of dependency ideas. There are two reasons for the classification.
The first is that Cardoso has hinted that he perceives himself in an "unorthodox"
mold. Concerning associated-dependent development, he has noted that the
"phrase was chosen deliberately to combine two notions that traditionally have
appeared as separate and contradictory: development and dependence." What
Cardoso means by "traditionally' has been called "orthodox" in previous pages.
Moreover, Cardoso underlines that his description of associated-dependent
development as dynamic is considered a "controversial, revisionist assertion" in
some intellectual circles. 81 There is, therefore, testimony from Cardoso himself
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concerning his unorthodoxy. The second reason is that it does appear that a
majority of writers in the dependency mold have been attracted to the concept
because they perceive it as useful to explain underdevelopment. Others who
have attempted to synthesize the writings of "dependency authors have also
reached the conclusion that the "school of dependency," if one does not disag-
gregate it further, is principally characterized by the emphasis on the contradic-
tion between development and dependence. Thus it seems plausible to describe
as unorthodox someone such as Cardoso who dissents from the majority view. 82
A different objection to classifying Cardoso as unorthodox is that one
should pay less attention to reinterpretations and revisions, and more attention
to the original formulations. Presumably those original formulations were ortho-
dox. To answer this argument, one must turn to that original work on depen-
dency and development in Latin America written with Enzo Faletto in the mid-
196Os. In fact, it is arguable that Cardoso's alleged revisionism of the 1970s has
clear roots in that earlier work and" that those who have thought that Cardoso
had emphasized the absolute contradiction between development and depen-
dency have misread the earlier work. Cardoso and Faletto (writing in 1966-67)
used the term IIdependent development"; they noted that their work was in-
tended to "overcome the traditional opposition between the concepts of de-
velopment and dependence" because it is possible to increase development
while maintaining and redefining the terms of dependence. 83 That original
collaborative work has often been rightly read for what it says about the distor-
tions on development posed by dependency; but it should also be read as an
essay on the simultaneous changes in development and dependency over time,
leading not only to structural distortions in the former, but also to structural
changes in both.
Cardoso has long held a view of the relationship between development
and dependency that he himself regards as controversial, and which appears to
characterize only a minority of the dependency literature. Yet Cardoso's un-
orthodoxy is also related to trends in the sociology of social science knowledge.
Cardoso's thinking has been influential, in part, because he has not been
wedded to a scholarly orthodoxy, but has been able to sketch out an intellectual
position that can be helpful to other scholarly perspectives, while benefiting
from them. Cardoso's theoretical innovations could thus be described as per-
manent heresy-both a heresy from the developmental or modernization ortho-
doxy which crystallized in the 1950s and from the dependency orthodoxy
which appeared in the 1960s.
Organizational Ideology / Guillermo O'Donnell has noted that, as scholars who

emphasize bureaucratic politics would assert, IIgovernments are not omniscient
or consistent optimizers of transitively ordered goals. But this does not mean
that dominant goals do not exist (that is, goals that are hierarchically ordered
with respect to others, goals that, whether consistent or not among themselves,
profoundly influence the decisions under study)." O'Donnell usefully points
out that the bureaucratic politics approach II g ives the impression that all that is
at stake in the relations between organizations and in the decision they make is
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the satisfaction of interests that are strictly organizational-as if common, over-

riding goals did not exist." 84
The bureaucratic politics approach at times appears to suggest that there
is little that binds the various agencies and individuals of the government; each
agency (in the U. S. government, State and Treasury Departments) is described
as if it has its own ideology, with low ideology sharing across agencies. On the
contrary, dominant shared goals can be identified within organizations, and
among them, in and out of government. 85 This perspective, too, serves as a
possible bridge between the dependency and the bureaucratic politics ap-
proaches. Dominant, shared goals structure and limit the context of the bureau-
cratic politics debate; the dominant, shared goals are not often involved in
explicit discussion precisely because they are assumed. The hegemonial out-
come, therefore, is not entirely accidental, because it is supported by these basic
beliefs; nor is it entirely intentional, rational, or monolithic (consistent with
Jaguaribe's arguments) precisely because there is ample room for bureaucratic
politics to occur.
The organizational ideology perspective is in agreement with the bureau-
cratic one on a number of questions. Neither one assumes a rational unified
state actor and neither one is principally concerned with outcomes. They are
both concerned with the process of decision-making at the governmental level
of analysis. Their principal difference is that organizational ideology writers
perceive a high degree of value sharing across governmental agencies and
between them and nongovernmental actors, whereas the bureaucratic politics
authors do not. There are also differences of degree. An organizational ideology
perspective (compared to a bureaucratic politics perspective) is more likely to
perceive at least a moderate degree of policy coherence, more likely to perceive
the importance of domestic politics beyond the bureaucracy, more likely to as-
sign at least moderate weight to economic stakes, and more likely to be hospita-
ble to Marxist methods of analysis and more concerned with the medium rather
than the short term. Similarly, it is less likely to perceive the state as fully
autonomous, less likely to assign full priority to political stakes, and less likely to
disaggregate across issue areas.
Presidential Politics / In the United States, this has been presented recently as an
alternative to bureaucratic politics approaches. Although the presidency has
also become a bureaucracy, in addition to an individual, the presidential politics
perspective emphasizes the differences in kind between the presidency and all
other bureaucracies. Presidential politics arguments emphasize the central role
of the presidency in shaping politics, in constraining and manipulating the
bureaucratic debate, and in setting the agenda for governmental goals and action.
The presidency shapes the recruitment of top bureaucrats above the civil service
and structures the disputes among them. 86 The presidential politics perspective
is related to the organizational ideology perspective. Both emphasize hierarchy
of goals shared within and across organizations, rather than the balance-of-
power politics of bureaucratic politics; both assign considerable importance to
domestic politics; both are concerned with the medium term and focus on the
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governmental level of analysis; both are relatively unlikely to disaggregate across

issue areas, and are more concerned with decision-making processes rather
than outcomes; both are hospitable to Marxist methods. However, presidential
politics emphasizes the unique role of the presidency; organizational ideology
includes that role as a mechanism to structure a hierarchy of organizational
goals, but it is not limited to that. The presidency sets the value hierarchy in one
approach, where it is only one of several value sources in the other approach.
Presidential politics emphasizes distinctly political and intragovernmen-
tal characteristics; it is similar to the bureaucratic politics approach in downgrad-
ing the role of nongovernmental actors. The presidential politics perspective (in
contrast to organizational ideology) is more likely to perceive a rational, unified
actor in decision-making, more likely to perceive policy coherence and state
autonomy, and more likely to consider political stakes; it is less likely to consider
economic stakes. Organizational ideology is more of a bridge linking the internal
political system and its foreign policy, because private nongovernmental actors,
besides the presidency, may structure organizational goals and norms. The presi-
dential politics perspective is not the same as that of a strategist acting to maxi-
mize gains in the international system. In the strategic perspective, change
either does not occur (because the international system has not changed) or it
occurs because the international system changes. A presidential politics per-
spective predicts change will coincide with presidential terms of office. Change
will thus be relatively independent of both international systemic factors and
internal political and bureaucratic pressures.
In inter-American affairs, studies emphasizing a distinct U.S. presidential
politics approach are rare. One is a dissertation-in-progress, by Donald Herr, on
the Nixon administration's policies toward Cuba. 87 Students of Latin American
foreign policies, however, have emphasized this approach far more. This is
consistent with a long held hypothesis in the comparative study of Latin America
that presidents matter, for domestic and foreign policy. Thus, for example, Edith
Couturier argues that, in Mexico, lithe President leads; the legislature accepts;
the bureaucracy implements." She has indicated that there are substantial for-
eign policy variations in Mexico from president to president. 88 Pellicer de Brody
has argued similarly, in a tour de force including strategic and unorthodox
dependency perspectives, about links between internal and international politics
but, above all, about presidential dominance over Mexican foreign policy as a
way to explain its changes. 89 While international strategic considerations and
conditions of dependence, objective and subjective, may contribute to explain
lasting foreign policy phenomena, a presidential politics perspective may help
to explain changing foreign policy phenomena.
Another study of presidential predominance is Martins' analysis of recent
Brazilian foreign policy. Martins identifies each phase of Brazilian foreign policy
in the 1960s and 1970s with a particular president. The Quadros-Goulart admin-
istrations were the antiimperialist years, or the years of independent foreign
policy. The Castelo Branco presidency was the- subimperialist phase. Brazil rein-
corporated itself as a close ally of the United States, and the latter, simultaneously,
yielded special benefits and recognized a special international regional role to
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the former. Brazil's subordinate role also meant that the interests of international
capital would at times predominate over the interests of Brazilian capital. 'lO The
preimperialist phase coincides with the Medici presidency. "The principal objec-
tive of a preimperialist foreign policy (which makes it more aggressive than
independent) is not a frontal attack on imperialist domination, but on the con-
trary, the gradual improvement of the country's relative position within an
international order characterized by the omnipresence of imperialist reiations."'li
Brazil, therefore, has opposed the freezing of world power relations,
whether in the United Nations, or against the Nuclear Non-proliferation Treaty,
or in the efforts to impose environmental controls over industrial growth. Brazil
broke with the United States over law-of-the-sea questions. It has preferred a
more substantial stress on national sovereignty, rather than interdependence as
in the subimperialist phase. It has conducted an active regional and bilateral
foreign policy with "buffer" states, such as Uruguay, Bolivia, and Paraguay, as
well as more generally in South America. Y2 Martins' study shows that it is
possible to combine structural analysis of foreign policy with a strong Marxist
orientation and, at the same time, to be subtle enough to include distinct, in-
dependent political variables, such as presidential predominance, to explain
short-term and medium-term foreign policy change.
Political Systenl I This perspective emphasizes characteristics of entire political

systems as they affect the foreign policies of those systems; that is, this perspec-
tive stresses the link between domestic and international politics. 93 This differs
in application, though not necessarily in intent, from the bureaucratic politics
approach. Both of these approaches seek to disaggregate the alleged single,
rational actor, to study who, in fact, makes foreign policy. Both stress bargaining
in decision-making in a context of low shared values among government agen-
cies; both perceive low policy coherence and high political stakes; both focus on
the short term and at the governmental level of analysis; both are more concerned
with process than with outcomes; and both disaggregate across issue areas.
However, the bureaucratic politics approach tends to concentrate exclusively on
coalitions and disputes within and among bureaus of the executive branch that
affect foreign policy. Lowenthal's statement of the bureaucratic politics case
includes a consideration of extragovernmental actors, but he is faithful to the
bulk of the work done by underlining the special concern with "events and
procedures internal to governmental organizations." This narrow focus of the
bureaucratic politics approach characterizes not only the more general works in
the field, but also several that are specifically applied to inter-American relations.
A concern with the entire political system, on the other hand, pays special
attention to the role of the Congress, and to the role of interest groups and
private enterprises that act either on their own or through 'the fissures of the
Congress and bureaucratic politics to affect the process and the content of
foreign policy. Therefore, state autonomy is low, while the role of nongovern-
mental actors and of economic stakes are high in a political system perspective.
This perspective also assigns greater weight to domestic politics and is more
hospitable to Marxist methods. This approach considers bureaucratic politics
alone to be insufficient to understand either U. S. foreign policy toward Latin
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Latin American Research Revietv
America, or how it is made. On the whole, a lot of the good, recent research on
inter-American relations falls under this category, not under bureaucratic politics.
Indeed, Lowenthal's recent study is one of the best examples of this type of
work; his own shift away from a bureaucratic politics to a political system per-
spective is yet another example supportive of the sociology of social science
hypothesis outlined in the introduction. 94
Studies of "linkage politics" in internal and international affairs are also
prominent in explanations of the foreign policies of Latin American states, in-
cluding their behavior in inter-American affairs. However, studies of linkage
politics done by U. S. social scientists-as in the case of most dependency studies,
too-focus mainly on the impact of international on internal affairs. To consider
the impact of the latter on the former, one needs to turn mostly to Latin Ameri-
can authors. 95 Celso Lafer has argued in a study of Brazilian foreign policy that
"there is a relationship between the internal political situation and the foreign
policy of Brazil."96 When internal Brazilian social forces were relatively quiescent
and elite politics predominated internally, Brazilian foreign policy was primarily
concerned with boundary consolidation, balance-of-power politics in southern
South America, and the promotion of the interest of the coffee elites, in the
context of an alliance with the United States where Brazil played a passive role.
With the coming of industrialization, mass political mobilization, and the rise of
internal political, economic, and social demands, Brazilian foreign policy in the
1950s was reoriented to serve internal developmental needs to satisfy internal
demands.
At that time, Brazil played an active role, though still within an alliance
with the United States. The acceleration of political mass mobilization and the
economic crisis in Brazil in the early 1960s led to a further foreign policy change.
Brazil experimented with an independent foreign policy, seeking alliances among
underdeveloped countries, as well as with Brazil's former ally, the United States.
The 1964 military coup handled the internal political demands by blocking chan-
nels of political communication, compressing tensions, and reducing political
demand making by force. 97 This gave Brazilian foreign policy, for the first time
probably since World War II, substantial autonomy from internal political, social,
and economic forces. Foreign policy would still be used for developmental eco-
nomic purposes, but the objectives and methods would be defined autonomously
by officers of the government. This analysis, notwithstanding different methods,
is similar to that of Martins outlined earlier; indeed, the more presidentially
dominant a political system is, the closer the presidential and political system
perspectives will be.
An important qualification to this argument is that it is intrinsically dia-
chronic. A cross-national analysis at a single point in time, performed by John
Petersen and Jon Eley, shows that there is no relationship between the level of
per capita gross national product and a variety of foreign policy behavior indica-
tors for the Latin American states, in a cross-sectional analysis for data in the
1960s. Per capita GNP does not affect the volume of Latin American states'
foreign policy activity or their policy orientations toward conflict and coopera-
tion or their international alignments. On the other hand, population size was
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significantly and positively related to most measures of the volume of foreign

policy activity. Big countries are internationally active. 98 Thus this analysis does
not support the political system perspective for a single point in time across
nations, but it does not actually test the core of the argument: change in a
country over time.
Vera Villalobos has also emphasized political factors to explain the collapse
of Argentine foreign policy in the early 1970s. He argued that "three presidents,
and innumerable ministers, secretaries, governors and high bureaucrats have
succeeded each other in the five years of military rule. This permanent instability
in the ranks of the government has made coherent and effective planning and
governmental policy coordination impossible. This has occurred notwithstand-
ing the incredible proliferation of security and development plans, national
policies, courses of action, strategies, laws, and decrees with which a myth has
been created to compensate for the absence of real governmental action."99
Finally, the same perspective has been used, in a related fashion, to
explain the success of Chilean foreign policy in the 1960s. Orville Cope has
noted that "Chilean foreign policy was effective in acquiring specific internal
objectives that would assist internal economic development." Why? Because
"such a democratic political system and its resultant political and diplomatic
leaders served as prime capabilities to enable Chile to maintain as much influence
as she did in international politics." The lack of success of Chilean foreign policy
after the 1973 military coup, consequently, is explained as the result of "the
internal political crises, the deterioration of the nation's economic capability, and
the negative reactions of certain nations and international financial agencies in
the international political system."lOO The democratic/authoritarian variable may
apply best, and perhaps exclusively, to countries which have been very much at
one end or the other of the spectrum-as is the case with pre- and post-1973
Chile; degrees of democratization are statistically independent from a variety of
indicators of the foreign policy behavior of Latin American states in the Petersen-
Eley cross-sectional analysis for the 1960s. 101
Analyses that stress the internal characteristics of political systems, as
those affect foreign policy, are of course, hospitable in many cases to other
perspectives. Nevertheless, the link between the internal and the international
assumes a decisive, central role in foreign policy analysis which is quite different
from the other perspectives, and can make a substantial contribution to our
understanding.
CONCLUSIONS: A HIERARCHY OF COMMENDABLE APPROACHES
The state of the literature is not well. The study of inter-American affairs exhibits
scholarly agreement only at a very high degree of abstraction. There is consider-
able disagreement about what are the important questions, how they should be
studied, and about specific substantive findings. It would have been beyond the
scope of this paper to discuss disagreements in detail; suffice it to say that they
are many. For the purposes of facilitating the study of national public or private
policies toward international affairs, the degree of scholarly consensus is grossly
insufficient.
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Nevertheless, the state of the literature is not hopeless. There are some
important elements of consensus in the analysis of inter-American relations,
even among those who intend to emphasize their disagreement and who, in
fact, disagree on important questions. Though this consensus is too abstract, it
is nonetheless real. It can begin to structure certain kinds of research and it can
begin to answer some important questions. The consensus can also facilitate
picking among perspectives to guide more specific bits of research.
If the description of the consensus in this essay is correct, then the three
possibly most popular approaches or perspectives in the study of inter-American
relations are not the wave of the future, namely, the orthodox version of the
dependency perspective, the liberal perspective, and the bureaucratic politics
perspective. The orthodox version of the dependency perspective emphasizes a
high degree of rationality, a high degree of policy coordination, coherence and
overt purposiveness within the public and the private sectors, a very low degree
of state autonomy from social forces, the preeminence of economics in terms of
stakes, participants, and outcomes, and the incompatibility of dependency and
any form of development worthy of that name. The liberal perspective assumes
a degree of benevolent mutuality of interests between the U.S. and Latin America
that finds declining support among scholars and, to inject a personal note, that I
believe is not supported by the evidence. The bureaucratic politics perspective
emphasizes the balance of power among bureaus of the executive branches of
governments, as well as the organizational standard operating procedures of
those bureaus. These politics have a high degree of autonomy from social forces;
suggest very low sharing of ideology or of rationality; an extremely low degree
of policy coordination, coherence, and overt purposiveness within either public
or private sectors or between them; and the preeminence of governmental poli-
tics in terms of stakes, participants, and ou tcomes.
There are also problems of ethical responsibility. One should not confuse
the analytical perspective of a scholar with explicit public policy or ethical pref-
erences; knowledge derived from all these approaches, if used with caution, can
improve ethical accountability. Nevertheless, the two perspectives that may have
now the most adherents among scholars in the study of inter-American rela-
tions-the more orthodox versions of dependency perspectives and bureaucratic
politics-present serious problems of ethical misuse. They both can be used by
public officials to erode the criteria by which they may be held accountable; they
both can provide self-serving arguments. Indeed, this is already happening. A
public official may argue that nothing can be done because the bureaucracy lives
on forever; a democratic president cannot implement the policies the voters
supported; a military president is hemmed in by entrenched civil servants,
unless an extraordinarily high degree of repression against civil servants is insti-
tuted. Alternatively, nothing can be done because the problem lies abroad, in
the structure of dependence in international affairs, rather than in decisions that
can be taken by each country. The problem lies in our stars, not in ourselves.
Under either approach, the public official may find it easier to excuse incompe-
tence and inaction. There is a divergence on the nature of the ethical problem,
but there is a convergence in the fact that one may arise if public officials were to
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take seriously the arguments of scholars. Fortunately for public responsibility,

that is not yet the norm, though the problem is growing. The liberal perspective
simply assumes away the ethical problem.
The present and emerging consensus is more subtle than these perspec-
tives. The unorthodox versions of the dependency perspective Oaguaribe, Car-
doso, elements of Kaplan, Quijano, and others) indicate that there is more room
for national statesmen to decide and to maneuver; that the state is more autono-
mous; that there are degrees of rationality, coherence, coordination, and pur-
posiveness; that there is contamination between politics and economics, where
each retains some substantial autonomy; and that some forms of development
(though less desirable than others) are possible for dependent countries. The
bureaucratic politics approach, in turn, is much less subtle than the political
system approach, which emphasizes the interplay between the public and pri-
vate, the economic and the political, far more. Some who once called for more
use of a bureaucratic politics perspective, such as Lowenthal, in fact, have them-
selves abandoned it and are engaged in studies emphasizing the richer com-
plexities of political systems, including bureaucratic politics but not limited to
that. Moreover, whereas bureaucratic politics tends to emphasize primarily the
inputs into policy decisions, other approaches are more sensitive, too, to inputs
and outputs of policy decisions, and more importantly, to outcomes at the na-
tional and international levels.
Therefore, in terms of the formulation of a useful research policy on inter-
American affairs, greater attention should be paid to the unorthodox dependency
perspectives and to political system perspectives (all of the latter's variants are
important). Within the study of political systems, the organizational ideology
and presidential perspectives, barely studied, need more attention, particularly
for those who emphasize conflicts among bureaucrats, legislators, and private
interest groups. The unorthodox dependency perspective includes a discussion
of the contamination of politics and economics, thus, consequently, a "rational
policy" analysis of politico-military factors. The strategic perspective probably
needs more emphasis on its own to add to the clarification of politico-military
issues in addition to economic issues. Though there are often sharp disagree-
ments among scholars, and though there are significant substantive and pro-
cedural differences among these perspectives, one need not think of them as
mutually exclusive and alternative approaches to the study of inter-American
relations; some perspectives are more useful for certain purposes than for others,
depending on the level of analysis.
Thus a hierarchy of commendable approaches may be established. At the
top, seeking to explain the structure of inter-American affairs and the place of
particular countries in it, one would emphasize the unorthodox dependency
and strategic perspectives. In the middle, seeking to explain the degree of order
or of disorder in policies formulated by nation-states as they approach each
other, one would emphasize organizational ideology and presidential politics
perspectives, and those political perspectives that emphasize long-term trends.
At the bottom, one would emphasize the political system perspectives that
emphasize actual policy formulation, and hence short-term trends. Political sys-
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Latin American Research Revie'lv
tern perspectives would thus be used at both middle and bottom levels. One
would not emphasize the liberal, radical, or bureaucratic politics perspectives.
This hierarchy should make it possible to study both inter-American af-
fairs as a whole, and the particular policies of national states within that frame-
work. This essay has emphasized U.S.-Latin American relations rather than
relations among the latter; in principle, this hierarchy of approaches is applicable
to both subjects. It is also commendable because it sets aside the two perspectives
that are most likely to erode the ethics of public responsibility, orthodox depen-
dency and bureaucratism, while retaining their best insights, and the one per-
spective-liberalism-that systematically fails to come to grips with the ethics of
international asymmetrical relations. There are ethical problems with the hier-
archy of commendable approaches but, if used together, they would neither
erode ethical criteria nor assume them away.
There are a number of nontopics in this essay, which are worth highlight-
ing, albeit briefly. There has been no discussion of the vast literature of Latin
American integration because this is an essay on the literature on inter-American
affairs. The integration literature is rarely addressed to relations with the United
States. There are notable exceptions, such as the work of Felix Pena. Pena has
explicitly conceptualized the Andean bloc as an exercise in international political
bargaining with the United States and other countries. Nevertheless, on the
whole, this important literature falls outside the scope of this essay. Second,
though there has been a discussion of the bureaucratic politics approach, much
less has been said of Graham Allison's organizational process approach, because
it has been used very rarely in the literature on inter-American relations, with
few exceptions, principally the works by Ernest May and Randall Woods. 102 The
essay's purpose has been to be faithful to the existing literature on inter-American
relations, not to survey the entire menu of international relations approaches.
Third, for similar reasons, little has been said about cognitive or related psy-
chological approaches to the study of foreign policy decision-making in inter-
American affairs, because there is so little of them. A number of these cognitive
and psychological issues are part of the assumptions in the liberal approach, but
they have rarely been the object of scholarly research.
Fourth, little has been said about the gradual spread of quantitative
methodologies in the study of inter-American affairs: that would have required
a discussion of techniques far beyond the scope of this work. Instead, work
relying on those techniques has been incorporated into the main text of this
essay. Fifth, the study of transnational relations has not been considered an
approach, but a set of related subjects of study that, in turn, can be studied
through liberal, orthodox dependency, unorthodox dependency, organizational
ideology, political, or strategic approaches. This appears to be far more fruitful
than considering it an approach; there is so much variation among students of
transnational processes and institutions in inter-American affairs that it defies
the imagination how they could be considered a single approach. And last, very
few studies discussed in this essay have disaggregated not only governments
and political systems, but also issue areas, while retaining intellectual interests
that go beyond a case study. Issue disaggregation is not so rare, but its presence
116
228
alongside extra-issue-area concern is. The systematic analytical disaggregation

of issue areas, and their subsequent analytical reaggregation for generalizations,
along with the study of international regimes for the various issue areas, would
further enrich the study of inter-American affairs. 103
APPENDIX
In order to facilitate comparisons among the perspectives, a numerical

exploration was made (table 1). The categories summarized above were coded,
excluding lines 7 and 15 for which no codes could be devised; Pearson product-
moment correlations were performed for the eight perspectives treated as vari-
ables and the remaining 14 observations. The results are presented in table 2.
This analysis shows three pairs of perspectives that are strongly and
positively related to each other: orthodox dependency and unorthodox depen-
dency, organizational ideology and presidential politics, and liberal and presi-
dential politics. Two pairs of perspectives are strongly and negatively related to
each other: orthodox dependency and bureaucratic politics, and political system
and strategy. Three pairs of perspectives are entirely independent of each other,
showing both elements of similarity and difference: liberal and orthodox depen-
dence, bureaucratic and organizational ideology, and orthodox dependence and
political system.
The discussion in the text, and the summary of the perspectives above,
facilitates the comparison. The highlights are reported here. The two dependency
perspectives clearly derive from the same intellectual sources and continue to
have common methods and concerns; their differences are similar to a family
quarrel, not a divorce. The organizational ideology and presidential politics per-
spectives agree to emphasize the sharing of values and their hierarchical structure
for decision-making processes. The liberal and presidential politics perspectives
agree on strong unified rational actor assumptions and a stress on the primacy of
politics. Orthodox dependency and bureaucratic politics disagree on their meth-
ods, level of analysis, orientations toward the state, the role of nongovernmental
actors, the importance of politics and the policy process, and their outcome
concerns. Political system and strategic perspectives disagree in their orientation
to the state, the policy process, nongovernmental actors, ou tcome concerns, and
level of analysis. The peculiar relationship between liberal and orthodox depen-
dency orientations was first pointed out by Lowenthal; notwithstanding the
different worldviews of the authors in each perspective, they share enough so
that the results are statistically independent, rather than negative toward each
other. Organizational ideology is an effort to modify the bureaucratic politics
perspective, while using some of its insights; thus they remain statistically inde-
pendent of each other. Orthodox dependency and political system perspectives
are independent of each other because they agree on certain things-nongov-
ernmental actors, low autonomy of the state, mixed stakes-but disagree on
others-rationality, policy coherence, outcome versus process concerns.
117
229
TABLE 1 Eight Perspectives on Inter-American Affairs at a Glance

Orthodox Unorthodox
Liberal Strategic Dependency Dependency
Rational, unified yes yes yes no
state actor
Level of analysis mixed int'l int'l mixed
system system
Issue area low low low medium
disaggrega tion
Marxist methods no yes yes yes
possible
Autonomy of state high high low medium
Policy coherence high high high medium
Source of policy improve int'l system transform client elite
change under- power shifts structure initiative
standing
Role of nongovern- low medium dominant high
mental actors
Importance of medium low medium high
domestic politics
Economic stakes low medium high high
Political stakes high medium medium medium
Time horizon medium medium long long
Value sharing high high high medium
Outcome concerns medium high high high
Who wins? everyone the clever imperialism the clever
and no one
Ethical utility low high low medium
118
230
Organizational
Bureaucratic Ideology Presidency Politics
Rational, unified no no yes no
state actor
Level of analysis government government government government
Issue area high low low high

disaggregation
Marxist methods no yes yes yes
possible
Autonomy of state high medium high low
Policy coherence low medium high low
Source of policy bargain value change new head of bargain within
change within government political
government system
Role of nongovern- low high low high
mental actors
Importance of medium high high high
domestic politics
Economic stakes low medium low high
Political stakes high medium high high
Time horizon short medium medium short
Value sharing low high high low
Outcome concerns low low low low
Who wins? bureaucrats value bearers president interest
groups
Ethical utility low medium high low
119
231
~
N
r-
o ~
5·
~
3
~
"""t
§.
~
~
~
TAB L E 2 Pearson Product-Moment Correlations Performed on Data in Table 1 ~
"""t
()
::::s--
Organi- ~
Orthodox Unorthodox zational ~
Liberal Strategic Dependency Dependency Bureaucratic Ideology Presidency Politics ~.
(1) (2) (3) (4) (5) (6) (7) (8)
(1) - .42 .04 -.26 .27 .12 .61 -.40

~ (2) - .18 -.20 -.37 -.10 -.20 -.78
N (3) .48 -.63 .27 -.39 .01
-
(4) - -.15 .39 -.31 .37
(5) - -.06 .24 .32
(6) - .47 .30
(7) - -.24
(8)
NOTES
1. I am grateful to the Organization of American States and to the Transnational Rela-

tions program (funded by the Rockefeller Foundaton) of the Center for International
Affairs at Harvard University, for support in the preparation of this essay; an earlier
version was presented to the Seminar on Inter-American Relations of the Organiza-
tion of American States. I am also grateful to William Glade, Abraham Lowenthal,
and Alfred Stepan for comments on an earlier draft.
2. The Rockefeller Report on the Americas (The New York Times edition; Chicago: Quad-
rangle Books, 1969), p. 17.
3. Che Guevara Speaks: Selected Speeches and Writings (New York: Merit Publishers, 1967),
p.158.
4. Julio Cotler and Richard Fagen, eds., Latin America and the United States: The Changing
Political Realities (Stanford: Stanford University Press, 1974), pp. 10-11.
5. Most efforts at formalizing and synthesizing have been addressed to the dependency
school of writings, in part because it is newer and less familiar in the United States.
Among the best efforts, see Abraham F. Lowenthal, "'Liberal,' 'Radical,' and
'Bureaucratic' Perspectives on U.S.-Latin American Policy: The Alliance for Progress
in Retrospect," in Cotler and Fagen, Latin America; Robert A. Packenham, "Latin
American Dependency Theories: Strengths and Weaknesses," paper presented be-
fore the Harvard-MIT Joint Seminar on Political Development, Cambridge, Mass., 6
February, 1974; Robert R. Kaufman, Daniel S. Geller, and Harry I. Chernotsky, "A
Preliminary Test of the Theory of Dependency," Comparative Politics 7, no. 3 (April
1975); and David Ray, "The Dependency Model of Latin American Underdevelop-
ment: Three Basic Fallacies," Journal of Inter-American Studies and World Affairs 15, no.
1 (February 1973).
6. See, for example, Stanley Hoffmann, "Obstinate or Obsolete: The Fate of the
Nation-State and the Case of Western Europe," in Joseph S. Nye, Jr., ed., Interna-
tional Regionalism (Boston: Little, Brown and Co., 1968), pp. 190-91, 219; and Robert
O. Keohane and Joseph S. Nye, Jr., "Transnational Relations and World Politics: A
Conclusion," International Organization 25, no. 3 (Summer 1971), especially pp. 722-
29.
7. John H. Petersen, "Economic Interests and U.S. Foreign Policy in Latin America: An
Empirical Approach," paper presented at the Fourth Meeting of the Latin American
Studies Association, Madison, Wisconsin, 3-5 May, 1973, pp. 31-32.
8. Commission on United States-Latin American Relations, The Americas in a Changing
World (New York: Quadrangle Books, 1975), p. 23.
9. Ibid., pp. 24-41.
10. The Rockefeller Report, pp. 57-65.
11. See especially, Paul E. Sigmund, "The 'Invisible Blockade' and the Overthrow of Al-
lende," Foreign Affairs 52, no. 2 Oanuary 1974); and Richard R. Fagen, "The United
States and Chile: Roots and Branches," Foreign Affairs 53, no. 2 Oanuary 1975), and the
"Correspondence" section in this same issue, pp. 37r:r-77 for an exchange between
Sigmund and Fagen.
12. For a flavor of the melange of views and interests in the Panama Canal issue, see, for
example, U.S. Congress, House, Subcommittee on Panama Canal of the Committee
on Merchant Marine and Fisheries, Panama Canal Treaty Negotiations: Hearings, and
Addendum to Hearings, Ninety-second Congress (Washington, D.C.: U.S. Govern-
ment Printing Office, 1972); see also the sections on Panama in U.S., Congress,
House, Subcommittee on Inter-American Affairs of the Committee on Foreign Af-
fairs, Cuba and the Caribbean: Hearings, Ninety-first Congress, second session (Wash-
ington, D.C.: U.S. Government Printing Office, 1970).
13. Commission on United States-Latin American Relations, The Americas, p. 35; see also
David Ronfeldt, "Future U.S. Security Assistance in the Latin American Context,"
ibid.
14. See the following three examples of Osvaldo Sunkel's work, all published in Estudios
121
233
internacionales: "Politica nacional de desarrollo y dependencia externa," 1, no. 1 (April

1967); "Esperando a Godot: America Latina ante la nueva administracion republicana
en los Estados Unidos," 3, no. 1 (April-June 1969); and "Capitalismo transnacional y
desintegracion nacional," 4, no. 16 Oanuary-March 1971).
15. Helio Jaguaribe, Political Development: A General Theory and a Latin American Case Study
(New York: Harper and Row, 1973), pp. 371-80.
16. See the following two examples of Juan Guglialmelli's work, in Estrategia: "Funcion
de las fuerzas armadas en la actual etapa del proceso historico argentino," 1, no. 1
(May-June 1969), pp. 13-14; and "Fuerzas Armadas y subversion interior," 1, no. 2
Ouly-August 1969), pp. 13-14.
17. Anibal Quijano Obregon, "Imperialism and International Relations in Latin
America," in Cotler and Fagen, Latin America. p. 89.
18. Fernando Henrique Cardoso, "0 estado e as politicas publicas," paper presented at
the Conference on Public Policy in Latin America, sponsored by the Social Science
Research Council and the Instituto Torcuato Di Tella, Buenos Aires, August, 1974,
especially pp. 1, 9.
19. Marcos Kaplan, "Commentary on Ianni," in Cotler and Fagen, Latin America, pp.
64-65.
20. Luigi Einaudi, ed., Beyond Cuba: Latin America Takes Charge of Its Future (New York:
Crane, Russak and Co., 1974).
21. See the special issue of International Organization 25, no. 3 (Summer 1971), edited by
Robert O. Keohane and Joseph S. Nye, Jr., on transnational relations.
22. Luigi Einaudi, "Latin America's Development and the United States," in Einaudi,
ed., Beyo1Jd Cuba, p. 220.
23. Luigi Einaudi, Michael Fleet, Richard Maullin, and Alfred Stepan, "The Changing
Catholic Church," ibid., pp. 88-94. For a related, Latin American view, see Victor
Alba, "Vatican Di~omacy in Latin America" in Harold Davis and Larman Wilson,
eds., Latin American Foreign Policies (Baltimore: The Johns Hopkins Press, 1975).
24. David Ronfeldt and Luigi Einaudi, "Prospects for Violence," in Einaudi, ed., Beyond
Cuba.
25. Herbert Goldhamer, The Foreign Powers in Latin America (Princeton: Princeton Univer-
sity Press, 1972), pp. 32-50, 9~96, 159-94, 27S-88.
26. Henry A. Landsberger, "Linkages to World Society: International Labor Organiza-
tion," in Yale Ferguson, ed., Contemporary Inter-American Relations: A Reader in Theory
and Issues (Englewood Cliffs, N.J.: Prentice-Hall, 1972).
27. Quijano, "Imperialism," pp. 81-82.
28. Carlos Estevam Martins, "Brazil and the United States from the 1960s to the 1970s,"
in Cotler and Fagen, Latin America, p. 277.
29. Theodore H. Moran, Multinational Corporations and the Politics of Dependence: Copper in
Chile (Princeton: Princeton University Press, 1974), pp. 212-15; Franklin Tugwell, The
Politics of Oil in Venezuela (Stanford: Stanford University Press, 1975), pp. 143, 162.
30. Charles T. Goodsell, American Corporations and Peruvian Politics (Cambridge: Harvard
University Press, 1974), pp. 139, 217.
31. Quijano, "Imperialism," pp. 81-82.
32. See George M. Ingram, Expropriation of u.s. Property in South America: Nationalization
of Oil and Copper Companies in Peru, Bolivia, and Chile (New York: Frederick A. Praeger,
Inc., 1974), chapters 2 and 4.
33. Commission on United States-Latin American Relations, The Americas, pp. 53-54.
34. See Marie Thourson Jones, "The Council of the Americas and the Formation of
American Foreign Policy," in Abraham F. Lowenthal, et al., The Making of u.s. Policies
toward Latin America: The Conduct of Routine Relations, vol. 3, appendix 1, of the Report
of the Commission on the Organization of the Government for the Conduct of
Foreign Policy (Washington, D.C.: Government Printing Office, 1976).
35. Jorge I. Dominguez, "Cuba, the United States, and Latin America: After Detente,"
SAIS Review 19, no. I (1975): 2~22, 24.
36. Jaguaribe, Political Development, pp. 371-77.
122
234
37. R. Harrison Wagner, United States Policy toward Latin America: A Study in Domestic and
International Politics (Stanford: Stanford University Press, 1970), pp. 10&-25.
38. Stephen D. Krasner, "Business-Government Relations: The Case of the International
Coffee Agreement, " International Organization 24, no. 4 (Fall 1973): 507-16.
39. Stephen D. Krasner, " Manipulating International Commodity Markets: Brazilian
Coffee Policy, 1906 to 1962," Public Policy 21, no. 4 (Fall 1973).
40. David Bushnell, "Colombia," in Davis and Wilson, eds., Latin American Foreign
Policies, pp. 402-10.
41. Robert P. Clark, Jr., "Economic Integration and the Political Process: Linkage Politics
in Venezuela," in Ferguson, ed., Contemporary Inter-American Relations.
42. Olga Pellicer de Brody, "Los grupos patronales y la polltica exterior mexicana: las re-
laciones con la revoluci6n cubana," Foro internacional10, no. I Ouly-September 1969).
43. See U.S., Congress, Senate, Subcommittee on Western Hemisphere Affairs of the
Committee on Foreign Relations, U.S. Relations with Latin America: Hearings, Ninety-
fourth Congress (Washington, D.C.: U.S. Government Printing Office, 1975), p. 140.
44. Commission on United States-Latin American Relations, The Americas, pp. 20-21.
45. Jessica Pernitz Einhorn, Expropriation Politics (Lexington, Mass.: Lexington Books,
1974), pp. 69, 91-121.
46. On Sunkel's work, see note 14.
47. Gustavo Esteva, "EI comercio exterior de Mexico en el proceso de planeaci6n," Foro
internacional 6, nos. 22-23 (October 1965-March 1966), p. 352.
48. Octavio Ianni, "Imperialism and Diplomacy in Inter-American Relations," in Cotler
and Fagen, Latin America, pp. 49-50.
49. Bryce Wood, The Making of the Good Neighbor Policy (New York: Columbia University
Press, 1961), pp. 288-89, 294-95.
SO. Papers documenting this hypothesis have been published in Lowenthal, et al., The
Making of u.s. Policies. They are: Donald Wyman, "Summary: U.S.-Latin American
Relations and the Cases of the Countervailing Duty"; Marie Thourson Jones, "The
Council of the Americas"; Roger Sack and Donald Wyman, "Latin American Diplo-
macy and the United States Foreign Policymaking Process"; Abraham Lowenthal,
"U.S. Policymaking toward Latin America: Improving the Process"; Robert A. Pas-
tor, "Congress's Impact on Latin America: Is There a Madness in the Method?";
Robert A. Pastor, "U.S. Sugar Politics and Latin America: Asymmetries in Input and
Impact"; Gregory Treverton, "United States Policymaking toward Peru: The IPC Af-
fair"; and Edward Gonzalez, "United States Policy and Policymaking in the 200-mile
Fisheries Disputes with Ecuador and Peru." See also the previously cited works by
Moran, Goodsell, Ingram, Dominguez, Wagner, Krasner, and Einhorn. See also one
of the more widely read and praised unpublished pieces on the subject, Richard J.
Bloomfield's "Who Makes American Foreign Policy? Some Latin American Case
Studies" (Cambridge, Mass.: Center for International Affairs, 1972), especially pp.
99-114.
51. Christopher Mitchell, "Dominance and Fragmentation in U.S.-Latin American
Policy," in Cotler and Fagen, Latin America, pp. 202-4. For a related argument, see
Irving Louis Horowitz, "United States Policies and Latin American Realities:
Neighborliness, Partnership, and Paternalism," in Ronald Hellman and H. Jon
Rosenbaum, eds., Latin America: The Search for a New International Role (New York:
Sage Publications, 1975).
52. Jorge Graciarena, "Commentary on Mitchell," in Cotler and Fagen, Latin America, pp.
207,209.
53. Thomas S. Kuhn, The Structure of Scientific Revolutions (Chicago: University of Chicago
Press, 1962), pp. x, 3-7.
54. Abraham Lowenthal, "'Liberal,' 'RadicaL' and 'Bureaucratic,'" pp. 215-21. Lowen-
thal presents extensive bibliographic citations for the three perspectives that, there-
fore, need not be repeated. For other good recent efforts to survey important aspects
of the literature of inter-American affairs, see Edward S. Milenky, "Problems,
Perspectives, and Modes of Analysis: Understanding Latin American Approaches to
123
235
World Affairs," in Hellman and Rosenbaum, eds., Latin America; and Yale H. Fergu-
son, "Through Glasses Darkly: An Assessment of Various Theoretical Approaches to
Inter-American Relations," paper presented at the Annual Meeting of the Interna-
tional Studies Association, Toronto, Canada, February 1976.
55. For a discussion of the role of ideology and its relationship to the unified rational
actor assumptions underlying the liberal perspective, see Ferguson, JJThrough
Glasses Darkly," pp. 7-16; and Yale H. Ferguson, "The Ideological Dimension in
United States-Latin American Policies," in Morris Blachman and Ronald Hellman,
eds., Terms of Conflict: Ideology in Latin American Politics (Philadelphia: ISHI Pub-
lications, 1977). For the same role of ideology with opposite policy consequences, see
W. Raymond Duncan, "Cuba," in Davis and Wilson, eds., Latin American Foreign
Policies, pp. 160--70.
56. Lowenthal," 'Liberal,' 'Radical' and Bureaucratic,' " pp. 221-25.
57. For an excellent formalization and assessment of dependency writings, see Pack-
enham, "Latin American Dependency Theories."
58. Lowenthal, in Cotler and Fagen, Latin America, pp. 225-27.
59. Graham Allison, The Essence of Decision: Conceptual Models and the Cuban Missile Crisis
(Boston: Little, Brown & Co., 1971).
60. Lowenthal, in Cotler and Fagen, Latin America, pp. 227-33.
61. Dana G. Munro, Interoention and Dollar Diplomacy in the Caribbean, 1900-1921 (Prince-
ton: Princeton University Press, 1964), pp. 530-31.
62. Wood, The Making, pp. 332-33.
63. Arthur Schlesinger, Jr., "The Alliance for Progress: A Retrospective," in Hellman and
Rosenbaum J eds., Latin America, p. 66.
64. Dale Johnson, "Dependence and the International System," in James D. Cockcroft,
Andre Gunder Frank, and Dale Johnson, Dependence and Underdevelopment: Latin
America's Political Economy (Garden City, N.Y.: Anchor Books, 1972), p. 98.
65. Ibid., p. 100.
66. These ideas owe much to discussions with Professor James Kurth, Political Science,
Swarthmore College.
67. See Ronfeldt and Einaudi, and Einaudi, in Einaudi, ed., Beyond Cuba; Goldhamer,
The Foreign Powers; Robert H. Swansbrough, "Peru's Diplomatic Offensive: Solidarity
for Latin American Independence," and Thomas E. Skidmore, "United States Policy
toward Brazil: Assumptions and Options," in Hellman and Rosenbaum, Latin
America.
68. Direccion, "Las Relaciones Argentina-Brasil," Estrategia 1, no. 5 (January-February
1970): 5&-57, and the rest of this special issue.
69. Estrategia 1, no. 1, was a sp~cial issue on the Uruguay-Argentina border problem in
the River Plate; 1, no. 6, was a special issue on Argentine-Chilean border conflicts; 1,
no. 3, was a special issue on the conflict over the Malvinas or Falkland Islands. See
also, for the same perspective, Marcelo Aberastury, "Analisis de un caso interna-
cional: el conflicto entre EI Salvador y Honduras," 2, no. 10 (March-April 1971).
70. Antonio Carrillo Flores, "Cooperacion economica interamericana"; Jose Garrido Tor-
res, "EI imperativo urgente de la cooperacion interamericana"; Antonio Gomez Rob-
ledo, "EI tratado de Rio"; Alfredo Navarrete, "Una politica financiera continental,"
all in Foro internacional 1 (1961).
71. Maria Elena Rodriguez de Magis, "Una interpretacion de la guerra fria en Latino-
america," Foro internacional 4 no. 4 (April-June 1964).
J
72. Mario Ojeda, "Mexico en el ambito internacional," Foro internacional 6, nos. 22-23
(October 1965-March 1966):263.
73. Maria del Rosario Green, "Inversion extranjera, ayuda y dependencia en America
Latina," Foro internacional12, no. 45 (July-September 1971); "Deuda publica extema y
dependencia: el caso de Mexico," 13, no. 2 (October-December 1972); "Las relaciones
de Estados Unidos y America Latina en el marco de la dependencia," 13, no. 3
(January-March 1973). Oscar Moreno Toscano, "EI turismo como un factor politico en
las relaciones internacionales," 12, no. 45 (July-September 1971). Lorenzo Meyer,
124
236
"Cambio politico y dependencia mexicana en el siglo XX," 13, no. 2 (October-

December 1972).
74. Mario Ojeda, ",Hacia un nuevo aislacionismo de Estados Unidos? Posibles con-
secuencias para America Latina," Foro internacional 12, no. 4 (April-June 1972); Olga
Pellicer de Brody, "Cuba y America Latina, , coexistencia pacifica 0 solidaridad re-
volucionaria?," 12, no. 3 Ganuary-March 1972) and "Cambios recientes en la politica
exterior mexicana," 13, no. 2 (October-December 1972); see also Ruy Mauro Marini
and Olga Pellicer de Brody, "Militarismo y desnuclearizacion en America Latina: el
caso Brasil," 8, no. 1 Guly-September 1967); and Jorge Arieh Gerstein, "El conflicto
entre Honduras y El Salvador: analisis de sus causas," 11, no. 4 (April-June 1971).
75. Among the articles using a strategic perspective in Estudios internacionales, see
Horacio Godoy, "La integracion de America y el proceso del poder mundial," 2, no. 3
(October-December 1968); Mercedes Acosta y Carlos Vilas, "Santo Domingo y
Checoslovaquia en la politica de bloques," 2, no. 4 Ganuary-March 1969); Felix Pena,
"EI grupo andino: un nuevo enfoque de la participaci6n internacional de los paises en
desarrollo," 6, no. 22 (April-June 1973); Carlos Perez Llana, "America Latina y los
paises no alineados," 6, no. 24 (October-December 1973); Jose Luis de [maz, "Adios a
la teoria de la dependencia? Una perspectiva desde la Argentina," 7, no. 28
(October-December 1974); Luciano Tamassini, "Tendencias favorables 0 adversas a la
formadon de un sistema regional Latino Americano," Carlos Perez Llana, ",Poten-
cias intermedias 0 paises mayores? La politica exterior de Argentina, Brasil, y
Mexico," and Helio Jaguaribe, "El Brasil y America Latina," all in 8, no. 29
Ganuary-March 1975).
76. See also Alexandre Barros, "The Diplomacy of National Security: South American In-
ternational Relations in a Defrosting World," and Carlos Fortin, "Principled Prag-
matism in the Face of External Pressure: The Foreign Policy of the Allende Govern-
ment," in Hellman and Rosenbaum, eds., Latin America.
77. Jaguaribe, Political Development, pp. 378-79.
78. Andre Gunder Frank, Capitalism and Underdevelopment in Latin America (New York:
Monthly Review Press, 1969), p. 3.
79. Ibid., p. 11.
80. Fernando Henrique Cardoso, "Associated-Dependent Development: Theoretical and
Practical Implications," in Alfred Stepan, ed., Authoritarian Brazil (New Haven: Yale
University Press, 1973), p. 149.
81. Idem.
82. See Lowenthal in Cotler and Fagen, eds., Latin America; Packenham, "Latin Ameri-
can Dependency Theories"; Ray, "The Dependency Model." See also C. Richard
Bath and Dilmus D. James, "Dependency Analysis of Latin America," LARR 11, no. 3
(1976):5. Bath and James present a three-fold division of dependency writers. One
difference between their classification and the one in the present article is that their
"conservative" dependency authors (Prebisch, Pinto, and Wionczek) are partly in-
cluded in the strategic perspective here, and partly excluded altogether. One reason
for their relative exclusion is that their writing tends to be more technical and away
from the more overtly political public policy questions in the inter-American system,
which set the boundaries for inclusion in this essay. To the extent that they are in-
cluded, their writings seem to be fairly distinct from the rest of the dependency litera-
ture and closer to the strategic perspective. A second difference between the Bath!
James classification and the present one is that they stress the impact of dependency
internally on Latin American countries, while this essay is more concerned with de-
pendency as an approach to study international relations.
83. Fernando Henrique Cardoso and Enzo Faletto, Dependencia y desarrollo en America
Latina, 3rd ed. (Mexico: Siglo XXI Editores, S.A., 1971), p. 164.
84. Guillermo O'Donnell, "Commentary on May," in Cotler and Fagen, Latin America, p.
169.
85. Ibid., pp. 17~72.
86. Amos Perlmutter, "The Presidential Political Center and Foreign Policy: A Critique of
125
237
the Revisionist and Bureaucratic-Political Orientations," World Politics 27 (October

1974): 97-106; Stephen Krasner, "Are Bureaucracies Important (or Allison Wonder-
land)?," Foreign Policy, no. 7 (Summer 1972); 167-69; and Robert J. Art, "Bureaucratic
Politics and American Foreign Policy: A Critique," Policy Sciences 4 (1973).
87. Donald F. Herr, Presidential Predominance: A Cuba Case Study (New Haven: Yale Uni-
versity, dissertation-in-progress).
88. Edith B. Couturier, "Mexico," in Davis and Wilson, eds., Latin American Foreign
Policies, p. 128.
89. Pellicer de Brody, "Cambios recientes."
90. Martins, "Brazil and the United States," pp. 269-84.
91. Ibid., p. 295.
92. Ibid., pp. 299-301. For a similar perspective, emphasizing presidential predominance
in Brazilian foreign policy, see also Brady Tyson, "Brazil," in Davis and Wilson, eds.
Latin American Foreign Policies, pp. 234-42.
93. See James Rosenau, ed., Linkage Politics (New York: The Free Press, 1969).
94. See the research directed by Lowenthal for the Commission on the Organization of
the Government for the Conduct of Foreign Policy; it falls, in fact, under this rubric,
and not under bureaucratic politics. See especially the previously cited papers by
Jones, Lowenthal and Treverton, Pastor, and Gonzalez. See also the previously cited
works by Wagner, Krasner, and Bloomfield. In contrast, for excellent works using
bureaucratic politics approaches, and strategic analyses, but not using a political sys-
tem approach, see Ernest May, "The 'Bureaucratic Politics' Approach: U .S.-
Argentine Relations, 1942-1947," in Cotler and Fagen, Latin America, and Randall B.
Woods, "Decision-Making in Diplomacy: The Rio Conference of 1942," Social Science
Quarterly 55, no. 4 (March 1975). These are good studies because the decisions made
could, indeed, be analyzed successfullly without going much beyond intrabureaucra-
tic politics.
95. Douglas A. Chalmers, "Developing on the Periphery: External Factors in Latin
American Politics," in Rosenau, ed., Linkage Politics.
96. Celso Lafer, "Uma Interpreta\ao do sistema das rela\oes internacionais do Brasil," in
Celso Lafer and Felix Pena, eds., Argentina e Brasil: no sistema das relacoes internacionais
(Sao Paulo: Livraria Duas Cidades, 1973), p. 114.
97. Ibid., pp. 114-19.
98. John H. Petersen and John W. Eley, "An Approach to the Comparative Study of
Latin American Foreign Policy," paper presented at the Fourth Meeting of the Latin
American Studies Association, Madison, Wisconsin, May 1973, pp. 11, 16-17, 21.
99. Enrique Vera Villalobos, "Realidad y ficcion en la politica exterior," Estrategia 2, no.
12 (September-October 1971):7.
100. Orville G. Cope,IJChile," in Davis and Wilson, eds., Latin American Foreign Policies,
pp.312-13.
101. Petersen and Eley, "An Approach," pp. 11-12, 17-18, 21-22.
102. See note 94.
103. For a study of this type, though not about U.S.-Latin American relations, see Robert
Keohane and Joseph S. Nye, Jr., Power and Interdependence: World Politics in Transition
(Boston: Little, Brown & Co., 1977). For an effort to analyze quantitatively the mix of
concerns across issue areas, including interstate and transnational relations, see
Richard W. Mansbach, Yale Ferguson, and Donald E. Lampert, The Web of Politics
(Englewood Cliffs, N.J.: Prentice-Hall, 1976).
126
238
WOLF GRABENDORFF
Senior Staff Member
Research Institute for
International Affairs.
Ebenhausen. West Germany
INTERSTA TE CONFLICT BEHA VIOR

AND REGIONAL POTENTIAL FOR
CONFLICT IN LATIN AMERICA
h e growing importance of third world countries in the inter-

national system brings their potential for conflict and coopera-
tion to the forefront. Given the fact that the East-West conflict
tends to intensify the North-South conflict, a general tendency
toward more warlike antagonisms is becoming evident within the
Third World. In view of this trend, Latin America as a region
becomes particularly interesting; conditions here have always led
to conflict situations between the various countries, I but specific
historical factors seem to have kept these conflicts from erupting
to the same extent that they have in other regions of the Third
World.
Conflicts between two states do not suddenly occur. Their
virulence rather gradually develops from a mixture of border
conflicts, historical animosities, economic disputes, differences in
political systems, arms races, and certainly, the influence of the
big powers. This is also true for Latin America. Here the 1960s'
phase of economic integration has given way to a mixture of
9
EDITOR S NOTE: The recent armed confrontation between Argentina and Britain and
its strong influence on foreign relations throughout Latin America relates substantially to
this article. As these events appear to the editor to support in part the analysis and
projections of the author, the editor wants to point out that the original manuscript was
received in July 1981.
Journal of Inreramerican Studies and World Affairs, Vol. 24 No.3. August 1982 267-294
© 1982 Sage Publications, Inc.
267
239
268 JOURNAL OF INTERAMERICAN STUDIES AND WORLD AFFAIRS
cooperation and conflict in bilateral relations. At the same time

the political and economic capacities of the individual states have
diverged so that the smoldering conflicts between these states
present an ever-increasing threat. Also, the reduction in the
hegemonic influences in the region, as in other parts of the Third
World, has not caused a decrease in tendencies toward conflict
but rather has seemed to encourage competition and conflict
among the states.
Approximately 30 bilateral conflict situations varying in size
and intensity can be traced in Latin America since 1945. Many of
them originated in the last century. We will compare 20 of these
conflicts and establish a basis for assessing the danger of
increased conflict in the region. The selection does not attempt to
cover the whole spectrum of conflict situations; it should,
however, be representative of the patterns of conflict existing in
Latin America. 2
This article is limited to those bilateral conflict constellations
which have already led to tensions or which can be ex pected to do
so. Multilateral conflicts, often developing as a result of the
spread of a bilateral conflict situation to neighboring countries,
have been considered only insofar as they contribute to an
analysis of bilateral conflict.
The conflicts have been studied in terms of their political
relevance for bilateral relations, their effects on the internal
political systems of the countries involved, and their importance
to the development of the region. Legal aspects and questions of
international law have been put aside, as well as some parts of the
historical and strategic dimensions of the conflicts.
The potential for conflict in Latin America is aggravated by the
danger that the typical lack of consensus on the internal rules of
the political game could spill over into the external scene. This is
particularly true in states governed by a military regime where the
political decision process, for both domestic and foreign policy
issues, is subject to fewer limitations than in countries with
democratic regimes, or in those with a mixed form of government.
Also, in view of the current worldwide discussion about the
causal relationship between armaments and underdevelopment
(Independent Commission, 1980; Lock, 1980) a study of the use
240
Grabendorff / INTERSTATE CONFLICT 269
of force in Latin America would seem particularly appropriate.

Two aspects of force are considered here:
-force in its verbal form, without employment of economic or mili-

tary means, but taking into consideration the probability of such
employment; and
-in its nonverbal form, such as the.use of troop movements or other
resources to the detriment of another state.
Any enumeration of relevant conflicts since World War II

demonstrates that conflicts which involve extraregional powers
playa particularly important role. There are both explicit and
implicit reasons for frequent acts of military intervention by the
big powers in the region:
-defense against what are felt to be hostile ideological influences;

-protection of their own strategic or economic interests;
---:.realization of political concepts or doctrines for development;
-support for an affected "friendly" government within the region;
-support for the opposition against an "unfriendly government"
within the region.
The mutually reinforcing effect in national and international

conflicts caused by direct and indirect intervention is a significant
aspect of the study of interstate conflict behavior and potential in
the region. This reinforcing effect is always of particular impor-
tance when
-a national conflict seems to threaten the interests of another, pos-

sibly extraregional, state;
-external engagement would distract from a national conflict;
-an external conflict replaces an internal conflict.
The analysis of interstate conflicts between Latin American

countries is limited to intraregional conflicts. Thus, the United
States and, in the case of decolonization conflicts, Great Britain,
are also included. However, Brazilian participation with the
241
Allies in World War II, Colombia's participation in the Korean

War, and Cuba's intervention in Angola have not been included. 3
Although Cuban engagement in Africa led to the first credible
external threat to the security of conservative anticommunist
regimes in Latin America, this extraregional conflict behavior has
not been included. Also, conflicts caused primarily by the supply
of arms by extraregional powers (e.g., in Peru and Nicaragua by
the Soviet Union) have not been considered. Indeed, little
attention has been paid to the special function of arms expendi-
tures as a decisive factor in the origin and development of
interstate conflicts.
The notorious lack of reliable data on the interaction of Latin
American states renders any analysis of conflict situations
extremely difficult. Given the large number of existing quanti-
tative analyses with a basis in conflict theory and the far smaller
number of purely descriptive case studies, the cases presented
here should best form the basis of a classificatory and interpretive
regional analysis.
The Regional Security System of the

GAS to U.S. Interventions:
Conflict Behavior 1948-1965
Since the independence of the Latin American states from

1832, only ten warlike conflicts of any size have occurred. Of
these, five took place in the nineteenth century, three prior to the
end of World War II and two after. The five nineteenth-century
wars occurred in connection with the establishment of national
frontiers and were thus postcolonial wars. These included the two
Cisplatine wars lasting from 1825 to 1828 and from 1839 to 1852,
putting an end to the continuing territorial controversy between
Argentina and Brazil by establishing the Republic of Uruguay.
Also included here is the War of Confederation (1839-1841), in
which Chile was able to block a political union between Peru and
Bolivia; the War of the Triple Alliance (1865-1870), in which
Paraguay lost considerable territory to Argentina and Brazil; and
finally, the War of the Pacific (1879-1883) in which Chile took
two southern provinces from Peru and in which Bolivia lost its
access to the ocean.
242
The three pre-World War II wars were the Chaco War (1928-
1938), in which Paraguay was able to annex certain areas of
Bolivia; the Leticia Incident (1932-1933), in which Peru took over
the Colombian port at the Amazon for a couple of months; and
the Marafion Dispute (1941-1942), in which Ecuador lost its
Amazon territory to Peru. The two wars after World War II were
the so-called "Soccer War" between Honduras and EI Salvador in
1969, and the 1981 war between Peru and Ecuador.
With few exceptions all of these bloody clashes were connected
at least in part to the interests of the big powers. Thus the War of
the Pacific, also called the "Saltpeter War," was one in which
British interests played an important role. And the United States
influenced the outcome of the Chaco War, which involved
suspected oil reserves in the controversial region. 4
With the exception of the last two wars, it is not possible to
treat all these warlike conflicts within the scope of this article.
These wars do, however, offer proof that bloody conflicts have
taken place in Latin America. Thus the almost general absence of
armed conflict in Latin America after World War II should
not lead one to conclude that Latin America is, for the most part,
a peaceful region. If, as is usually the case in studies of wars in
various parts of the world, internal wars are dealt with together
with warlike conflicts between states, then the otherwise positive
balance of conflicts in Latin America no longer supports the
concept of a peace-loving region. If one includes internal wars, 23
such conflicts have taken place between 1945 and 1976 alone; 15
of these, however, were of a purely internal nature (Kende, 1977:
60-65). Nevertheless, in terms of duration and intensity of warlike
controversies, Latin America remains at the tail end of third
world regions. However, in Latin America, as in the rest of the
Third World, there has been a recognizable growth in the capacity
to wage conflict on a regional basis (Eckhardt and Azar, 1978:
95).
The number of direct interventions, which had, during the
Cold War, been the typical form of foreign interference-in
particular by the United States-has declined in Latin America.
What is interesting here is that these interventions had resulted
more as a consequence of structural conflicts than of coups d'etat,
guerrilla wars, or so-called revolutions (Pearson, 1974: 284). This
243
is particularly true of the United States, which always tended to

intervene when it feared that, beyond the internal use of force, the
new regime might introduce structural changes. Good examples
here are the Guatemala-U.S., Cuba-U.S., and Dominican Re-
pUblic-U .S. conflicts. The Nicaragua-U .S. conflict since 1981
seems to be evolving along the same pattern.
Of the twenty conflicts in the region we are considering, only
five: Costa Rica-Nicaragua, Dominican Republic-U.S., Guate-
mala-Great Britain, Guatemala-U.S., and Honduras-EI Salvador
have really been concluded. The vast majority of them still
continue in some form. Half of them are so-called traditional or
historical conflicts that have continued since the turn of the
century with varying degrees of virulence: Argentina-Brazil,
Argentina-Great Britain, Chile-Argentina, Chile-Bolivia, Col-
ombia-Venezuela, Guatemala-Great Britain, Panama-U.S., Peru-
Ecuador, Peru-Chile, and Venezuela-Guyana. The question as to
the role that force has played in these interstate conflicts is not
always clear.
Conflict behavior in Latin America must be divided into two
different phases. The first is from the bindiDg together of the
Latin American states by the regional security system of the OAS,
beginning with the Rio Pact of 1948, and with the ending of direct
U.S. military intervention in 1965 in the Dominican Republic.
In comparison, the second phase, from 1965 to 1981, has been
characterized by a greater willingness of the individual states to
enter into conflict with one another. The fact that comparatively
few conflicts occurred between 1948 and 1965 is the result of three
important factors:
-the hegemony of the United States, which remained practically un-

questioned until 1959 (Cuba);
-the emphasis placed on extraregional security problems (Cold
War);
-the emphasis placed on internal security problems (regime-stabil-
ization).
The integration of Latin America into the U.S. security system

undoubtedly had the effect of reducing conflict. This is particu-
244
larly evident in the fact that interstate conflicts were confined

mostly to a limited time span, usually had an ideological base, and
were clearly dominated by internal problems. Furthermore, the
actions of the OAS, and in particular the Inter-American Peace
Committee (IAPC), founded in 1940 but active only since 1948,
contributed to the quick settlement of conflicts that arose. 5 This
"peacekeeping" role of the United States between 1948 and 1965
should, however, not be overestimated, since the connection of
the Latin American states with the regional security system of the
OAS-dominated by the United States-simultaneously caused
certain 'conflicts between Guatemala, Cuba, the Dominican
Republic and the United States to take on a supranational
character. These were indeed alliance-dependent conflicts which
must be seen in the context of the Cold War.
An additional important reason for the smaller number of
conflicts during this period and their relatively low level of
intensity was the inadequate national integration of Latin
American states at that time combined with the lack of intra-
regional interaction of these states. Inadequate national integra-
tion caused these conflicts to be seen not as interstate controver-
sies but rather as personal feuds. They were carried out mainly on
a subnational level and mobilized the entire national potential
only to a small extent (Costa Rica-Nicaragua, Dominican
Republic-Haiti, Honduras-Nicaragua). The political instability
which prevailed in many states led to a situation in which political
opponents in exile would often attempt to achieve a change in
government in their own land with the help of interested
neighbors or hegemonic states (Ameringer, 1974). The difference
between an internal change of system and a true interstate conflict
becomes blurred (e.g., Costa Rica-Nicaragua, Dominican Re-
public-Haiti, Guatemala-United States, Cuba-United States).
The United States' interest in avoiding intraregional conflicts
can be explained as follows:
- Interstate conflicts would have threatened the stability of the re-

gional system within the U.S. sphere of influence;
-interstate conflicts would have weakened the internal control which
individual states could exercise over undesired changes within their
own systems;
245
-conflict would have given the external enemy (the Soviet Union)
an opportunity to offer support (the Cuban effect).
This interest of the United States as a hegemonic power, along

with the historically defined legalism of the Latin American
states, helped to limit the potential for the use of force in regional
questions. Often the slightest indication of a regional conflict was
immediately followed, after a brief phase of "sabre-rattling," by
the convening of a court of arbitration, usually from the IAPC.
Since this willingness to enter into arbitration, along with the
principle of nonintervention, was not only rooted in the Inter-
american System but was also in the national interest of most of
its members, the regional security system without doubt often
contributed to a reduction in the use of force.
There were two main causes for conflict between 1948 and
1965. First, there were the ideological and personal controversies,
primarily a type of system conflict which can be summarized in
the term "democracy versus dictatorship" (e.g., Costa Rica-
Nicaragua, Cuba-United States, Dominican Republic-United
States, Guatemala-United States). Second, there were the tradi-
tional disputes growing out of the messy border situations
inherited from colonial times (Argentina-Great Britain, Chile-
Argentina, Chile-Bolivia, Guatemala-Great Britain, Honduras-
Nicaragua, Peru-Ecuador, Venezuela-Guyana).
All of these conflicts were, for the most part, of a verbal nature;
threatening gestures and a certain form of "sabre-rattling" were
far more frequent than military actions. In a subregional
comparison, the Caribbean was the most active area during this
time. 6 This is also true for the period preceding Castro's takeover
in Cuba. Since Castro, the pattern of conflict in the Caribbean has
not changed significantly, but has been expanded to encompass
an ideological component included in the controversy over
political systems within the broader East-West context. This
ideological component occurred once before in the Guatemala-
U. S. conflict (1954) and has been intensified since the Nicaraguan
revolution (1979).
The most important interstate crises between 1945 and 1965
can thus be reduced to external threats to the political systems or
to controversies with the hegemonic power, the United States,
246
Grabcndorff I INTERSTATE CONFLICT 275
arising from internal political system changes. In both types of

conflict the limited ability of the Latin American actors to use
military force in pursuing the conflict was clearly evident, since
not once did an externally induced change in political system
succeed where the United States was not involved. The only case
where a hegemonic conflict was decided to the disadvantage of
the United States was Cuba; this happened not because of a
national or regional decision process but because of the political
support of the other super power.
The HDoctrine of National Securit)'"

to the HDiplomac}' of National Securit)-"':
Conflict Behavior /965-1981
The United States' last armed il1tervention in Latin America-

the Dominican Republic in 1965-was coincident with the
development of a new type of military regime in the region and
marks the beginning of a period of change in conflict behavior.
Since the 1964 coup d'etat in Brazil, the military has assumed a
new role with regard to the state; it is not only supportive but
formative as well. The military's basic "Doctrine of National
Security" (Selcher, 1977) helped to destroy, to a certain extent,
the seeds of internal instability. The total military capacity of the
individual state, with the technical assistance of civil specialists,
has been concentrated on bringing all groups in society under
control and on propelling the necessary modernization process
forward. Besides the coup d'etat in Brazil, the military takeovers
in Bolivia (1971), in Chile and Uruguay (1973), and in Argentina
(1976) are good examples of this development.
Because of the greater control within the individual states, the
number of interstate conflicts developing out of ideological
differences fell markedly. Exceptions during this period were the
system-related conflicts between Costa Rica and Nicaragua,
Honduras and Nicaragua, and, naturally, the continuing conflict
between Cuba and the United States as well as the new conflict
between Nicaragua and the United States. After the military
regimes had established themselves, beginning in the mid-1960s,
the potential for interstate conflict between ideologically com-
247
petitive systems of government, typical of the previous conflict

period, no longer existed in some parts of the region until 1981
when this pattern reemerged in Central America (Honduras-
Nicaragua). The continuing willingness to enter into conflict
could be explained not so much by differences arising among the
various forms of government or ruling elites, but rather by the
connection between the "Doctrine of National Security"-at first
internally and later externally applied-and the conflict constel-
lation in question.
During the so-called antiterrorist wars in Uruguay, Chile, and
Argentina there was also regional interstate cooperation, in
particular between the military and security organizations of
these countries. This cooperation was based on a common
definition of the enemy and the military's conviction that
subversion had to be seen as an internal conflict guided by
external forces. Thus it became necessary to mount a common
ideological defense throughout the whole region. Similar trends
could be observed in 1981 in Guatemala, Honduras, and EI
Salvador.
The collapse of some Central American governments since the
end of the 1970s produced a new variant, the mixture of internal
and external conflict situations. Internal support given to either
of the parties involved in an internal conflict introduced a new,
conflict-intensifying dimension. Not only the neighboring states
and the United States, but also the leading regional powers-
Mexico, Cuba, and Venezuela-tended to intervene, more or less
openly, on behalf of one or the other of the political systems in
conflict within a particular state. Thus, with the intensification of
popular insurrections and class struggles, a trend developed in the
1970s in which other actors used the intervention of neighboring
states as a pretext for their own direct or indirect interference in
internal conflicts in Central American states.
Disagreements between the United States and various Latin
American states took on a new dimension with the advent of the
Carter administration in 1976. States otherwise of little impor-
tance to the security policy of the United States were heavily
affected by its policy on human rights, originally conceived as
global in scope. Besides causing diplomatic conflicts, this em-
248
phasis on human rights caused Guatemala and Brazil to reject

U.S. military aid in 1977 and caused the United States to dis-
continue military aid to Chile and Uruguay in 1976, and to
Argentina, Nicaragua, and EI Salvador in 1978 (Marcella, 1980:
395-396). While it previously had been the progressive regimes
whose interests had diverged from those of the United States, it
was now the conservative military regimes who felt threatened by
the application of the U.S. human rights policy (Grondona,
1977). The ruling military, however, often assumed that this
policy change in Latin America was not a structural change but
rather a passing phase which would end with the Carter
administration, an assessment proved correct by the extent of the
Reagan administration's policy shifts.
The most important changes in the last sixteen years, however,
stem from the sharper competition among the Latin American
states themselves. With the internal stabilization of these govern-
ments on the basis of the Doctrine of National Security estab-
lished during the past several years, some of these states began to
concentrate on external tasks and became more interested in
regional and international problem.;. The "Doctrine of National
Security," at least in states such as Argentina, Brazil, and Chile,
expanded to become the "Diplomacy of National Security"
(Barros, 1975). Some of the most important conflict constella-
tions which still exist within the region are thus mixtures of
postcolonial territorial claims and actual, economically motiv-
ated measures aimed at securing natural resources (e.g., Argen-
tina-Brazil, Argentina-Great Britain, Chile-Argentina, Chile-
Bolivia, Colombia-Venezuela, Nicaragua-Colombia, Mexico-
United States, Panama-United States, Peru-Chile, Peru-Ecua-
dor, Venezuela-Guyana). What is involved here is the diverging
interests of neighbors as they become increasingly heterogeneous.
In order to secure their own economic stability and thereby
ensure political stability, it became essential that these states
retain or gain access to raw materials, markets, and, in certain
cases, foreign labor. In that context the role of conflicts over
fishing rights as well as the use of economic zones between
Argentina-Great Britain, Chile-Argentina, Colombia-Venezuela,
Cuba-United States, Nicaragua-Colombia, Mexico-United States,
249
and Peru-Chile (Brown, 1975) should not be underestimated.

What is interesting is that most interstate conflicts by far have
occurred in Central America and the Caribbean region. There are
two mutually reinforcing explanations for this. First, this is the
region of Latin America with the smallest and most unstable
states, many of which have only recently become independent.
Second, the strategic position of the Caribbean region and its
bordering states is of such geopolitical importance to the United
States that the potential for conflict is reinforced by extraregional
influences, as recent developments have amply demonstrated.
The spreading of the East-West conflict to that region, as well as
its increasing energy potential, will make it even more conflict-
prone in the future.
The peace-keeping role 'of the Interamerican System has failed
two of its most important tests in Central America; neither in
Nicaragua nor in El Salvador could it stop two of the bloodiest
internal wars in the modern history of Latin America. Given the
worldwide emphasis on the growing divergence of interests
between North and South, any regional organization like the
GAS which has as its basis the harmony of interests between
North and South would have to decline in legitimacy and
efficiency. The OAS, since its inception, has suffered under the
dilemma of wanting to reconcile two mutually exclusive goals.
From the Latin American viewpoint, the OAS should have served
as an instrument of cooperation to further the economic devel-
opment of the whole region. For the United States, the OAS
served as an instrument of power to be used to secure political
stability in the region and thus its own hegemonic position.
In addition, the slow decline in U.S. influence in the seventies
has in general led the Latin American countries to seek new
external partners. Given the security situation within the region,
this diversification of dependencies has caused the configuration
of conflicts to become even more complex. New international
actors, mainly Western Europe, Japan and, to some extent, the
socialist countries, are now able to exercise influence in the region
through the relationship with the individual states. At the same
time, the military capacity of certain states to further their own
foreign policy interests has improved significantly.
250
Because of geographic, geopolitical, and economic develop-

ments new regional leaders have begun to appear. Brazil and
Mexico, in particular, have developed into regional leaders,
based on different levels of national wealth, power, and influence.
Following them in the intraregional hierarchy are Venezuela and
Argentina, both of which compete to some extent with the other
within their own geopolitical spheres of influence (Lagos and
Klaveren, 1979: 402; Grabendorff, 1980b). All four, however,
have achieved the status of relative political autonomy, especially
where their relations with extraregional powers are concerned.
This intraregional hierarchy has more or less supplanted the
original beginnings of formal regional integration. Rather, one
can now speak of an informal integration of those states which
belong to the sphere of influence of the above-named regional
powers. Given the overlapping spheres of influence, such a
development necessarily leads to an automatic increase in the
potential for intraregional and interstate conflict. A significant
result of the integration movement of the sixties and early
seventies was a greater intraregional interaction that to a large
extent went hand-in-hand with the physical integration of the
continent. What developed, however, were not only additional
levels of cooperation, but also additional levels of conflict, since
the number of divergences of interest had to increase simultan-
eously with any increase in the number of interactions.
Parallel to these international and intraregional developments,
changes in the internal structure of many Latin American states
during the last sixteen years have contributed significantly to the
growth in conflict potential. Included here primarily is the
constantly growing national integration of many states and the
resulting capacity for reaction to external conflict. The militarily
efficient, technocratically administrated systems of government
based on the "Doctrine of National Security" tend to compensate
for their lack of internal legitimacy by taking external action in
the name of the nation as a whole. Thus, it is precisely those
military regimes such as now hold power over a sizable part of
Latin America which tend to use internal instabilities as a motive
for entering into external conflicts. In order to distract from their
internal problems they follow the classic pattern to substitute a
251
common enemy for a lack of national consensus. They also

attempt to compensate for a lack of legitimacy by trying to
broaden the country's resource base. This leads to a growing
demand for control of resources and markets beyond theIr own
borders. The new causes for conflict produce new conflict
combinations, which in turn produce new forms of conflict.
These changes from the previous period of conflict can be
summarized as follows:
- In the 1950s and 1960s interaction between most of the Latin

American states was often limited to the economic sphere and was
directed towards integration efforts.
-In the 1970s regional cooperation between the military and security
organizations in various countries grew due to the military regimes'
common perception of what constituted a threat to their national
security. The levels of their foreign relations thus became more
diversified.
- In the past years interstate cooperation between political parties
and labor unions has also increased, not the least because of grow-
ing West European influence; i.e. interstate relations are not only
influenced by governments, but also by the political opposition
interested in a change of government. Transnational actors have
gained considerable importance.
This parallelism of the planes of interaction has thus changed

the form of conflict; now other actors are in a position to provide
financial, logistic, and diplomatic support to opposition elites,
just as the United States used to do. One good exam pIe of this are
the different roles Cuba, Mexico, Venezuela, Panama, and Costa
Rica played in the change of power in Nicaragua in 1979.
Another new form of conflict can be seen in a growing rivalry
between individual states and the resulting suspicion of each
other's intentions. This suspicion has now been transferred, at
least in part, from the United States to the new regional powers.
This mixture of rivalry with regard to foreign policy successes,
integration into the world market, possibilities for the procure-
ment of raw materials, and suspicion of possible political changes
which foreign neighbors might further, have become basic
elements of interstate behavior in Latin America.
252
These altered forms of conflict are conditioned by the contin-

uing discrepancy between goals and instruments and by the
military's willingness to enter into and carry out conflicts. This is
particularly true of the pursuit of individual state interests with
regard to securing natural resources and the instruments which
they hope to use in pursuing these goals. In the Southern Cone,
for example, such a discrepancy between the organizational and
technical possibilities of the countries involved is clearly visible.
In their development and in th~ir various phases, the Chile-
Argentina interstate conflicts seem to resemble the style of the
nineteenth century. It appears in fact that the increased potential
for conflict is made up of two different but certainly correspond-
ing levels, the mixture of which cannot be predicted in each
conflict constellation. Thus historical causes and a form of
conflict behavior developing along historical lines can exist side-
by-side with a very modern intention to enter into conflict and an
increasingly modern capacity for conducting conflict.
A Typology of Interstate Conflicts of

Latin American States
Five criteria are useful in constructing a framework for the
analysis of the Latin American conflict constellations:
-the ideological differences between two states that lead to system

conflicts. Included here are the controversies between dictator-
ships and democracies, civilian and military regimes, and capital-
ist and socialist models of development. Also included here are dis-
agreements about the violations of human rights and the national-
ization of foreign property.
-the claims of big powers to supremacy in a certain region that lead
to hegemonic conflicts. Included here are all attempts to force de-
pendent states to act as members of a bloc. Special cases are the
hegemony of a colonial power (Great Britain) and the hegemony of
a regional power (Brazil).
-the border controversies, which in part date back to colonial times,
lead to territorial conflicts. Because of the concept of "wandering
borders" and the increasing geographical importance attached to
253
the pieces of territory involved, the concept of sovereignty has

changed radically.
-the securing of raw materials to further national and economic de-
velopment lead to resource conflicts. Here it is not only a question
of oil, natural gas, and iron ore, but also, to a growing extent, a
question of hydroelectric power and the concept of an economic
zone extending 200 miles from the shore or the full extent of the
continental shelf.
-the difference in economic development between some states of the
region, and especially between the United States and her neigh-
bors, leads to migration conflicts. Included here is not only the mi-
gration of laborers for economic reasons, but also politically moti-
vated migration.
In the past few years, interestingly enough, system and

hegemonic conflicts have become less frequent due to the
increasing difficulty of imposing ideological concepts on coun-
tries within the Third World and the relative homogeneity of
many political systems in Latin America, a trend which seems to
be due to the policies of the Reagan administration. However,
territorial conflicts, because of their considerable identification
with resources conflicts, have increased. Migration conflicts have
until now been infrequent; however, because of the growing
discrepancy in levels of development in Latin America, they seem
to offer the greatest potential for conflict. Resource conflicts will
play an increasing role in the eighties.
Of course, only a very few conflicts in Latin America fit
perfectly into such a typology. A large number of conflict
constellations are made up of a mixture of two or more of the
above conflict types. The bilateral conflicts do, however, lend
themselves to the following breakdown:
-System conflicts: Costa Rica-Nicaragua, Cuba-United States,

Dominican Republic-United States, Guatemala-United States,
Honduras-Nicaragua, and Nicaragua-United States.
-Hegemonic conflicts: Argentina-Great Britain, Cuba-United States,
Dominican Republic-United States, Guatemala-Great Britain,
Guatemala-United States, Mexico-United States, Panama-United
States, and Nicaragua-United States.
254
- Territorial conflicts: Argentina-Great Britain, Chile-Argentina,

Chile-Bolivia, Colombia-Venezuela, Cuba-United States, Gua-
temala-Great Britain, Honduras-EI Salvador, Nicaragua-Colom-
bia, Mexico-United States, Panama-United States, Peru-Chile,
Peru-Ecuador, and Venezuela-Guyana.
-Resources conflicts: Argentina-Brazil, Argentina-Great Britain,
Chile-Argentina, Chile-Bolivia, Colombia-Venezuela, Guatemala-
Great Britain, Nicaragua-Colombia, Mexico-United States, Pan-
ama-United States, Peru-Chile, Peru-Ecuador, and Venezuela-
Guyana.
-Migration conflicts: Chile-Argentina, Colombia-Venezuela, Cuba-
United States, Haiti-Dominican Republic, EI Salvador-Honduras,
and Mexico-United States.
Because of the considerable overlap of conflict causes, one can

determine, for example, that the conflict situation between
Argentina and Great Britain is simultaneously a hegemonic,
territorial, and resources conflict, that the conflict situation
between Chile and Argentina is at the same time a territorial,
resources, and migration conflict, and that the conflict between
Chile and Bolivia is both a territorial and a resources conflict.
This is also true for the conflict between Colombia and Venezuela.
The conflict between the Dominican Republic and the United
States was a combination of a system and a hegemonic conflict.
The Guatemala-Great Britain controversy was a hegemonic as
well as a territorial and resources conflict, while the Guatemala-
U. S. conflict was clearly both a system and hegemonic conflict.
The conflict between Honduras and EI Salvador was a territorial
and migration conflict, the current conflict between Nicaragua
and Colombia a typical case of the intersection of territorial and
resources conflicts, and the traditional conflict between Mexico
and the United States is simultaneously a territorial, resources,
and migration conflict. The conflict between Panama and the
United States was a hegemonic, territorial, and resources conflict,
since the Panama Canal is rightly seen as the 0 bject of a resources
conflict. The conflict between Peru and Chile is both a territorial
and resources conflict, as are the conflicts between Peru and
Ecuador and Venezuela and Guyana.
255
The conflict between Argentina and Brazil must be considered

as a special case. It is basically a resources conflict, but with
regional significance. In light of the military and economic
importance of both states, which have always been vying for a
leaders·hip position in South America, this conflict must be
considered to be potentially hegemonic, not least because Brazil,
in the medium run, could playa role in Latin America similar to
that played earlier by the hegemonic powers. Since the contro-
versy with Argentina is primarily a contest for economic influ-
ence, access to markets, and the control of resources in the
bordering states of Bolivia, Paraguay, and Uruguay, it clearly
demonstrates the transition from the pattern of conflict typical of
the region. Given their continuing competition in the nuclear field
and their different alliances in the international system, future
conflicts must be expected in spite of the recent cooperation
efforts between the two countries.
Certainly not all virulent conflict situations can be explained
exclusively in terms of a bilateral conflict constellation in Latin
America. Central America and the Caribbean are particularly
unstable and conflict-prone regions because of the given combin-
ation of geopolitics and power politics to be found there. In
Central America this is mainly a result of the continuing
hegemonic influence of the United States and of the slow
disintegration of outdated social and political systems. Besides
the existing U.S. influence in the Caribbean, the distortion of
regional structures due to their alignment with former colonial
powers is an important reason for the high level of instability. In
addition, there are the general problems faced by all small states:
competing models for development and the striving of certain
factions or ethnic groups for secession and independence. Both
the Southern Cone and a number of Andean states, Peru, Chile,
and Bolivia, are considered to be particularly conflict-prone
(Benavides Correa, 1974; Arbaiza, 1974; Cavalla Rojas, 1978).
This is a result-at least in part-of the very expansive regional
attitude of Brazil on both diplomatic and economic levels. The
skillful Brazilian policy of manipulation of the La Plata basin and
of the Amazon Pact countries has made it possible for Brazil to
pursue its interests without seeming to encourage massive
conflict.
256
Another extremely conflict-prone region for strategic as well as

resource-related reasons is the Antarctic territory. After expira-
tion of the Antarctic Treaty in 1989, conflicts over sovereignty,
presently frozen, could once again thaw, not only between
Argentina and Chile, but also with the extraregional powers-
Great Britain, France, Australia, New Zealand, and Norway-
which are also party to the treaty.7
The partial shift from hegemonic and system conflicts to
territorial, resources, and migration conflicts is an obvious result
of economic modernization and national efforts to further
development. Here the importance of traditional territorial
conflicts has taken on a new face, since these conflicts today have
not only to do with questions of sovereignty, status, and prestige,
but also with securing access to natural resources. This shift
within conflict type is characteristic of the growing nation-state
development in the region and the simultaneously growing
necessity of exercising economic options.
Changing Bilateral Patterns of

Conflict and Potential for
Regional Conflict
The new context for interstate conflict behavior in Latin

America is caused by a whole series of factors, mainly economic,
growing out of changed international, regional, and national
conditions.
The inclusion of Latin America on the axes of the greater East-
West and North-South conflicts could certainly lead to a complex
conflict situation similar to that which has developed in South-
east Asia, the Middle East, and Southern Africa. As soon as the
region as a whole steps out of the shadows and into the full glare
of world politics, a large number of actors will begin to try to
influence even the bilateral conflict constellations. On the other
hand, it would be all too easy for that country or party which feels
deprived within a controversy to vie for a better position in an
interstate conflict situation based on its position in the East-West
conflict. The danger that such a regional conflict could expand to
become the source of an even greater conflict is particularly great
257
when one of the two parties is openly and closely allied with one of
the superpowers (Ronfeldt and Sereseres, 1977). Thus, the very
close military cooperation between individual Latin A·merican
states and the United States has repeatedly led to situations where
the United States was drawn into conflicts rather than being able
to prevent the conflicts from developing.
With the growing bargaining power of the Third World, the
ability of the superpowers to prevent or limit regional conflicts is
steadily declining. Nevertheless, the influence that the great
powers can exercise over the conflict development and the form
that they take remains considerably greater than any destabilizing
effect these conflicts may have on the industrialized countries.
This assertion was particularly true for the period during which
the United States enjoyed an almost uncontested hegemonic
position, but is also true for the most recent period of conflicts. In
view of the growing tendency of the superpowers to carry out
their competition and rivalry within the Third World, probability
and frequency of conflict in Latin America will also depend on
whether or not the Soviet Union continues to accept Latin
America as the United States' exclusive sphere of influence,
disregarding Cuba for the moment. 8 Should the Soviet Union
decide to become more involved in this region, the East-West
antithesis would no longer be projected from only one side in
certain conflict constellations within the region, as has been the
case until now. It would, as in the case of Cuba, open up to the
other superpower the option of forming a more realistic alliance
with certain Latin American states.
In addition to this altered international situation, there are also
regional shifts. Here, in particular, the new perception of security
in Latin America as a whole is the decisive indicator of a change in
the pattern of conflict. From 1948 to 1965, in spite of any criticism
of the United States, the concept of hemispheric defense was
based on a silent consensus in the region which made it even
possible .to tolerate the intervention of the United States in
Guatemala and the Dominican Republic. After 1965 the "Doc-
trine of National Security," security meaning almost exclusively
internal security, became the decisive factor in the perception of
political threats to the security of the region. At the end of the
258
1970s and beginning of the 1980s a third concept of security

moved to the forefront, namely the combination of national
security and regional conflict. Developments in Central America
have also shown that the definition of the term security has
changed since the end of the 1970s and also that the term
intervention is now interpreted far more broadly by some Latin
American states. 9 These new interpretations may produce an
increase on the conflict side of the conflict-cooperation dialectic,
even more so in the 1980s than in previous decades.
What is true for the region as a whole is also true for the
bilateral relations between Latin American states. Here the
common attitude toward the United States is beginning to
crumble. The search is on for a new tangible and viable "external
enemy" which can be used to promote "national unity." The
period between the departure of one dominating power and the
development of new leadership roles in the region must, in view of
the bilateral conflict constellations once again coming to life, tend
to encourage conflict. The regional alliance relationships, in part
historically based, tend to cross with the border conflicts between
the individual states. Chile, for example, is interested in a special
sort of cooperation with Brazil because it is in conflict with
Argentina and Bolivia. At the same time, it is interested in
particularly close relations with Ecuador because both countries
are in conflict with Peru. Argentina, on the other hand, is
interested in good relations with Bolivia and Peru because all
three are in conflict with Chile. Small Guyana leans closely on
Brazil because of its border conflict with Venezuela. One cannot
dismiss the possibility that these alliances will be extended
beyond regional borders depending on the power situation.
Thus, the intrusion of the Soviet Union in the Third World
caused Argentina and Brazil to start considering the possibility of
mounting a regional defense effort. The planned, but for several
reasons not yet existing, South Atlantic Treaty Organization
(SATO) is a typical example of the increased readiness of Latin
American states to enter into conflict within the global frame-
work. It was not primarily the United States' ideas that propelled
such security policy considerations forward, as was the case with
the Rio Pact, but the naval and air forces of Argentina and Brazil
259
which hoped in this way to improve the quality of their

armaments. The original intention to include South Africa in
such a pact has prevented its formation for strictly economic
considerations. In the case of Brazil vis-a-vis Black Africa and in
Arg~ntina's case vis-a-vis the Soviet Union, Brazil is not willing,
for obvious foreign policy reasons, to enter into such an alliance,
while Argentina might rather cooperate with the United States in
security matters in Central America.
Generally, internal factors have caused the growing hetero-
geneity within the region and the resulting new patterns of
conflict. Militarization and technocratization have produced in
many states a thrust toward modernization which at first had a
mainly national impact, but which carries increasing interna-
tional implications. The conclusion of the phase of internally
directed national security policy, particularly in the case of
states dominated by the military, has released a considerable
capacity for the gratification of external security needs (Ronfeldt
and Sereseres, 1977: 29).
This situation was also precipitated by the fact that military
expenditures for the whole of Latin America in the last decade, in
absolute figures as well as those relative to the domestic gross
national product, have risen considerably (Barnaby, 1979: 59;
Pierre, 1981: 268). The maintenance of armed forces, the
modernization of armaments, and the development of an arma-
ments industry have swallowed up vast amounts of money.IO The
resulting growth in military capacity will very likely contribute to
a greater readiness to enter into conflict.
This "externally directed militarization" proceeds hand-in-
hand with a growing armaments production characteristic of
many developing countries and already the case in Brazil and
Argentina. The result~'ng impressive armaments capacity makes
possible interstate military aid to smaller states on the South-
South track and thus contributes to a new dimension to regional
interstate conflicts. The conflict-reducing effect of arms transfer
limitations imposed by traditional supplier countries can thus to a
large extent be undermined. This new quality in South-South
relations also leads to direct military intervention in internal or at
least externally perceived conflict situations in partner countries,
260
which of course are often labelled proxy wars. The growing

militarization within the Third World causes such military or
strategic South-South cooperation to become ever more prob-
able. It will be difficult if not impossible for the great powers to
exercise any control over the resulting situation.
Independent of the growing willingness to enter into conflict,
there exists a correlation between military government and arms
expenditures which becomes even stronger due to increased use of
arms as a result of internal political and social conflict (Hill, 1978:
42-43). The domestic political function of conflicts of an inter-
state nature is directly correlated to the lack of legitimacy of the
respective military regimes. The accent on national unity and the
emphasis on an external enemy are aimed at stabilizing the ruling
regime and at distracting from the internal problems of the
country. Thejob of nation-building is thus pursued at the expense
of one's neighbors.
The growing willingness to enter into conflict has to the same
extent an effect on the political systems and level of armaments in
the region. Since the majority of Latin American states have not
yet reached the international average in the capacity to employ
external force, one must continue to reckon with a catch-up
mentality in the field of armaments. Although a certain military
saturation in terms of internal security can be observed in various
states, the military, because of their absolute control in many
states, are able to use the national treasury as a "self-service store"
for their own priorities. One of the main consequences of this
increased potential for conflict in the region is that in many Latin
American states an "externally directed militarization" will
probably follow on the heels of the "internally directed militariza-
tion. "
Just as integration politics formed the basis for an ersatz
foreign policy for the technocrats, now geopolitics·· forms the
basis of an ersatz foreign policy for the military, a policy which is
fixed to the idea of borders and spheres of influence. The trauma
about improved control over the whole territory of states, and the
related discussion about the role and function of borders, has
taken the place of the vehement discussion about integration-
that is, the elimination of borders within the continent-
261
prevalent during the 1960s. The effects of such ideas, character-

istic of, but by no means limited to the military, on the future
constellation of conflict in Latin America cannot be overestimated.
Where traditional border conflicts overlap with the ever more
important resources conflicts, which are after all a question of
national survival, there exists-given the internal situation and
the lack of legitimacy of many of these governments-a predispo-
sition to interstate controversy.
The study of interstate conflict behavior and the potential for
conflict in Latin America makes two things particularly clear:
-First, the structural bases of most of the conflicts occurring during

the period after World War II has hardly changed at all. Quite the
opposite: In view of the growth of population, the growing gap in
income distribution, and the differing levels of development among
the individual countries in the region, the bases have become even
stronger.
-Second, the conditions under which the conflicts are carried out
have changed significantly. The growing tendency of Latin Amer-
ica to step out of the "security shadow" of the United States has led
directly to an increase in the potential for conflict.
However, any evaluation of the role of the hegemonic power in

reducing or preventing conflict from 1948 to 1965 must differen-
tiate between the interest profile and the effect profile. In any
case, it has not yet become clear to what extent new instruments
for the reduction of conflict in the region can be effective. Even
the relatively successful reduction of conflict under the influence
of the United States or the OAS was achieved by merely stifling
the conflicts rather than eliminating their causes. In the past years
those causes have expanded and intensified and their elimination
has become ever more urgent. The greater internal latitude
resulting from the decision-making freedom which nondemo-
cratic regimes enjoy and, at the same time, the expanded external
latitude make it possible that interstate conflicts will increasingly
be used as a means for reaching political ends.
262
Given conditions of the world market, foreign policy for many

Latin American states has become a form of economic survival
strategy, in which the choice of means has become of secondary
importance. The undoubtedly increased independence of the
region together with the greater capacities of individual states and
their accelerated insertion into the international system will lead,
in all probability, to more frequent resource-related conflicts
within the sphere of interstate relations.
Given the search for a new balance of power in the region, a
repetition of the conflict situation as it existed in the 1930s and
early 1940s in Latin America cannot be considered out of the
question (Ronfeldt and Einaudi, 1974). The growing interaction
between the individual Latin American states and the increased
number of actors in originally internal, and later bilateral,
conflicts make the development of conflict-or at least a greater
willingness to enter into conflicl-all the more probable. The
growing heterqgeneity of the Latin American states now visible
certainly contributes to this process. The varying importance of
the individual Latin American states within the region and their
advocacy of regional interests in the outside world causes
constant new potentials for conflict, exacerbating the existing
conflict patterns.
If the region is not to succumb to typical postcolonial,
nationalistic crises, then it will be necessary politically to intercept
this increase in conflict potential, putting aside external conflict-
preventing-or at least conflict-solving-mechanisms, and then
to" tackle the substance of this problem through confidence-
building measures. One possible catalyst, similar to the image of
the common enemy used in the Cold War, is a common third
world consciousness which could replace the antagonism of
cooperation and conflict with a combination of cooperation and
regional integration. The preconditions for such a consciousness
already exist in most Latin American states, parallel to the
increased potential for conflict. Thus the increasingly tense
situations arising out of the partly traditional, partly new
interstate conflicts have by no means always to end in violence.
263
NOTES
l. For the purpose of this article, the following 20 bilateral conflicts have been
selected: (I) Argentina-Brazil since 1825; (2) Argentina-Great Britain since 1833; (3) Chile-
Argentina since 1881; (4) Chile-Bolivia since 1879; (5) Colombia-Venezuela since 1834; (6)
Costa Rica-Nicaragua 1948-1956; (7) Cuba-United States since 1960; (8) Dominican
Republic-Haiti since 1949; (9) Dominican Republic-United States 1961-1965; (10)
Guatemala-Great Britain 1859-1981; (II) Guatemala-United States 1951-1954; (12)
Honduras-El Salvador 1967-1980; (13) Honduras-Nicaragua since 1957; (14) Nicaragua-
Colombia since 1979; (15) Nicaragua-United States since 1980; (16) Mexico-United States
since 1864; (17) Panama-United States since 1903; (18) Peru-Chile since 1889; (19) Peru-
Ecuador since 1882; (20) Venezuela-Guyana since 1899.
2. Due to the absence of sufficient data, a number of interstate conflicts in Latin
America could not be included in this analysis: Anguilla-Great Britain, Argentina-
Paraguay, Argentina-Uruguay, Bolivia-Cuba, Cuba-Bahamas, Dominican Republic-
Venezuela, Guyana-Great Britain, Guyana-Surinam, Panama-Cuba, Puerto Rico-United
States, and Venezuela-Cuba.
3. On the extraregional activities of Latin American states see Simoes (1966);
Ramsey (1967); Grabendorff (I 980a).
4. See Ireland (1938); Wood (1970) On the warlike conflicts in the nineteenth century
and the first half of the twentieth century.
5. The IAPC has been activated 34 times between 1948 and 1965, but only once after
1965 because of the "Soccer War" of 1969 (Honduras-El Salvador). For its evaluation see
Reid-Martz (1971); Leger (1974). In 1970 the IAPC was dissolved because of the reform of
the OAS Charter and was replaced by the Interamerican Committee on Peaceful
Settlement, which, however, has yet to be activated. See Reid-Martz (1977).
6. This can easily be demonstrated by the fact that the United States has exerted the
greatest pressure in this region by its military presence. Between 1960 and 1965 the U.S.
Navy has stated altogether 13 ~~show of force" operations in the Caribbean, whereas only
one such action (1970 off Trinidad) has been performed between 1965 and 1975. See
Eldredge (1978: 22-24).
7. In addition to the twelve signatory states of the Antarctic Treaty of 1959, Brazil,
West Germany, Poland, Holland, Denmark, Czechoslovakia, and Romania have shown
their interest in participating in the economic use of the Antarctic resources, intending to
participate in the possible enlargement of the Antarctic Treaty.
8. With regard to the Soviet interests in the region, see Leiken (1981).
9. Nicaragua and El Salvador are the most obvious cases in point. See Wilson (1981:
46).
10. The best analysis of geopolitical thinking in Latin America is made by Child,
which includes details on the pertinent literature and the different national schools of
geopolitics. Child comes to the conclusion: ~~In the Southern Cone in particular, the
prevalence of geopolitical thinking suggests the frame of reference for explaining some of
the enduring international rivalries that have persisted in this area" (Child, 1979: 109).
II. A good indicator of the importance of this discussion is the influence of
geopolitical and strategic journals in Latin America, such as: Estrategia (Argentina),
Geopolitica (Argentina), Seguranca e Desenvolvimento (Brazil), A Defensa Nacional
(Brazil), Geopolitica (Uruguay), Seguridad Nacional (Chile), Estudios Geopoliticos y
Estrategicos (Peru). and Defensa Nacional (Peru).
264
Grabendorff / INTERSTATE CON FLICT 293
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KENDE, l. (1977) "Dynamics of wars, of arms trade and of military expenditure in the
Third World, 1945-1976:· Instant Research on Peace and Violence 7,2: 59-67.
LAGOS, G. and A. V. KLA VEREN (1979) "Las relaciones interamericanas en una per-
spectiva glo bal." Estudios Internacionales 12 (Octo ber-Decem ber): 390-418.
LEGER, L. O. (1974) "The Inter-American peace committee." Ph.D. dissertation, Temple
University.
265
LEIKEN, R. S. (1981) ""Eastern winds in Latin America." Foreign Policy 42 (Spring): 94-
113.
LOCK, P. (1980)"" Armaments dynamics: an issue in development strategies." Alternatives
2 (July): 157-178.
MARCELLA, G. (1980) ""Las relaciones militares entre los Estados Unidos y America
Latina: crisis e interrogantes futuras." Estudios Internacionales 13 (July-September):
382-400.
PEARSON, F. S. (1974) "Foreign military interventions and domestic disputes." Int.
Studies Q. 18 (September): 259-2.90.
PIERRE, A. J. (1981) ""Arms sales: the newdiplomacy." Foreign Affairs 60 (Winter): 266-
286.
RAMSEY, R. W. (1967) "The Colombian battalion in Korea and Suez." J. of Interameri-
can Studies and World Affairs 9 (October): 541-560.
REID-MARTZ, M. J. (1977) ""OAS reforms and the future of pacific settlement." Latin
Amer. Research Rev. 12, 2: 176-186.
- - - (1971) ""Pacific settlement of controversies in the inter-American system 1948-
1970:' Ph.D. dissertation, Duke University.
RONFELDT, D. S. and L. EINAUDI (1974) ""Conflict and cooperation among Latin
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Takes Charge of its Future. New York: Crane, Russak.
RONFELDT, D. S. and C. SERESERES (1977) U.S. Arms Transfers, Diplomacy and
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SELCHER, W. A. (1977) "The national security doctrine and policies of the Brazilian
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SIMOES, R.M.A. (1966) ""A presenca do Brazil na 2 guerra mundial." Rio de Janeiro.
WILSON, L. C. (1981) ""The Nicaraguan insurrection and the principle of noninterven-
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Wolf Grabendorff is Senior Staff Member at the Sti/tung Wissenschaft und Politik
at Ebenhausen near Munich. He has been a Visiting Fellow at the Center of
Brazilian Studies, School of Advanced International Studies, the Johns Hopkins
University in 1980-1981 and has wril1en various monographs and numerous
articles on the foreign policies of Latin American nations. The author is current~r
completing a study on the role of regional powers in the Central American crisis.
266
STATE INSTITUTIONS,
IDE 0 LOG Y, AND A U TO NOM 0 US
TECHNOLOGICAL DEVELOPMENT:
Computers and Nuclear Energy in Argentina and Brazil*
Emanuel Adler
The Hebreu' University of Jerusalem
This article will examine the efforts made by Argentina and Bra-
zil to attain a measure of technological autonomy in the fields of com-
puters and nuclear energy. Grieco's study of the Indian computer in-
dustryl and separate studies of the Brazilian computer industry by
Evans and Adler2 have shown the inadequacy of the arguments raised
by the dependency literature, 3 namely, that in areas of highly sophisti-
cated technology, owned mainly by multinational corporations, the de-
veloping country will fail in any attempt to achieve domestic techno-
logical development. 4
But case studies of domestic technological and industrial devel-
opment in one sector may be of limited value in explaining why some
developing countries succeed in domestic high-technology projects
while other nations fail, despite their best efforts. To sharpen the ques-
tion and make it more paradoxical: how can autonomous technological
development be explained in cases where structural economic and tech-
nological conditions offered small potential for it while other cases with
greater potential ended in failure?
Something other than structural factors must be involved. For
example, why has Argentina maintained a consistent and successful
nuclear policy since the 1950s and developed its nuclear-power poten-
tial into a fairly self-sufficient enterprise while Brazil has failed to do so?
Budget allocations alone cannot explain this contrast, given the mam-
moth Brazilian investment in nuclear energy in the mid-1970s. Again,
how does one account for the success of the Comisi6n Nacional de
Energia At6mica (CNEA) in Argentina at a time of extreme domestic
"'I wish to thank the anonymous LARR referees, the Institute of International Studies and
the Center for Latin American Studies in Berkeley, the Institute for the Study of World
Politics in New York, the Tinker Foundation, and the Leonard Davis Institute of Interna-
tional Relations at the Hebrew University of Jerusalem.
59
267
political and economic turmoil, when most other scientific and techno-
logical enterprises were being suffocated by negligence and inadequate
action? One also wonders why Brazil ended up with a growing domes-
tic computer industry and Argentina with almost none, despite the fact
that the two countries developed an interest in computer technology at
a time when Argentina was more advanced than Brazil in sophisticated
electronics technology.
The answer to. these questions is that analysts must look beyond
the interaction between domestic and international structural factors to
consider the role played by ideological groups and state institutions
that catalyze the processes of technological and industrial development
and become necessary, but not sufficient, conditions for success and
failure. The historical questions, however, are not only what were the
necessary conditions for the way things happened but how did they
interact in order to bring about specific outcomes.
Through a dialectical process akin to that described by Albert
Hirschman on more general development issues, the dependency that
at first seems inevitable and totally determined in a structural reality
may, because of ideological groups and their institutions, breed the
quest for autonomy.5 This supposition does not deny that power plays
a crucial role in enabling ideological and institutional actors to achieve
their goals. But power merely creates the opportunities and propensi-
ties for success. The "real" successes emerge from the perception by
ideological actors of these opportunities and propensities, from their
recognition that dependency is the problem and autonomy the solu-
tion, and from their harnessing the power of state institutions to their
goal.
Ideologically motivated groups and state institutions may suc-
ceed in transforming technological dependence when, by directing po-
litical attention and support to the development of human resources
and a technological infrastructure, they manage to develop a base that
can help convince policymakers- of the technological and industrial via-
bility of domestic ventures. As Hirschman has suggested, by linking
their "unprivileged problem" (such as technological autonomy) to
"privileged problems" (such as economic growth, prestige, and na-
tional security) in the minds of the decision makers, these actors can
use their scientific knowledge and technocratic skills within political
structures to insulate the programs from political opposition and attain
the status of "national projects" for them so that political leaders can
only back these projects or injure national pride. 6 Technological au-
tonomy may never be achieved, but in the process of trying to attain it,
these actors may help bring about sufficient technological development
to change industrial performance and achieve economic, social, and
national security goals. 7
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268
COMPUTERS AND NUCLEAR ENERGY IN ARGENTINA AND BRAZIL
THE ROLE OF THE "STATE"
Political economists are well acquainted with the fact that states
matter and that they intervene in their economies for various reasons.
"The question," Chalmers Johnson observed, "is how the government
intervenes and for what purposes."s Achieving technological autonomy
might be one of these purposes. The issue is therefore what specific
structural, institutional, and ideological factors, relationships, and cir-
cumstances help create successful state intervention.
The notion that the state must be viewed as a relatively autono-
mous actor has also been well established. 9 But "state autonomy" is a
dynamic concept and a changing condition lO that, while it can explain
the state's capacity for intervening in economic processes without be-
coming "a mere executive committee of a dominant class,"ll cannot
explain differences in performance and outcome in various cases when
the state is relatively autonomous.
A theory of state intervention holding that there exists an "es-
sential character of the state that can be deduced from some 'function'
which 'needs' to be performed in society"12 and viewing states as one-
dimensional social structures and systems cannot be very useful either.
Rather, analysts need to study state intervention by emphasizing insti-
tutions that make up the state, their histories, and collective under-
standings, which work together "neither 'for good' entirely nor 'for ill'
entirely,. but simply as their joint histories dictate.,,13
IDEOLOGY, INSTITUTIONS, AND THE STATE
By ideology I mean a set of beliefs and values about society,

clearly a cognitive phenomenon. Whatever an individual believes and
values about society will condition (at least partially) what he or she
wants to achieve, why, and in what ways. Ideologies are important
because they "have origins that cannot be reduced to material develop-
ments, ... can have substantial and independent effects,"14 and may
have the "obvious potential to develop into political forces. This hap-
pens when a set of political doctrines is adopted by a group of people,
assumes a critical position in their belief systems, and then becomes a
guiding force behind their actions." 15
Institutions are defined here as the "carriers" of ideologies, the
source of the legitimation of the groups within them, and most impor-
tant, the source of the financial and political means that help achieve
desired aims. Thus, in a Weberian sense, institutions become reposito-
ries of a constellation of consciousness and collective understanding
that, when integrated into institutional designs, become the precondi-
tions of institutional. behavior.
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269
The main ideology of interest here is that oriented toward nation-

alism and antidependency. Because autonomy is viewed as the oppo-
site of dependency, "it makes sense to talk about changes that repre-
sent differences of degree, such as relative increase or decrease in the
autonomy or capacity for action of certain Latin American states.,,16
This ideology is pragmatic in nature because it offers a prescription for
action now. This perspective stands in contrast to a structural anti-
dependency approach, which takes "world socialism" as the only solu-
tion to what is seen as a global structural problem-capitalism and its
expansion into the Third World.
The pragmatic antidependency ideology, which is long-range
and strategically oriented, should be contrasted with yet another ide-
ology that emphasizes short-run interests--that of economic efficiency
and the rules of economic competition and comparative advantage. In
assuming that the best and most efficient technology (usually meaning
foreign) should be used to obtain the best economic results, this ide-
ology considers the issue of whether technology is indigenous or im-
ported as beside the point and views the willingness of pragmatic anti-
dependentistas to "reinvent the wheel" as utter stupidity. According to
the ideology of economic efficiency, the state should get involved only
as necessary to ensure an appropriate and viable educational and bu-
reaucratic infrastructure.
The role of ideology and institutions in the quest for autonomy
in Argentina and Brazil has been expressed by a "strategically located
cadre of officials enjoying great organizational strength inside and
through existing state organizations and also enjoying a unified sense
of ideological purpose about the possibility and desirability of using
state intervention to ... promote national economic development."17 A
prominent member of one group of Latin American officials, who has
been involved in science and technology at the national and interna-
tionallevels for many years, has remarked that "we are always trying to
influence politicians to accept our ideas.... We work like guerrillas,
creating space to maneuver.... We have to create a new ideology, to
reinterpret the role of science and technology under conditions of un-
derdevelopment."18
Those whom this Latin American friend has tenned guerrillas
represent what I call the pragmatic antidependency position because
they maintain that dependency can be reduced now, rather than later or
never. In their view, dependency can be managed and reduced by
learning from others, controlling foreign investment and technology
transfer, and strongly emphasizing autonomous technological and in-
dustrial development.
These pragmatic antidependency guerrillas, many of them scien-
tists, technologists, and economists with authority in domestic and in-
ternational forums, have used state power to mobilize the practical ex-
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270
pertise of scientific and technological development and its industrial

applications. Acting as benevolent conspirators who regard politicians
as instruments for achieving certain aims, they have shaped collective
beliefs and expectations within state institutions and at policy-making
levels. In instances where their views were akin to those of the political
elites, they had only to show the way. In many cases, however, their
ideological motivations have differed from those of the political elites,
and they have had to influence the ideological context of ideas indi-
rectly or bring about the desired end by using their technocratic and
persuasive skills.
It could be argued that military regimes might be particularly
receptive to pragmatic antidependency guerrillas working within state
institutions. 19 Although the military is likely to reject structural antide-
pendency arguments, they may appreciate the nationalist side of prag-
matic antidependency. For example, they may see autonomy projects as
a way of achieving legitimation and prestige for themselves as well as
for their regimes and nations. The military may also have fewer objec-
tions than civilians to state intervention and economic planning, if only
because they may be more sensitive to the link between technological
autonomy and military power. In other situations, however, the military
may be inclined, whether by structural constraints or ideological rea-
sons, to favor short-term projects oriented toward economic efficiency
over long-range, strategically oriented technological projects and may
discount projects for technological autonomy as desirable but un-
realistic.
DOMESTIC COMPUTERS IN BRAZIL AND ARGENTINA
The cases to be studied here have a definite comparative appeal

because Argentina decided to abort its domestic computer project at
approximately the same time that Brazil decided to set up a domestic
mini- and microcomputer industry, which eventually grew and pros-
pered. At that time, Brazilians began to view computers as one product
that they could not continue to import from multinational corporations,
even though their own industry might not be cost-efficient in its initial
stages. In contrast, Argentine decision makers chose to kill the com-
puter project after a prototype had already been designed and assem-
bled by a private domestic company and to rely instead on the efficiency
of market mechanisms.
Brazil's Domestic Computer Industry

Only two years after the establishment of the Brazilian computer
industry, domestic companies were producing systems (hardware and
software), peripherals, terminals, modems, and special terminals. Be-
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271
tween its inception in 1978 and 1982, the dollar sales of the domestic
industry grew from 2 percent of the total to 19 percent. By 1982 domes-
tic companies had produced 67 percent of installed computers and ac-
counted respectively for 67 percent, 91 percent, 13 percent, and 1 per-
cent of the dollar value of installed micro-, mini-, small, and medium
computers. 20 By 1983 one hundred Brazilian computer companies were
employing eighteen thousand people, twelve hundred of them in re-
search and development, and were generating annual sales of 687 mil-
lion dollars. 21 Although the extent of Brazilian dependency on interna-
tional computer technology and companies has been reduced rather
than overcome, a measure of autonomy has been achieved; Brazil has
created domestic manufacturing capacity in computers as well as the
ability to adapt foreign technology and to innovate.
Brazil's domestic computer industry was the ideological, indus-
trial, and political outgrowth of a general science and technology policy
aimed at attaining autonomy by strengthening Brazil's capacity to adapt
and control foreign technology via innovation. Conceived by a group of
economists at Brazil's Banco Nacional de Desenvolvimento Econ6mico
(BNDE) led by Jose Pelucio Ferreira, this policy received partial support
from the military (in power since 1964), who were motivated by an ide-
ology they called seguran(a e desenvolvimento (security and develop-
ment). What made the BNDE diagnosis particularly appealing to the
military was that it fit in with their perceptions and expectations that
Brazil would soon become a world power.
Funds to proceed with technological development were available
due to the "economic miracle."22 But it was not inevitable that these
funds would be channeled toward developing indigenous technology;
this outcome was created by individuals and institutions imbued with
an ideology of pragmatic antidependency. These actors pressed for
funds to set up new research institutions, science and technology
policy structures, and science and technology banks. Existing institu-
tions were· restructured, and the first two plans allocated close to three
billion dollars for scientific and technological development. 23 An agency
to study financing and projects, FINEP (Financiadora de Estudos e Pro-
jetos) was established in 1965 to support national technological devel-
opment and to provide a liaison between the domestic technological
infrastructure and industry. A science and technology fund was placed
under FINEP's jurisdiction, and additional funds were created later
within other institutions. The Conselho Nacional de Desenvolvimento
Cientifico e Tecnol6gico (CNPq) became the heart of the science and
technology program, with funds for research and fellowships being al-
located through its network.
Meanwhile, BNDE planners identified minicomputers as a sector
that might help develop Brazil's technological and industrial capabili-
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272
ties. The Brazilian navy, which was using English Ferranti computers in
its ships, agreed to initiate a joint project with BNDE for planning,
developing, and manufacturing a prototype computer suitable for naval
operations, preferably in association with Ferranti. FINEP, BNDE,
CNPq, and other institutions provided the means to train cadres of
professionals in computer engineering and related subjects. Within five
or six years, these efforts produced a critical mass of computer experts.
In 1975, thanks to BNDE and navy initiatives, the government
established Cobra S.A. to assemble computers under license from Fer-
ranti (the 700 series) and from Sycor, a small American company (the
400 series). At the same time, a holding company called DIGIBRAS was
set up to function as the industrial promotion agency for its national
computer project. These efforts resulted in a national computer, its
hardware developed by the Universidade de Sao Paulo and its software
by the Pontificia Universidade Cat6lica do Rio de Janeiro. Computer
terminals developed by the Servico Federal de Processamento de Dados
and the Universidade Federal do Rio de Janeiro became part of the
computer system, which was later transferred to Cobra.
In April 1972, the Comissao da Coordena<;ao das Atividades de
Processamento Eletronico (CAPRE) was created to manage data pro-
cessing within the federal government, to maintain statistics on the
national market, and to develop a program to encourage local industry.
Aided by a growing balance-of-payments crisis, CAPRE soon assumed
significant political power and began to affect the policies and direction
of the computer-development program. CAPRE saw to it that imports
were curtailed, tight control was established over data processing, pub-
lic consciousness regarding the domestic computer industry was raised,
and plans were drawn up to reserve the minicomputer market for do-
mestic companies.
CAPRE's subordination under the Ministerio do Planejamento
(known as the Secretaria do Planejamento since 1974), under Joao dos
Reis Velloso, was crucial to its ultimate success in developing a domes-
tic computer industry because the ministry became CAPRE's source of
political clout. Velloso, who opposed the internationalist position of the
Ministerio da Fazenda, became a political vehicle for antidependency
ideas and their implementation. Ricardo Saur, CAPRE's executive secre-
tary, was instrumental in the uphill battle to turn CAPRE's perspective
into political action and an industrial reality. Thus CAPRE became more
than an institution with a presidential mandate to regulate the com-
puter sector; it became a sort of "guerrilla headquarters" for the ideo-
logically assertive group that set itself up to sell ideas, raise conscious-
ness, and use political power to achieve its goals.
While CAPRE's first formal steps were to create national pro-
grams for data-processing centers and computer training, thus identify-
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273
ing the strengths and liabilities of the scientific and technological infra-
structure,24 the pragmatic antidependency guerrillas began their intel-
lectual and political "attacks" by formulating a doctrine that only 100
percent national companies would be allowed and each item of foreign
technology could be purchased only once. They infused the scientific
and technological community and the political system with optimism-
with the idea that "it can be done"-by acting as teachers at universities
and technocrats in government agencies, emphasizing Brazil's few but
significant technological successes in order to generate a positive feed-
back effect.
What made CAPRE so powerful was its ability to set guidelines
and policies at its own level, without undue high-level interference,
thereby presenting the higher echelons with new choices. At the time,
Velloso and other high-ranking policymakers were not thinking of a
totally domestic computer industry but a joint venture with foreign
companies. The government wanted to exploit the technology of multi-
national corporations, but the corporations were not interested in such
ventures. 25
By mid-1976, International Business Machines (IBM) sensed the
growing trend toward protectionism and the development of domestic
minicomputers. IBM announced the manufacture in Brazil of a mini-
computer (System 32) and even managed to sell several hundred of
them. But CAPRE's reply was swift. In July 1976, it reserved the micro-
and minicomputer sector of the market for Brazilian firms, while leav-
ing the sector manufacturing larger machines to foreign companies, as
in the past.
In the mean time, CAPRE's executive secretariat laid ou t a
strategy with two lines of "containment." The first line was to choose
only 100 percent Brazilian companies to produce domestic computers;
the second was to allow multinational corporations to operate in Brazil
only in partnership with domestic firms. It should be emphasized that
this decision was not made by the CAPRE council and that those high
up in the government knew nothing about it-the decision was strictly
a guerrilla strategy.
Velloso in the Secretaria do Planejamento carne under a great
deal of pressure from opponents and supporters of the reserved market
plan. While IBM and other multinational corporations were putting
pressure on the highest political echelons, the media put CAPRE's case
on the front pages, playing up the refusal of multinational corporations
to enter into joint ventures with Brazilian nationals and IBM's "trick"
with System 32. Once the matter went public, it became more difficult
for the government to do anything that might suggest that it was yield-
ing to pressures from the multinational corporations. CAPRE was also
aided by pressure from powerful private banking consortiums that had
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274
already invested money in Cobra in hopes of producing domestic bank-

ing computer systems as well as from key military personnel.
In the end, the CAPRE council and the ministers directly and
indirectly involved in the data-processing sector decided to call for bids
from domestic and foreign firms to produce minicomputers. It was un-
derstood that the final decision would be based on conditions specified
by the Conselho de Desenvolvimento Econ6mico and that nationals
would be preferred only if their bids were at least as good as those of
the multinational corporations. CAPRE delivered its blow to the multi-
nationals at the end of 1977: it chose four companies--the government's
Cobra and three domestic consortiums that were either brand new or
still in the process of being created.
The success of CAPRE and the guerrillas in giving birth to a
national computer industry should be understood in the light of
changes in international computer technology and markets, however. 26
Although the guerrillas envisioned only an industry of Brazilian mini-
computers with licensed technology, they were aided by the emergence
of the microprocessor and microcomputer and by the development of
the international computer industry away from high concentration and
oligopoly. By including microcomputers in its policy, Brazil entered into
a segment of the industry that had become highly competitive. 27
In 1979 CAPRE was replaced by the Secretaria Especial de Infor-
matica (SEI), which was to be linked to the Conselho de Seguran<;a
Nacional and report to the president. Heavily influenced by the intelli-
gence community, the administration of Joao Figueiredo decided that
CAPRE had too much independent political clout and that the com-
puter industry should be controlled instead by the military and insu-
lated from domestic pressures, unhappy consumers, economic interests
linked to the multinational corporations, the corporations themselves,
and the governments that lent political support to the international
companies. Having perceived the strategic implications of computer
technology and the political "weakness" of such civilian institutions as
the Secretaria do Planejamento in confronting the multinational corpo-
rations, the military were only too happy to take over.
From the beginning, the SEI had to confront pressures from the
computer associations, the guerrillas, and defenders of the market re-
serve, who wanted the domestic computer industry to be maintained
and strengthened, as well as from some consumer groups and political
actors who wanted the market reserve eliminated and the SEI scrapped.
Between 1980 and 1984, the SEI calmed the fears of the former set of
interests and enraged the latter by solidly supporting the infant domes-
tic industry.
With the help of technocratic insulation and normative acts, the
SEI deepened and widened the market reserve to include peripherals
67
275
and software. It set guidelines for data-processing imports, stipulated

that governmental institutions must use domestic computers, and or-
dered all data-processing equipment to be registered. It also decided
that approval of ventures for manufacturing computers would be linked
to the market reserve in the micro- and minicomputer sectors and that
domestic technology would be used in the larger-computer sector as
well. The SEI later set up controls for approving all data-processing
research and development, established a software registry and a micro-
electronics research center, and introduced a policy to promote the do-
mestic production of the thirty-two-bit computers called "superminis."
At the same time, the SEI approved applications by IBM and Burroughs
to manufacture medium-sized computers in Brazil, although this ap-
proval contained some restrictions.
In October 1984, the SEI, supported by defenders of the domestic
industry and market reserve, won an important victory: the Brazilian
Congress passed a law maintaining the market reserve and import con-
trols and setting up a presidential council to make computer policy. In
1986 this policy and law was reconfirmed by Congress. In the view of
state officials, policymakers, industrial firms, and the general public,
the Brazilian computer industry and the laws protecting it had become
a "national project" embodying Brazil's long-range strategic interest
and a vision of its destiny as a developed and powerful nation.
Argentina's Aborted Venture into Computers in the Mid-1970s
[Argentina] has undergone one of the earliest processes of industrialization in

Latin America and this is clearly reflected in its diversified industrial and ser-
vice infrastructure. At the same time, it has had a traditionally high level of
education of the general population as well as of technical and scientific exper-
tise. These general conditions have been accompanied by a comparatively large
home market, mainly urban, a~d an industrialization policy which encouraged
the development of industries behind protective barriers. The combined effects
of these factors explain why the initial conditions for the development of the
electronics industry were favorable and [why Argentina's electronics industry at
one time] ranked as the unchallenged number one in Latin America. 28
But conditions favorable to Argentina's developing a domestic
electronics project were of no avail when an Argentine firm decided to
produce a locally developed computer. This event happened at a time
of great political and economic turmoil, when many projects were af-
fected by what Hirschman has called "fracasomania ... , the habit of
interpreting as utter failure experiences that actually contain elements
of both failure and success. The very tendency toward systematic fraca-
somania is, of course, an important ingredient of the subsequent real
fracasos.,,29 Thus the Argentine computer died before it was born, not
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276
for lack of capabilities but for lack of political support from elites that
were ideologically opposed to protection.
FATE S.A., a private Argentine company that had made a for-
tune manufacturing tires, promoted and implemented the idea of a do-
mestic computer. The history of FATE's aborted computer venture goes
back to the early 1960s at the Universidad de Buenos Aires, where local
scientists were doing research on electronics components, digital auto-
mation, and industrial electronics under Humberto Giancaglini and Al-
berto Biloti. These efforts came to a halt in 1966, after Ula noche de los
bastones largos," the Ongania government's purge of Uleftists" from the
universities. Many scientists quit the universities (and the country),
while others went to work for multinational corporations or domestic
electronics companies.
Oscar Varsavsky, a physicist and strong supporter of technologi-
cal autonomy,30 was given a free hand by the owner of FATE, Manuel
Madanes, a nationalist and Peronist supporter, to recruit the best elec-
tronics scientists, create FATE Electronica, and start producing elec-
tronic calculators and printed and integrated circuits. Varsavsky
brought many of the scientists who used to work at the Universidad de
Buenos Aires to FATE, including Roberto Zubieta, who became the
leading ideological and technological force behind development of the
computer. This process was occurring when the Ongania government
had already received its death blow from the "Cordobazo" insurrection
of 1969 and while nationalism was on the rise and a mildly antidepen-
dency science and technology policy was being implemented. Also rele-
vant were the personal and financial ties to FATE of Jose Gelbard, who
was to become economic czar under the second Peronist government in
1973.
Zubieta commanded a group of antidependency-minded scien-
tists within a company whose management was close to the nationalist
left in Argentina. The general idea was to turn FATE into an uisland"
for the production of Argentine technology. Indeed, FATE Electr6nica's
original success was due mainly to its policies based on assimilating
technology, training its own technicians and engineers, providing space
for university researchers, and producing products based on intensive
research and development; FATE's success was also due to governmen-
tal protection. The company did not use foreign licenses and trade-
marks. Instead, it searched aggressively for nonproprietary technologi-
cal information and sent technicians to study abroad. By 1974 the firm
was producing between 15 and 20 percent of its requirements for inte-
grated circuits; a year later, it had captured more than half of Argenti-
na's calculator market, forcing Olivetti (FATE's major competitor) into a
deep crisiS. 31
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277
The next "obvious" step was computers. By 1974 a computer

prototype called Serie 1000 was almost ready. Some of the military, es-
pecially air force personnel and the Instituto de Investigaciones Cien-
tificas y Tecnicas of the armed forces, expressed interest in the develop-
ment of domestic computers, but the military was not in power at that
time. When they did come to power in 1976, their leaders were sold on
a liberal ideology that emphasized the short range, economic efficiency,
and comparative advantage. IBM (the largest computer company in Ar-
gentina) did not pressure the government in opposition to FATE Elec-
tronica's computer venture because it did not feel threatened. Most of
IBM's market was in large machines, whereas FATE was supposedly
building a computer in a smaller range. Moreover, IBM did not believe
that FATE would succeed in developing its computer.
The computer idea and prototype were scrapped between the
end of 1975 and the March 1976 military coup. FATE started the elec-
tronics project on the ideological premise-nurtured by dynamic local
scientists and engineers-that self-reliant development was possible
and that the company could benefit from it. But these "guerrillas" who
found a home within FATE lacked the backing of state institutions and
state technocrats willing or able to playa supporting role, as happened
in Brazil. Furthermore, Argentina lacked a systematic science and tech-
nology policy and governmental awareness of the strategic relevance of
producing domestic computers.
FATE also suffered from the political and economic turmoil of the
last year of Peronist rule, coupled with an embarrassing economic scan-
dal over one FATE subsidiary, ALUAR. FATE owner Manuel Madanes,
sensing the imminent political change, appointed a general manager
whose ideology diverged totally from that of the group who had devel-
oped the computer. The new manager, R. Bargagna, was a strong be-
liever in market forces and an enemy of protection. Unlike his Brazilian
counterparts, he was convinced that technological change would make
a domestic computer venture unviable. Moreover, the nationalist-ori-
ented segment of the military and the government had refused to save
the project with a loan of two and a half million dollars, which made
the manager's decision even "simpler."
While the decision to kill the project was probably made before
the military takeover, the coup sealed its fate, given the antinationalist,
anti-Peronist, and liberal outlook of the military that took power. The
links of FATE Electr6nica executives and scientists with the Peronist
regime also prevented FATE from proceeding with its computer project.
Whereas the case of Argentina's computer was one of a private
initiative that failed to convince the government of its merits, the Brazil-
ian case was one of a public initiative that nourished the private effort.
The contest was not between a weak government and a strong one:
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both governments were strong and interventionist. The difference lay

in perceptions of development and the existence of state institutions
that could manage a project of technological self-reliance. The Brazil-
ians focused all along on reducing dependency while the Argentines
emphasized efficiency and the market. In Brazil the ideological group
that sold the computer idea had access to power and succeeded in con-
verting its ideology into political power. In Argentina the autonomy-
conscious scientists lacked political backing and political structures
within which to mobilize support and political allies. In neither case
was the state an instrument of local capital. In Brazil local capital re-
sponded to the public initiative because the weight of the state sup-
ported it. In Argentina a single local company identified with the na-
tionalist left failed to garner state support not only when a rightist
military regime took over but even when the Peronists were in power.
After the FalklandslMalvinas War, Argentina asked Brazil for assistance
in the computer field, and the integration treaty signed by the two
nations in 1986 features "informatics" as one of the main fields of
cooperation.
NUCLEAR ENERGY DEVELOPMENT IN ARGENTIN A AND BRAZIL
Argentina and Brazil began their attempts to control the nuclear

genie immediately after World War II. Both set up institutions to train
nuclear scientists, founded atomic energy commissions, and pursued
programs based on natural uranium technology. But the similar and
almost parallel paths followed by the two countries in the early stages
of nuclear development diverged in different political and technological
directions, resulting in contrasting outcomes.
Argentina's Nuclear Energy Development

By the end of 1983, Argentina had come close to controlling the
nuclear fuel cycle. With sufficient reserves of uranium concentrate
("yellow-cake") to fuel nine nuclear power stations during their thirty
years of active life, Argentina had produced in a pilot plant its own
uranium dioxide (U0 2), the basic raw material to make the fuel ele-
ments placed in the core of a reactor. This goal was accomplished with
the help of German and some domestically developed technology.32
Argentina produces its own fuel elements and the zircalloy tubes into
which the fuel is inserted and is constructing a plant to produce heavy
water. A pilot heavy-water plant already produces three tons of heavy
water per year. Even though the two working nuclear reactors (Atucha I
and Embalse) and a plant under construction (Atucha II) are heavy-
water reactors, Argentina can also enrich its own uranium and has de-
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veloped domestic reprocessing technology. An Argentine pilot repro-

cessing plant has yielded the first plutonium manufactured in Latin
America. 33 Argentina plans to build two more nuclear reactors by the
end of this century.
Among Argentina's biggest successes has been the training of
nuclear technologists who can perform specialized activities. The met-
allurgy department of the Comisi6n Nacional de Energia At6mica
(CNEA) has played a major role in training and also in developing and
manufacturing all the fuel elements used for research and in solving
hundreds of problems referred to it by the electro-mechanical-metallur-
gical industry.34 The CNEA has developed eight research reactors, one
of which was sold to Peru.
Argentina's domestic nuclear industry is presently helping to
mine uranium, produce yellow-cake and fuel elements, provide sophis-
ticated inputs for the construction of nuclear power plants, and make
nuclear instrumentation and components. About sixty Argentine com-
panies, many linked to the CNEA in capital and management, are engi-
neering and producing nuclear plants, manufacturing generators, pres-
surizers, and reactor cooling systems, and producing capital goods for
the industry. 35
Large uranium supplies, a relatively developed industrial and
scientific infrastructure, and the readiness of foreign companies to sell
reactors and other technologies of the nuclear fuel cycle to developing
countries even without international safeguards generated an environ-
ment favorable to Argentina's success in the nuclear area. 36 The United
States, through its Atoms for Peace program initiated in 1953, provided
know-how, training, and materials, and the Soviet Union also lent as-
sistance. India's nuclear explosion in 1974 showed developing countries
desiring nuclear autonomy that such a goal was not impossible. More-
over, the 1973 oil price hike made nuclear power much more appealing,
thus aiding domestic supporters of the nuclear option.
These factors are nevertheless insllfficient to explain why and
how Argentina was able to come close to achieving its goal of nuclear
autonomy during a period when most political, economic, and techno-
logical institutions were being shattered by fracasomania. To explain
Argentina's success in the nuclear field, it is necessary to focus on the
institution that made it possible and the drive of its scientists and lead-
ers to attain self-sufficiency in nuclear technology and nuclear-energy
industrial development. Through careful policies of purchasing tech-
nology, training personnel, backing research and development (the
CNEA became known in inner circles as the Comisi6n Nacional de
Educacion Atomica), setting up physics labs, establishing the nuclear
engineering profession, and developing nuclear medicine, the CNEA
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generated a critical mass of scientists and a technological infrastructure

that enabled the organization to attain intermediate goals. Each success
in turn generated political support for the project.
The CNEXs policies and choices should be attributed in part to
its leadership (which from the beginning and up to 1983 came from the
Argentine navy), especially to Admirals Oscar Quihillalt and Carlos
Castro Madero, who were politically influential and provided dyna-
mism and continuity. Quihillalt watched eight Argentine presidents rise
and fall during his eighteen years at the head of the CNEA, which has
had only four presidents in the first thirty years of its existence.
But leadership was only one relevant factor. The CNEXs success
cannot be properly understood without taking into account the ide-
ology of autonomous technological and industrial development that
Jorge Sabato brought to the CNEA when he became the head of its
metallurgy department in 1955. After choosing the scientists and engi-
neers, whom he called fa murga (a band of street musicians) to empha-
size the improvisational nature of the enterprise, he defined the de-
partment's objectives: nuclear-technological and industrial autonomy,
development of a science and technology infrastructure, and creation of
collective awareness that domestic technological development is possi-
ble, even in a dependent (and politically and economically troubled)
country-and even before structural economic changes have taken
place. 37 Sabato and his group thus became pragmatic antidependency
guerrillas, affecting and effecting the ideological, political, and techno-
logical processes that eventually helped Argentina develop an autono-
mous nuclear technological capacity.
The idea behind the metallurgy department was that Argentina
should develop all types of metallurgy for the benefit of industry in
general because only such a laboratory would be able to handle all the
problems related to nuclear metallurgy. Sabato and his colleagues asked
the CNEA authorities for a free hand in implementing this project, and
Quihillalt agreed. Developing domestic nuclear energy had become a
high-priority goal because of the Richter fiasco, among other reasons. 38
Therefore, all qualified personnel, both Peronists and anti-Peronists,
were employed at the CNEA, creating a nonpartisan tradition that still
exists.
The decision to use American technology to assemble Argenti-
na's first nuclear research reactor at home proved to be the watershed
in the country's autonomous nuclear development. When Quihillalt
presented this idea to the metallurgy department, Sabato and his group
embraced it enthusiastically, stating that they would be able to build the
fuel elements despite their current lack of equipment and know-how.
This decision created the tradition that Argentine research reactors
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were to be built in Argentina. Process turned out to be more important

than outcome, as CNEA scientists acquired invaluable skills and
learned how to produce technology while building the reactor.
Sensing that CNEA know-how would have to be applicable to
domestic industry in general before the nuclear-energy industry would
have any chance of success, Sabato (with the help of an Argentine in-
dustrialist) convinced CNEA authorities to set up an institution for
technology transfer, the Servicio de Asistencia Tecnica para la Industria
(SATI). Another critical choice was the decision to do the feasibility
study on Atucha I in-house. Sabato said later, "We did not even know
what a feasibility study was, but there was an understanding that we
should do it if the CNEA was to learn how to produce technology."39 As
expected, the study called for the active participation of domestic indus-
try, correctly forecasting that this step would be the starting point for a
nuclear energy industry.
The participation of local industry was one of several key factors
in the decision to buy a reactor from the West German company Sie-
mens. To implement the agreement with Siemens, SATI organized a
committee called the Grupo de Industrias Nacionales (GIN) and em-
powered it to evaluate the agreement and ensure that local industry
would be adequately represented. The GIN also examined the domestic
industry's capacity to contribute to the production of a nuclear plant.
The report recommended that eighty-eight items be produced by do-
mestic industry. In all, Atucha I had a 33 percent rate of domestic par-
ticipation, a figure that rose to 58 percent in the case of Embalse and is
expected to reach 65 percent when Atucha II is completed. 40 Another
important decision on the road to autonomy was the choice of natural
uranium heavy-water reactors over light-water reactors, which work
with enriched uranium, even if the latter were cheaper. While reliance
on heavy water implied a short-term dependence on foreign sources,
the heavy-water reactors seemed likely to overcome the stalemate in
domestic-uranium enrichment in the long run, thus comprising firmer
(albeit slower) steps toward autonomy. When in 1973 the CNEA de-
cided to purchase a Canadian Candu heavy-water reactor for its Em-
balse plant, the argument regarding the type of reactor to buy or pro-
duce was finally settled.
Work toward autonomy in nuclear technology continued, even
when many scientists left the country during the troubled years of the
Peronist government (1973-1976). When the military returned to power,
they killed thousands of Argentines, including scientists. These repres-
sive policies seriously damaged higher education and scientific and
technological development. Although the CNEA did not escape some
effects of this atmosphere, it succeeded in insulating itself from the
turmoil more effectively than other technological institutions. During
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this turbulent period, the CNEA under President Castro Madero took
measures that brought Argentina very close to mastering the entire nu-
clear fuel cycle.
The CNEA and the ideological guerrillas in its midst were aided
by the broad appeal enjoyed by nuclear energy in Argentina. All the
power elites (except the hydroelectric lobby) viewed nuclear electricity
as a boon to achieving major national goals. Turned into a "national
project" that would redeem Argentina's pride, the program appealed to
the nationalist right for strategic a~d prestige considerations as well as
to the nationalist left, which applauded decreased dependency on capi-
talist countries. The program also appealed to the Argentine masses,
who were seeking one success amidst so many fracasos. This broad
consensus allowed the CNEA to insulate itself partially from intragov-
ernmental rivalries, bureaucratic bargaining, and the political and ideo-
logical conflicts between right and left, Peronists and non-Peronists,
and civilians and the military.
The CNE~s centralization of all areas of nuclear technology and
industrial development, nuclear power generation, construction of nu-
clear plants, and training of human resources helped it to become even
more insulated from political and economic turmoil and to pursue its
goals with consistent determination. No less important was the fact that
nuclear policy was being developed by the CNEA, rather than being
imposed on it, and only then was policy "sold" to the highest decision
makers. This political process, which ensured that the CNE~s work
was not too seriously impaired by the changing moods and ideologies
of Argentina's many presidents, was made possible by the CNE~s
reputation and stability and by the fact that the nuclear issue was often
too technical and complicated for the politicians, who preferred or had
no choice but to refer it to the scientists at the CNEA.
By having the CNEA report to the office of the president, Argen-
tine presidents were able to overrule most of the opposition encoun-
tered by the CNEA. 41 Pressure from the hydroelectric lobby was strong
at times, however, as when the CNEA undertook the feasibility study
for its Atucha I plant and when the Secretaria de Estado de Energia (a
stronghold of the hydroelectric lobby) opposed construction of even a
single nuclear power plant. After the secretariat lost this battle, the
Servicios Electricos del Gran Buenos Aires (SEGBA) utility demanded
that SEGBA run Atucha I but also failed to get its wish. At other times,
the CNEA had to give in to some pressures and demands. In 1978, for
example, an energy plan gave priority to hydroelectric power, whose
lobby had succeeded in convincing the political leadership to halve the
number of nuclear reactors planned by the end of the century. 42
The military factor should neither be overlooked nor overstated.
It is well known that Argentina's nuclear potential has made an Argen-
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tine atomic bomb possible, as Castro Madero himself acknowledged,43

and that some military groups would be delighted with such a develop-
ment. Furthermore, Argentina has neither signed the Non-Proliferation
Treaty nor ratified the Tlatelolco Treaty, which established a zone free of
nuclear weapons in Latin America, decisions that indicate Argentina's
intent to retain the option of developing nuclear weapons. Argentina
would certainly not sit idle if Brazil were to produce a nuclear bomb.
Nevertheless, the fact that some military factions wanted an option to
develop nuclear weapons was not enough to ensure that the CNEA
would achieve partial autonomy in nuclear technology. What helped
achieve this objective was the civilian nature of the CNEXs project,
which fostered a sense of solidarity and purpose among scientists and
helped to maintain the CNEXs cohesiveness, as well as guaranteeing
broad support for the project from the general public.
In 1984, as the economic crisis and foreign debt reached unprece-
dented proportions, President Raul Alfonsin gave in to demands that
the budget for developing nuclear power be reduced in line with gen-
eral budget cuts and that the pace of the program be slowed down. A
civilian was appointed to head the CNEA, and the Secretaria de Ener-
gia was given a say in the approval of the CNEXs budget. Argentina
may also soon catch up with the fact that IJrising construction and oper-
ating costs, a slumping world reactor market, and growing concern
about the health and environmental impact of nuclear power plants
have demonstrated that nuclear power is not the shining panacea it was
thought to be in the 1950s and 1960s.,,44 On the other hand, despite
delays, cuts, and an uncertain future, the autonomy project is proceed-
ing with its goals unchanged because it has proved to be too advanced,
the technological, industrial, and strategic achievements too many, and
the payoff in national pride too valuable to be halted.
Brazil's Nuclear Energy Development

Endowed with an advanced industrial infrastructure and a more
sophisticated physics program than were available in Argentina,45 Bra-
zil was in a position to begin developing an independent nuclear pro-
gram by the mid-1950s. But in contrast to the course of events in Argen-
tina, Brazil's nuclear policy was pushed and pulled by various groups of
civilian and military decision makers, research institutes, and state en-
terprises with clashing ideologies. No central institution existed with
the political autonomy or leadership necessary to sell a nuclear inde-
pendence plan to the ruling elites and ensure its implementation. Be-
cause it failed to become insulated from broad political, economic, and
social issues (as were the Brazilian computer and Argentine nuclear
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programs), Brazil's nuclear program became an arena for domestic and

international political pressure.
Furthermore, having decided to link the Brazilian economy to
the international economic system, Brazil's military rulers decided in
1967-68 to attach nuclear institutions to the electricity establishment, to
exclude local scientists from the decision-making process, to kill a do-
mestic program of nuclear development already under way, and to buy
an American light-water reactor. After the U.S. decision to cut Brazil off
from supplies of enriched uranium for reasons of nonproliferation, the
Brazilian government became alarmed by the 1973 oil crisis because of
Brazil's heavy dependence on foreign oil supplies. The Brazilian gov-
ernment, motivated by nationalist visions of grandeza (grandeur), uti-
lized funds made available by the Brazilian economic miracle to sign an
agreement with West Germany for the largest technology package ever
to be transferred from a developed to a developing country.46 The
mammoth nuclear program that ensued was based on erroneous as-
sessments and grossly exaggerated expectations that the program
would achieve with one stroke technological independence, cheap elec-
tricity, and a strategic option-and all for "just" ten billion dollars.
Unable to escape from political and ideological fragmentation,
surprised by the rise in interest rates, and coming to grips with the
reality of the costs of nuclear power and the country's larger-than-ex-
pected hydroelectric reserves, Brazil had no choice but to scrap most of
the still-unimplemented terms of its agreement with West Germany and
to start developing a parallel nuclear program, this time "really" aiming
at technological autonomy (although its critics claim its main goal is a
nuclear-weapons option). Thus, after more than thirty-seven years of
nuclear development, Brazil is still struggling to achieve a significant
measure of self-sufficiency in the nuclear fuel cycle.
A look at Brazil's nuclear fuel cycle shows that the country's ura-
nium reserves have increased greatly since 1975, in addition to already
large reserves of thorium. The agreement with West Germany, which
was to enable the Brazilians to master the technologies for the various
stages of the nuclear fuel cycle, was either unable or slow to deliver
these results. Major bottlenecks existed in the conversion of yellow-
cake to uranium hexafluoride (UF6 ) and in uranium enrichment. By
choosing to buy and build light-water reactors, Brazil became depen-
dent on these technologies, mainly on enriching uranium. Brazilian
leaders took a major gamble in deciding to purchase an enrichment
process (jet-nozzle) that had not yet proven reliable at the industrial
level. The facility for fabricating fuel elements was completed by the
end of 1982 but has been standing almost idle, waiting for the other
stages of the nuclear fuel cycle to catch up. Only in September 1987 was
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it announced that Brazilian scientists had succeeded in enriching ura-

nium with domestic technology.47
Since its inauguration, Brazil's single nuclear power plant, Angra
I, has not worked at full capacity. Purchased from Westinghouse at the
end of the 1960s, the light-water reactor plant suffered many techno-
logical problems and delays, and costs multiplied fivefold. 48 As part of
the agreement with West Germany, Brazil bought two 1245-MW reac-
tors to be located near Angra I, between Rio de Janeiro and Sao Paulo.
By the end of 1981, however, after many delays and price increases,
construction of Angra II was only 10 percent completed and Angra III
had barely been started. 49 As of late 198~ neither is expected to be
ready before 1990. In 1983 President Figueiredo decided to delay indefi-
nitely the construction of two additional plants planned for the Sao
Paulo region. Brazil has several nuclear research reactors, but most
were purchased abroad rather than manufactured at home.
Success has also eluded major efforts so far to reprocess nuclear
fuel domestically. Brazil has purchased reprocessing technology from
West Germany, but the plant will probably not be ready before 1989.
Meanwhile, it has been reported that a Sao Paulo research institute has
built a pilot reprocessing plant that can handle five kilograms of pluto-
nium a year and is ready to operate "cold."so
Between 1950 and 1955, Brazil pursued a political, institutional,
and scientific program aimed at developing nuclear self-sufficiency. Led
by Admiral Alvaro Alberto and supported by nuclear scientists, CNPq
formulated policies to protect uranium reserves, develop and produce
nuclear power, train personnel, and undertake research and develop-
ment. Exports of nuclear minerals (mainly to the United States) were
linked to training and transferring nuclear technology and hardware. 51
To implement this plan, Alberto wanted to purchase centrifuges used in.
uranium enrichment from Germany, but the deal was forestalled by
U.S. intervention. These efforts ceased in 1955, when the Conselho de
Seguran~a Nacional concluded that nuclear autonomy was not worth
infuriating the United States and thereby jeopardizing U.S. support for
Brazil's economic development and industrialization. Those opposed to
the nuclear program came to believe that nuclear autonomy could be
achieved only at the expense of higher economic goals. The idea that
such autonomy was actually linked to economic and industrial develop-
ment found few supporters.
When the Comissao Nacional de Energia Nuclear (CNEN) was
created in 1956, it took over most of the political functions previously
handled by CNPq. But the nuclear research institutes that the CNEN
was supposed to work with in tandem-the Instituto de Pesquisas Ra-
dioativas (later called the Centro de Desenvolvimento de Tecnologia
Nuclear), the Instituto de Engenharia Nuclear, the Instituto Militar de
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286
Engenharia, and the Instituto de Pesquisas Energeticas e Nucleares-

were scattered throughout the country. They were separated by ideo-
logical differences as well. The decision to reject a proposal to create a
national nuclear energy laboratory to centralize nuclear research under
one roof prevented Brazil from taking Argentina's institutional nuclear
path and perpetuated the division of labor and fragmentation in policy
and ideology among institutions.
Moreover, the CNEN did not enjoy the degree of stability and
independence enjoyed by the Argentine CNEA. Although the CNEN
started out as an independent agency attached to the president's office,
it lost autonomy in 1960 when it was transferred to the newly created
Ministerio das Minas e Energia. Between 1962 and 196~ it existed as an
autonomous federal agency until it was again placed under the jurisdic-
tion of the Ministerio das Minas e Energia. 52 Ideas were floated and
plans made to build nuclear power reactors during the 1960s, but none
were implemented. It would be a mistake, however, to conclude that
Brazil's nuclear policy during these years was hampered only by lack of
capabilities or by domestic and international constraints. An indepen-
dent nuclear program might have been initiated without affecting other
sectors adversely because it could have started by training individuals
slowly and progressively.
An important crossroads in nuclear development was reached in
the middle and late 1960s, when a nuclear research group called the
Crupo do Tario designed a reactor prototype and made plans to de-
velop an in-house reactor that would work with the thorium fuel cycle.
The plan called for maximum participation of domestic industry and for
input from local technology.
But in 196~ when the nuclear issue was once again placed on the
political agenda, the Ministerio das Minas e Energia and a state holding
enterprise in the electrical sector, ELETROBRAS, had other ideas. In-
formed by an ideology of energy and economic efficiency and undis-
turbed by the prospect of nuclear-technological dependency, they pre-
sented the key political and military decision makers with a choice: to
pursue the domestic path initiated by the Crupo do T6rio or to start a
nuclear program aimed at producing efficient energy resources as soon
as possible. In 1968, with the CNEN's consent, the leading actors de-
cided to scrap the domestic option, buy the Westinghouse reactor, and
set a goal of producing fifty thousand megawatts of electric power by
the year 2005.
The Brazilian nuclear scientists, most of whom favored au-
tonomy in nuclear technology, resented the choice. With some excep-
tions, they have opposed this nuclear development policy and have
refrained from participating in the government's nuclear program. Al-
though lack of cohesive policy precluded the emergence of pragmatic
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antidependency guerrillas in the 1950s, the policy choice since 1968 has
been an additional factor preventing effective action. The domination
by the Conselho de Seguran~a Nacional of the process of making nu-
clear policy in Brazil had a more deleterious effect here because it re-
sulted in policy being developed through unofficial channels and be-
hind the fa~ade of institutions like the CNEN.
Brazil's chain of failures in the nuclear field cannot be under-
stood fully without looking at the critical choices that canalized subse-
quent developments. According to Hartmut Krugmann:
The decision to purchase the Angra I plant marked a turning point in
Brazilian nuclear policy by introducing the enriched uranium-fueled reactor line
and by opening Brazil to the international market of nuclear technology. It
paved the way for the nuclear deal with West Germany several years later.
Alarmed by unilateral cancellations of long-term enriched uranium fuel export
contracts in 1974 by the United States, which in effect had an enrichment mo-
nopoly, Brazil sought to obtain the technology so as to become self-sufficient in
this field. 53
The chain of events that led to the Brazilian-West German agree-

ment was affected by the 1973 oil crisis, the 1974 Indian nuclear explo-
sion, and the Argentine decision to build its second nuclear power
plant. At this time, Brazil was enjoying an increase in economic re-
sources due to the economic miracle and the belief that electricity de-
mand would continue to rise as in the miracle years (an average of 12
percent per year), which inspired the conviction that Brazil would soon
become a superpower. Policymakers projected Brazil's hydroelectric re-
sources as only 118 million kilowatts and the cost of nuclear power as
only four hundred dollars per installed kilowatt. As a result of these
projections and beliefs, Brazil planned in 1973 to install fifty-eight nu-
clear reactors by the year 2000 and decided to buy the technological
package from the Germans. 54
The institutional actor responsible for open and secret negotia-
tions with the Germans was Itamaraty (the Brazilian foreign ministry).
Having become involved in nuclear affairs when negotiating the Tlate-
lolco and Non-Proliferation treaties and wanting to take a position inde-
pendent of the United States, Itamaraty became responsive to pro-Ger-
man interests within Brazil that were pushing for closer relations
between Brazil and West Germany. Having set up an institutional appa-
ratus to deal with the nuclear issue by the early 1970s, Itamaraty was
prepared to establish NUCLEBRAS when the 1975 agreement was
signed.
Once in charge of implementing the 1975 nuclear agreement,
NUCLEBRAS became the most important nuclear institution in Brazil,
taking over employee training and the production of reactors and tech-
nologies of the nuclear fuel cycle from other institutions. This mandate
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set NUCLEBRAS on a direct collision course with the CNEN, which

until th.en had been the only institution claiming normative responsi-
bility for nuclear development policy in Brazil. Since 1975 a host of
additional organizations have become directly involved in making and
implementing nuclear policy, including ELETROBRAS, Furnas (an ELE-
TROBRAS subsidiary in charge of building and operating power sta-
tions), the Minish~rio das Minas e Energia, the Conselho de Seguranc;a
Nacional, the many nuclear research centers scattered around Brazil,
and the seven companies created by NUCLEBRAS in association with
West Germany. Such a setting was hardly compatible with effective de-
cision making.
Brazil's nuclear scientists, this time in conjunction with domestic
industry, opposed the 1975 nuclear agreement as unrealistic. Using
their books and articles and the annual meetings of the Sociedade
Brasileira para 0 Progreso da Ciencia (SBPC) as their forum, the scien-
tists decried the expectations of Brazilian technocrats who believed that
thousands of megawatts of nuclear-generated electricity and techno-
logical nuclear autonomy could both be achieved with one "quick fix."
The scientists also criticized the choice of light-water reactors, the fact
that technical decisions were being made by foreign engineers, and the
gamble on the unproven jet-nozzle process of uranium enrichment. Fi-
nally, they were appalled by the overall cost of the program.
Brazilian industrialists were up in arms because the joint ven-
tures set up with West German companies would circumvent and even
weaken the local nuclear-energy industry. As an example, they cited
NUCLEP (NUCLEBRAS Fabrica de Equipamentos Pesados), which was
established by NUCLEBRAS in association with European companies
to manufacture heavy nuclear equipment and has never worked at
more than 40 percent of capacity. The industrialists also pointed out
that domestic industry had been undermined before, when Angra I was
built with a nationalization index of only 8 percent. 55 They were even
more disturbed that the 1975 agreement had been signed after a study
commissioned by the Brazilian government concluded that close to 55
percent of the nuclear equipment, materials, and services could be pro-
vided domestically.
By 1981 technology transfer was taking place slowly, plants were
idle, the completion of Angra II was not in sight and Angra III was only
on the drawing board, the jet-nozzle technology had not yet been used
in an industrial plant for uranium enrichment, estimates for completing
the nuclear program as originally planned had jumped to somewhere
between thirty and forty billion dollars, 56 and the country was sinking
deeply into the largest foreign debt in the developing world. At this
point, estimates of Brazil's hydroelectric reserves had been upgraded to
213 million kilowatts, enough to supply electricity at least until the end
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of the century, and the technical problems of transporting electricity

from the Brazilian Northeast to the Southeast had been solved. Only
then did Brazil's political and military leaders decide to return to reality,
pulling the rug from under the Germans and their still undelivered low-
water reactors and from under NUCLEBRAS and its leadership. This
change in direction boosted Brazil's nuclear "parallel program," under-
taken since 1979 by the Instituto de Pesquisas Energeticas e Nucleares
and the Instituto Tecnol6gico da Aeronautica, among other research
institutions, under the strict supervision of the Conselho de Seguran~a
Nacional. Public acknowledgment that this program existed was made
only at the end of 1986, with emphasis on its peaceful objectives. Along
with this independent program, Brazil decided to develop a domestic
nuclear research reactor and domestic reprocessing and enrichment fa-
cilities,57 raising fears that Brazil may be developing its own nuclear-
weapons option.
It is clear that the Brazilian military and even civilian leaders
have had this option in mind since the early 1950s. The competitiveness
between Brazil and Argentina in this area fostered the view that Brazil
had no other choice. On the one hand, the insistence of the Brazilian
military on achieving autonomy in the nuclear fuel cycle, recent mea-
sures taken by the parallel program (such as mastering uranium enrich-
ment technology), press disclosures concerning the Brazilian plan to
build an atomic submarine, and the existence in the Amazonas of an air
force test site for nuclear weapons have all reinforced the sense that
Brazil has not given up its "catch-up-with-Argentina" goals. On the
other hand, although Brazil refused to sign the Non-Proliferation
Treaty, it has accepted international safeguards of all nuclear facilities in
the country covered by international agreements and has ratified the
Tlatelolco Treaty.
Furthermore, competition in the nuclear field between Argentina
and Brazil appears to be giving way to collaboration. The 1980 agree-
ment for exchange of nuclear know-how and materials was followed in
1986 by an economic integration treaty that includes joint nuclear devel-
opment and exports. It remains to be seen, however, whether Brazilian
institutions and elites have at last made up their minds about nuclear
technological autonomy, whether they are taking the right measures to
implement it, and whether they will be able to overcome ideological
and institutional divisions and pursue the program with firm consis-
tency. It also remains to be seen whether nuclear-technological develop-
ment in Argentina and Brazil will serve narrow military and prestige
goals or whether these countries will rise above domestic and interna-
tional pressures to implement the 1986 integration agreement, thereby
leading Latin America to a much safer and probably more prosperous
future.
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290
CONCLUSIONS
The four cases juxtaposed here show that political, institutional,

and cultural variables play important roles in the choices made by de-
veloping countries to pursue technological autonomy projects and in
their subsequent successes and failures. The fact that two of the four
projects achieved some technological development objectives is enough
to prove that the concept of structural dependency is wrong. The fact
that the other projects, even with the aid of structural opportunities,
did not succeed proves that political, institutional, and ideological pro-
cesses interact with structures to bring about the technological and in-
dustrial outcomes.
I have endeavored to demonstrate that although natural re-
sources, political power, and economic and technological capabilities
(not to mention economic crises, foreign debts, and international struc-
tural conditions) have created opportunities and constraints for attain-
ing measures of autonomous technological development in Argentina
and Brazil, success was related to the ideologies of key actors as well as
to their perceptions of their country's ability to set and a ttain techno-
logical goals. Ideologically motivated groups of scientists and techno-
crats-referred to here as guerrillas-were able to realize the opportuni-
ties and overcome some of the constraints because, using their scientific
knowledge as the basis for their authority, they were able to affect the
decision-making processes of their state institutions. Beyond their con-
tribution as knowledge-bearers, they succeeded in mobilizing the col-
lective beliefs and expectations of politicians so as to bring about the
desired outcomes.
These actors were able to use and even create political shelters,
political trust, and political time because of several factors: a mixture of
bureaucratic insulation and institutional centralization; a policy-making
process that encouraged "low-Ievel" policy to reach the top levels of
decision making; active participation by local scientists and industry;
strong military interests; the early development of a scientific and tech-
nological infrastructure; and good timing and a pragmatic approach.
Political shelter refers to the structures and processes of government that
insulate and protect programs from those who oppose them. Political
trust implies a positive attitude of policymakers toward local scientists
and science, which means giving local scientists at least one chance to
produce results (as did the CNEP:s Quihillalt with Sabato and his
murga in Argentina, and the Brazilian ministers did with CAPRE and
its guerrillas). Political time means a period long enough to develop an
irreversible critical mass of scientists and scientific, technological, and
industrial infrastructures before structural constraints or political oppo-
sition to the programs can gain the upper hand and kill them.
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291
Bureaucratic insulation helped the institutions and guerrillas

achieve their goals because it protected the programs from becoming
the prey of clientelism and the victim of ideological and political at-
tacks. Because CAPRE was located within the Secretaria do Planeja-
mento, which has little relation to general economic policy, it was insu-
lated from clientelism and short-term economic pressures and could
thus develop long-range goals. When CAPRE was forced out and the
SEI took over, the Conselho de Seguranc;a Nacional protected the com-
puter project from domestic and international opposition under the veil
of national security. The CNEA, because it reported directly to the
presidency, was insulated from Argentina's chronic political and eco-
nomic turmoil and from the pressures of the hydroelectric lobby. This
outcome contrasts with the fate of the CNEXs Brazilian counterpart,
the CNEN, which was attached for long periods of time to the Minis-
h~rio das Minas e Energia and was unable to free itself from short-term
economic and political pressures.
The fact that decision making often started at the sectoral institu-
tional level (as with CAPRE, the SEI, and the CNEA) and that the
resulting policies were then "sold" to the policymakers through persua-
sion and skillful use of technical expertise proved crucial to the guerril-
las. They could directly affect decision making within their own institu-
tions by attaching their "unprivileged problem" to the coattails of the
decision makers' "privileged problems." In many cases, the guerrillas'
hand remained invisible while its impact on the political process was
substantial.
Another crucial aspect was the fact that CAPRE, the SEI, and the
CNEA sought to give and get mutual support from local private indus-
try. For example, the CNEA transferred technology to local private in-
dustry through SATI and CAPRE, and the SEI offered effective protec-
tion to local private computer companies through a market reserve.
Also, by setting up an industrial champion (Cobra) with public and
private capital, the Brazilian policy-making institutions were able to link
the fate of private capital investment to that of state investment. In this
way, nationalist pressures to defend domestic technological develop-
ment became by extension pressures to help private firms. In the case of
FATE Electr6nica, however, a local private capital initiative failed to gain
the attention and support of state institutions, including the military,
which decided that protecting a local firm was not worth jeopardizing
economic efficiency.
The military played an important role in the technological suc-
cesses, but its part should not be overestimated. Although the Brazilian
navy's early interest in developing a domestic computer was important
and the Conselho de Seguranc;a Nacional kept Brazil's computer indus-
try on its autonomy track after 1979, the autonomy policy was neverthe-
84
292
less consolidated by the present civilian government. Civilians played a

crucial role all along the way in developing the computer industry's
human resources and science and technology infrastructure. It is true
that military governments actively supported the CNE.Ns nuclear devel-
opment with a strategic option in mind, but all the civilian govern-
ments that were interspersed with military regimes between 1950 and
1987 have supported the autonomy goal of the program. Furthermore,
when the Brazilian military came to power in 1964, it did not or could
not prevent the nuclear program from being diverted from its original
path toward autonomy. The Argentine military brought their preference
for efficiency over domestic development when they took power in
1976, subsequently preventing FATE from continuing with its domestic
technological project. Because the military perceived the anti-
dependency scientists within FATE as Peronists and "leftists," rather
than as resources for developing technology in Argentina, they went
beyond not supporting these scientists to placing them on their "hit
list."
An important reason for the guerrillas' existence and successes
was the decision makers' readiness to involve local scientists in the
technological development process. When local scientists were given an
opportunity to produce domestic technology, as in the cases of Argenti-
na's nuclear development and Brazilian computers, they were able to
use their scientific authority to shape the program's autonomy goals.
But when the scientists were shunted aside (as in the Brazilian nuclear
program) or when their work was suddenly stopped (as with FATE
Electr6nica), the scientists' attacks" on their governments were
lI
launched from outside the policy-making structure or process (and

even from outside their countries), which rendered these attacks
ineffectual.
The early emergence of capacities for research and development
and human resources in the Brazilian computer and Argentine nuclear
sectors was crucial for subsequent developments. The political deci-
sions to reserve the mini- and microcomputer markets for local com-
puter companies would probably not have been made without this
technological base. In turn, the CNEA succeeded in maintaining its
nonpartisanship through the years because by the late 1950s, it was
already one of the most successful and prestigious scientific institutions
in Argentina. As a result, a positive feedback process took place in
which each stage in the project's development came to depend on the
attainment of intermediate goals.
The timing of the Brazilian computer technocrats could not have
been better. Before 1977 national and international conditions for devel-
oping a domestic computer industry were not ripe. But if the techno-
crats had waited a few more years, IBM and other multinational corpo-
85
293
rations would have started to fill the mini- and microcomputer market
space, and Brazil probably would not have a domestic computer indus-
try today. In contrast, the timing of FATE's venture into computers
could not have been worse because FATE came out with its prototype at
a time when Argentina was going through one of the most critical eco-
nomic and political periods in its modern history. It should be noted
that the timing variable is at odds with a pure structural explanation
because it depends on perception. What Evans has called "moments of
transition" can be perceived by some actors or can be disregarded or
perceived differently by others. 58 Thus while the Brazilian technocrats
were able to recognize the opportunities being generated by changes in
international computer technology and markets, FATE's manager "saw"
these same developments as an important reason to kill FATE's domes-
tic computer venture.
Finally, pragmatism was a major feature of the successful cases.
Both the CNEA in Argentina and CAPRE and the SEI in Brazil set goals
that were characterized by learning by doing, incrementalism, and a
pragmatic assessment of the possibilities. FATE's computer venture was
not allowed to survive long enough to prove its pragmatism, but Bra-
zil's nuclear program was characterized by hubris. It is clear that Brazil
had the potential to develop an autonomous nuclear capacity gradually,
as Argentina did, but it lacked the scientific and technological infra-
structure to implement the massive program envisioned in the agree-
ment with West Germany. Lack of pragmatism, coupled with incompe-
tence, also characterized Brazil's assessments of its hydroelectric
reserves and the costs of nuclear power.
It is now possible to summarize the role of the state." The cases
II
presented here help lay to rest undifferentiated notions of the state that
explain policy as the "rational act" of a "rational actor." What appeared
rational to the CNEA was seen as totally irrational by the Argentine
hydroelectric lobby, and whatever seemed rational to CAPRE seemed
irrational to the political actors who believed in the efficiency of the
market.
The role played by state institutions and the guerrillas in their
midst demonstrates that states are merely historical entities, repre-
sented at any given time by a certain set of institutions, procedures,
and relationships, whose origins, purposes, interests, and ideologies
may not only differ but be independent. What Bennett and Sharpe have
called "state interests" actually describe the essentially historical, ideo-
logical, and institutional features of the state: "embedded orientations:
dispositions to act in particular ways that are taken on by, and institu-
tionalized in, various state agencies in response to problems or oppor-
tunities that arise.,,59 Those interested in examining state action with
86
294
regard to technological development in large Latin American countries

should pay attention to political, institutional, and cultural factors that,
interacting with domestic and international structures, condition these
countries' "journeys toward progress."
NOTES
1. Joseph M. Grieco, Between Dependency and Autonomy: India's Experience with the Inter-
national Computer Industry (Berkeley and Los Angeles: University of California Press,
1984).
2. Peter B. Evans, "State, Capital, and the Transformation of Dependence: The Brazil-
ian Computer Case," World Development 14, no. 7 (1986):791-808; and Emanuel Ad-
ler, "Ideological 'Guerrillas' and the Quest for Technological Autonomy: Brazil's Do-
mestic Computer Industry," International Organization 40, no. 3 (Summer 1986):673-
705. See also Emanuel Adler, The Power of Ideology: The Quest for Technological Au-
tonomy in Argentina and Brazil (Berkeley and Los Angeles: University of California
Press, 1987).
3. "By the late 1970s," wrote Martin Fransman, "the 'rigid' dependency view showed
signs of becoming what [Imre] Lakatos refers to as a 'degenerating scientific research
program': The 'hard core' of this program, containing amongst others the view that
indigenous technological development was impossible as a result of the unavoidable
reliance of Third World countries on imported technology, seemed increasingly to be
untenable. In large part, the dependency program's degeneracy was attributable to
its inability to explain . . . the apparent economic success of a number of more
industrialized Third World countries." Martin Fransman, "Conceptualizing Technical
Change in the Third World in the 1980s: An Interpretive Survey," Journal of Develop-
ment Studies 21, no. 4 (July 1985):607-8.
4. See Peter Evans, Dependent Development: The Alliance of Multinational, State, and Local
Capital in Brazil (Princeton, N.J.: Princeton University Press, 1979).
5. Albert Hirschman reminds us that a relationship exists between an initial asymme-
try-such as the dependency of the weak and poor on the strong and rich-and
some built-in tendency toward its elimination or reduction. He emphasizes that a
basic economic disparity generates a disparity of attention that may favor the depen-
dent country. See Albert O. Hirschman, "Beyond Asymmetry: Critical Notes on
Myself as a Young Man and Some Other Old Friends," in Special Issue on Depen-
dence and Dependency in the Global System, edited by James Caporaso, Interna-
tional Organization 32, no. 1 (Winter 1978):47.
6. Hirschman has pointed out that policymakers may decide to tackle different kinds of
problems in accordance with their perception of their countries in the context of
international dependency. In Latin America, merely paying attention to the problem
is a problem-solving mechanism. Furthermore, observers tend to link problems in
such a way as to enhance the attention given to the politically and economically
underprivileged. Elaborate theories with a strong ideological content have been
used to forge the causal link between privileged and "stepchild" problems. See
Albert O. Hirschman, Journeys taward Progress: Studies of Economic Policy-Making in
Latin America (New York: Norton, 1973), 229-31. The widely known "Sabato trian-
gle," a regime for the development of domestic technology and industry based on
interrelationships between the state, domestic scientific and technological infrastruc-
ture, and domestic industry, is a striking example of such a theory. See Jorge Sabato
and Natalio Botana, La ciencia y la tecnologia en el desarrollo futuro de America Latina
(Lima: Instituto de Estudios Peruanos, 1970).
7. Technological and industrial projects can and should be evaluated by such criteria as
industrial performance, the reduction of poverty, income inequality and unemploy-
ment, and the enhancement of national security. But this study, in trying to answer
the paradoxical questions raised above, will focus only on the quest for and partial
87
295
attainment of domestic technological and industrial development. The autonomy

concept used here does not mean total self-reliance but the ability of developing
countries to adapt foreign technology and to innovate, so as to substitute domestic
technology and products for foreign ones.
8. Chalmers Johnson, MIT! and the Japanese Miracle: The Grawth of Industrial Policy, 1925-
1975 (Stanford, Calif.: Stanford University Press, 1982), 18.
9. See, for example, David G. Becker, The NeuJ Bourgeoisie and the Limits of Dependency:
Mining, Class, and Pawer in "Revolutionary" Peru (Princeton, N.J.: Princeton University
Press, 1983), 6; Evans, "State, Capital, and the Transformation of Dependence," 905;
and Theda Skocpol, "Bringing the State Back In: Strategies of Analysis in Current
Research" in Bringing the State Back In, edited by Peter B. Evans, Dietrich Ruesche-
meyer, and Theda Skocpol (Cambridge: Cambridge University Press, 1985), 9-14.
10. Skocpol, "Bringing the State Back In," 14.
11. Becker, New Bourgeoisie, 6.
12. Douglas C. Bennett and Kenneth E. Sharpe, Transnational Corporations versus the
State: The Political Economy of the Mexican Auto Industry (Princeton, N.J.: Princeton
University Press, 1985), 250.
13. Stephen Toulmin, Human Understanding: The Collective Use and Evolution of Concepts
(Princeton, N.J.: Princeton University Press, 1972), 350.
14. John S. Odell, U.S. International Monetary Policy: Markets, Pawer, and Ideas as Sources of
Change (Princeton, N.J.: Princeton University Press, 1982), 362-63.
15. Lorand B. Szalay and Rita Mae Kelly, "Political Ideology and Subjective Culture:
Conceptualization and Empirical Assessment," American Political Science RevieuJ 76,
no. 3 (Sept. 1982):585.
16. Gary Gereffi, The Pharmaceutical Industry and Dependency in the Third World (Princeton,
N.J.: Princeton University Press, 1983), 27-28.
17. Skocpol, "Bringing the State Back In," 9-10.
18. This statement was taken in an interview with a prominent official in Lima in May of
1980.
19. On the special relationship between technocrats and military regimes in Latin
America, see Guillermo O'Donnell, Modernization and Bureaucratic Authoritarianism:
Studies in Latin American Politics (Berkeley: Institute of International Studies, Univer-
sity of California, 1973).
20. SEI, Boletim Informativo 3, no. 11 (June-Sept. 1983):10-11.
21. Data News, 15 May 1984, p. 4; and Evans, IIState, Capital, and the Transformation of
Dependence,1I 796.
22. The "economic miracle" refers to the years 1968-1973, when Brazil's gross domestic
product (GDP) grew at an average yearly rate of 10.1 percent. See Adler, "Ideologi-
cal 'Guerrillas,' " 682.
23. See Simon Schwartzman, Formapio da Comunidade Cientifica no Brasil (Sao Paulo:
Editora Nacional, 1979), 302.
24. Ricardo A. C. Saur, mimeo issued by the Camara dos Deputados in Brasilia, 1977, on
the hearings before the Camara, p. 16.
25. Ibid., 4.
26. Evans has termed the opportunities generated by international, technological, and
market changes moments of transition. See "State, Capital, and the Transformation of
Dependence," 803-4. See also Adler, "Ideological 'Guerrillas,' " 682-86.
27. Evans, "State, Capital, and the Transformation of Dependence," 799.
28. Juan F. Rada, The Impact of Microelectronics and Information Technology: Case Studies in
Latin America (Paris: UNESCO, 1982), 5'7, 70. In 1975 Argentina's electronics industry
employed over twenty-one thousand persons, incorporated about 50 percent of
value added (1974), compared with 29 percent for the Republic of Korea; and its
productivity output per worker was valued at $12,400, compared with $2,450 in the
Republic of Korea. The industry's development has been geared essentially to the
internal market and has shown a high degree of integration among the different
subsectors. Furthermore, its development was based to a great extent on local tech-
nology. In 1974 only 17 percent of the firms had entered into technology import
contracts, and only 37 percent of the sector's total output was based on foreign
88
296
technology. During the same year, foreign firms controlled 30 percent of total out-
put. See Rada, Impact of Microelectronics, 58-59.
29. Albert O. Hirschman, Essays in Trespassing: Economics to Politics and Beyond (Cam-
bridge: Cambridge University Press, 1981), 140. Fracasomania also means to "shut
oneself off from newly emerging cues and insights as well as from the increased
confidence in one's capabilities which should otherwise arise." See Hirschman, Jour-
ney tauxlrd Progress, 245.
30. Oscar Varsavsky, Estilos tecnol6gicos (Buenos Aires: Ediciones Periferia, 1974); and
Marco historico constructivo (Buenos Aires: Centro Editor de America Latina, 1975).
31. These data come from Eugenio Lahera Parada, "FATE y CIFRA: un estudio de caso
en difusion y desarrollo de tecnologia digital en Argentina," 1976 manuscript, 5-6,
16,21.
32. CNEA, transcript of Rear Admiral Carlos Castro Madero's press conference, 1982,
"Energia atomica: el uranio de los privados," Mercado, 11 Nov. 1982, 43-44.
33. Daniel Poneman, Nuclear Pawer in the Developing World (London: George Allen and
Unwin, 1982), 74.
34. Jorge Sabato, "Atomic Energy in Argentina: A Case History," World Development 1,
no. 8 (Aug. 1973):26.
35. See H. Leibovich, J. Coli, and K. Backhaus, "Good Experience of Transferring Tech-
nology," in CNEA, The Argentine Nuclear Development Plan (selected reprints from
Nuclear Engineering International, Sept. 1982), Nov. 1982, p. 6; and Jose Mirabelli,
"Argentina: Steady Progress amid National Turbulence," International Herald Tribune,
30-31 Oct. 1982, p. 9-S.
36. Countries that have signed the 1968 Non-Proliferation Treaty must fulfill interna-
tional norms and rules regarding the transfer of nuclear technology. The Interna-
tional Atomic Energy Agency supervises the application of international safeguards.
37. Jorge Sabato, "Atomic Energy in Argentina," 25; see also his "Energia nuclear en
Argentina, autonomia tecnol6gica y desarrollo industrial," paper presented at the
Seminar on Industrial Energy Management, UNIDO, Sao Paulo, 18-21 Oct. 1982, 4.
38. Ronald Richter, an Austrian refugee physicist, turned Argentina's nuclear program
into a world affair. He was named by President Juan Domingo Peron in 1949 to
establish a laboratory on Huemul Island in Lake Nahuel Huapi for research and
development on nuclear power. At a press conference in March 1951, Peron told the
world that the laboratory had successfully carried out nuclear fusion. The whole
affair turned out to be a fiasco, and an investigating committee appointed by Peron
described it as a fraud. In 1952 Richter was dismissed and the laboratory was dis-
mantled.
39. Personal interview with Jorge Sabato in Buenos Aires, 30 May 1980. At that time,
Sabato was retired from the CNEA and the Bariloche Foundation.
40. Sabato, UEnergia nuclear en Argentina," 3, 5.
41. Poneman, Nuclear Pawer in the Developing World, 191.
42. Poneman reports that even when the number of planned nuclear plants was being
cut, some CNEA top personnel were happy because they feared that too many
reactors built too quickly might have jeopardized the entire nuclear effort. Ibid., 184.
43. Ibid., 132.
44. Douglas L. Tweedale, "Argentina," in Nuclear Pawer in Developing Countries, edited by
James Everett Katz and Onkar S. Marwah (Lexington, Mass.: Lexington Books,
1982), 92-93.
45. See, for example, Ricardo Guedes Ferreira Pinto, "Liliputianos e Lapucianos: as Ca-
minhos da Fisica no Brasil (1810 a 1949)," M.A. thesis, Instituto Universitario de Pes-
quisas do Rio de Janeiro, 1978; and James W. Rowe, "Science and Politics in Brazil:
Background of the 1967 Debate on Nuclear Energy Policy," in The Social Reality of
Scientific Myth, edited by Kalman H. Silvert (New York: American Universities Field
Staff, 1969), 115.
46. The Brazilian-West German agreement included four 1245-MW pressurized water
reactors, with an option for another four by 1990; the development of facilities for
uranium enrichment; a uranium prospecting venture; the construction of a plant to
produce fuel elements and a pilot plant for reprocessing nuclear fuel; the establish-
89
297
ment of an engineering firm to handle key segments in constructing the plants; and
a plant to manufacture large components. The program was estimated at ten billion
dollars and was expected to produce ten thousand megawatts of electricity by 1990.
To implement the agreement, Brazil set up a governmental company called NUCLE-
BRAS, which cooperated with the West German companies to create joint ventures.
For more information on the Brazil-West German agreement, see Republica
Federativa do Brasil, A Questao Nuclear: Relat6rio da Comissao Parlamentar de Inquerito
do Senado Federal, Resolu,ao 69178, Diario do Congresso Nacional, sec. 2, supplement
to no. 104, Brasilia, 17 Aug. 1982 (hereafter cited as 1982 Senate Nuclear Inquiry Re-
port).
47. See Alan Riding, "Brazil's Leader Reports Success in the Enriching of Uranium," The
New York Times, 6 Sept. 198~ p. 25.
48. Veja, 19 Jan. 1983, 74.
49. Poneman, Nuclear Pawer in the Developing World, 45.
50. "The Nuclear Plan Mushrooms," Latin American Weekly Report, 31 July 1981, 9.
51. 1982 Senate Nuclear Inquiry Report, p. 92. See also Jacqueline Pitanaguy Romani,
"Apoio Institucional a Ciencia e Tecnologia no Brasil" (preliminary draft),
CET/SUP/CNPq, April 1977; and Maria Cristina Leal, "Caminhos e Descaminhos do
Brasil Nuclear, 1945-1958," M.A. thesis, Instituto Universitario de Pesquisas do Rio
de Janeiro, 1982.
52. For more information on the CNEN's first ten years, see Rowe, "Science and Politics
in Brazil," 110-22.
53. Hartmut Krugmann, "The German-Brazilian Nuclear Deal," Bulletin of the Atomic
Scientists 37, no. 2 (Feb. 1981):35.
54. Luiz Pinguelli Rosa, A Polftica Nuclear e 0 Caminho das Armas Atamicas (Rio de Janeiro:
Zahar, 1985), 41.
55. 1982 Senate Nuclear Inquiry Report, p. 259.
56. "A Aventura Nuclear," a Estado de Sao Paulo, 18 Oct. 1983, p. 4. The price per in-
stalled kilowatt of nuclear-generated electricity was estimated at three thousand dol-
lars, according to Pinguelli Rosa, A Polftica Nuclear, 41.
57. "Brazilian Nuclear Power: Do-It-Yourself Reprocessing," The Economist, 24 Jan. 198~
80.
58. See note 26.
59. Bennett and Sharpe, Transnational Corporations versus the State, 250.
90
298
THE DEBT CRISIS·
Structural Explanations of Country Performance
Andrew BERG
Massachusetts Institute of Technology, Cambridge, M A 02139, USA
Jeffrey SACHS
Harvard University, Cambridge, MA 02138, USA
This paper develops a cross-country statistical model of debt rescheduling, and the secondary
market valuation of LDC debt, which links these variables to key structural characteristics of
developing countries, such as the trade regime, the degree of income inequality, and the share of
agriculture in GNP. Our most striking finding is that higher income inequality is a significant
predictor of a higher probability of debt rescheduling in a cross-section of middle-income
countries. We attribute this correlation to various difficulties of political management in
economies with extreme inequality. We also find that outward-orientation of the trade regime is
a significant predictor of a reduced probability of debt rescheduling.
1. Introduction
The debt crisis can be studied as a problem in epidemiology. A powerful
virus, high world interest rates, hit the population of capital-importing
developing countries in the early 1980s. Some countries succumbed to the
virus, having to reschedule their debts on an emergency basis, while others
did not. And of those countries that arrived for emergency treatment, some
recovered sufficiently to enter a period of quiet convalescence, while others
are still suffering from febrile seizures in the IMF's intensive care unit.
The epidemiologist studies the progression of a disease in order to
understand the disease better, and to recommend improved forms of
treatment. For the same reason, it is important to understand why some
countries fell prey to the debt crisis while others did not, and why some
countries have recovered from the crisis while other countries remain deeply
enmeshed in it. The goal of our paper is to find answers to these questions,
and then to draw inferences about the fundamental nature of the debt crisis
itself. Was the crisis mainly the result of external shocks, internal policy
mistakes, the organization of political power within the debtor countries, or
·We are grateful to the participants in the First InterAmerican Seminar on Economics, and in
particular to Albert Fishlow and our discussants Marcelo Selowsky and Ernesto Zedillo.
Andrew Berg acknowledges financial support from an NSF Graduate Fellowship. The research
supported here is part of the NBER's research program in International Studies. Any opinions
expressed are those of the authors and not those of the National Burea of Economic Research.
0304--3878/88/$3.50 © 1988, Elsevier Science Publishers B.V. (North-Holland)
299
272 A. Berg and J. Sachs, The debt crisis
other structural features of those economies that succumbed to crisis?

Several earlier studies [e.g. Cline (1984), McFadden et al. (1985)] have
tried to identify the proximate causes of the debt crisis by estimating a
probability model of rescheduling for a cross-section of debtor countries.
Typically, such studies try to explain the crisis by looking mainly at the
cross-country variation of a set of financial variables, such as the ratio of
debt service to exports, the ratio of foreign exchange reserves to imports, and
so forth. These studies are problematical, however, since many of the
supposedly 'causal' variables (e.g. low foreign exchange reserves) are really
symptoms of the crisis rather than fundamental causes, and, moreover, we
learn little about the kinds of policies or structural conditions within an
economy that lead to the adverse changes in the financial variables.
Our study seeks to identify causes of the debt crisis that are more
fundamental than the values of financial variables on the eve of rescheduling.
Several earlier studies provide us with the foundation for such an analysis.
Balassa (1982), Sachs (1985), and many others, for example, have shown that
the foreign trade regime in each country is an extremely important determi-
nant of which countries succumbed to the debt crisis, and which ones did
not. The accumulated evidence is clear that outward-oriented trade policies,
such as those pursued in East Asia, have been successful in raising the share
of exports in national production, spurring overall growth, and providing the
foreign exchange earnings to service foreign debts without reschedulings in
the 1980s.
Other studies such as those in the NBER Study on Foreign Debt [edited
by Sachs (1988)] stress the political prerequisites for avoiding a debt crisis,
and for recovering from such a crisis after it begins. It appears that in many
developing countries, the reliance of a government on heavy foreign borrow-
ing of the 1970s was determined by the political needs of the incumbent
government, rather than by calculations of intertemporal economic efficiency.
Foreign borrowing was, in many cases, a way for governments to satisfy
intense social demands for higher government spending without having to
suffer (in the short-term) the political consequences of higher tax collections
or the inflationary consequences of money-financed deficits. 1
1Note that while the social pressures leading to overborrowing were probably around for
many years before the debt crisis, the manifestation of those pressures in the form of heavy
foreign debt had to await the dramatic rise in the willingness of commercial banks to engage in
cross-border sovereign lending in the 1970s. The sudden rise in international commercial bank
lending no doubt reflected other structural changes in the world economy, such as: expansionary
U.S. monetary policies in the early 1970s, the breakdown of the fixed exchange rate system and
the sharp rise in global liquidity attendant upon the collapse of the system, the OPEC oil price
increases in 1973-1974 and the consequent growth of 'petrodollar recycling', the dimming of
bankers' memories of the defaults on sovereign loans in the Great Depression. Moreover,
without the sharp and remarkable rise in world interest rates in the early 1980s, the heavy
lending to the developing world could well have continued without overt crisis for many more
years.
300
A. Berg and J. Sachs, The debt crisis 273
In our view, the political pressures for excessive foreign borrowing tend to
be more acute in economies with extreme inequalities of income. In such
economies, the pressures for redistributive policies tend to be greatest, while
the ability of the wealthy to resist the pressures for income redistribution
also tend to be strong given their significant command over economic and
political resources in the country. Competing interest groups tend to see very
little commonality of interests given the wide disparities in income, and the
economic policies that result from this distributional tug-of-war may tend to
be short-sighted and to oscillate widely over time. In many Latin American
countries, for example, urban workers support populist regimes, while
landowners and other economic elites often support highly repressive govern-
ments that promise to suppress worker demands. Policies vary significantly
as these groups alternate in political power.
Another key dimension of the political system is the extent to which
agricultural versus urban interests influence the political decisions over
economic policymaking. Huntington (1968) and other political scientists have
stressed that in the case of developing countries, urban politics tends to be a
cauldron of instability and populist policies. Governments are most secure
which find a significant base of support in the agricultural sector, which
tends to favor more conservative and stable policies. In Huntington's (1968)
words:
'In modernizing countries the city is not only the locus of instability; it
is also the center of opposition to the government. If a government is to
enjoy a modicum of stability, it requires substantial rural backing. If no
government can win the support of the countryside, there is no
possibility of stability' (p. 435).
'In some instances, urban revolts may overturn rural-based governments,
but in general governments which are strong in the countryside are able
to withstand, if not to reduce or eliminate, the continuing opposition
they confront in the cities' (p. 437).
These considerations lead us to expect that the structural importance of

agriculture in the economy, which we measure roughly as the share of
agriculture in GNP, will help to predict the extent of political stability, and
by extension, the proneness of countries to an external debt crisis.
Several other variables have been mentioned by observers of the debt crisis
as possible structural factors which may raise or lower the probability of
debt crisis in a particular country. Possible explanatory variables include:
movements in the terms of trade; the structure of foreign trade (e.g., the share
of manufacturing goods versus primary products in total exports, and the
extent of the commodity diversification of exports); the level of per capita
301
income in the country; and the geographical location of the country,

especially if there are regional 'contagion effects' in commercial bank lending.
The size of the debt burden (e.g., the debt-export ratio) at the time of the
rise in real interest rates in the early 1980s helps to explain the effect of the
debt crisis in the various countries. We expect that our structural variables
should help to explain the debt-exporter ratios of the individual countries
(e.g., more unequal countries will have a higher expected debt-export ratio).
We also expect independent effects of our structural variables, after control-
ling for the debt-export ratio, since the structural variables should help to
account for how much of any given amount of debt was acquired on
grounds of intertemporal optimality, and also how effectively the country
was able to respond to the rise in world interest rates.
Our strategy in this paper is to develop a basic statistical model of debt
rescheduling that links reschedulings to key structural characteristics of
developing countries: trade regime, income inequality, share of agriculture in
production, etc. In section 2, we introduce the basic statistical models and
the key explanatory variables. In section 3 we present the empirical estimates
of the basic models. In section 4 we explore the robustness of the statistical
results by considering additional candidate variables in the key regression
equations. In section 5, we discuss the implications of our findings for the
understanding of the debt crisis, for the choice of policies in the debtor
countries, and for future research on the political economy of stabilization in
the developing countries.
2. Structural factors in debt reschedulings: A probability model

Several earlier studies, including Callier (1985), Cline (1984), Feder and
Just (1977), and McFadden et al. (1985), have developed probability models
of debt reschedulings. From these studies we learn that debt reschedulings
tend to occur when governments have heavy external debts and a shortage of
foreign exchange reserves. The equations usually tell us little about the kinds
of countries that are likely to arrive at that unpleasant condition. The study
by Callier (1985) is a partial exception to this statement, since in addition to
the usual financial indicators he consideres some 'structural' variables in the
debtor countries, including population, investment rates, and openness to
trade.
Consider Cline's (1984) influential study of debt reschedulings. Cline
estimates a logit model on a time-series, cross-section of developing countries
during 1972-1983. In terms of country-specific variables, Cline demonstrates
that the probability of debt rescheduling in year t is' a function of the
following variables in year t - 1 (with the sign indicated in parentheses): the
country's current account deficit (+), the debt service-export ratio (+), the
ratio of foreign reserves to imports ( -), and the ratio of net debt to exports
302
( +). Other structural variables that Cline includes in his model, such as the
economy's growth rate, per capita income level, and savings rate, turn out to
have little explanatory power.
Our approach differs from Cline's treatment by attempting, like Callier, to
relate debt reschedulings to deeper structural characteristics of the econo-
mies, characteristics which change slowly over the course of a decade and
thus can be considered as temporarily prior to the financial distress itself. In
general, where the data are available we measure these structural characteris-
tics during the 1970s (e.g., as an average for 1970--1980), to emphasize that
we are looking at country characteristics that preceded the debt crisis itself.
We develop two basic probability models, the first for the onset of the debt
crisis, and the second for the difficulties of the various countries in
overcoming the crisis. The first model is a standard cross-section probit
model of rescheduling, of the form
Prob (R i = 1) = l/J(Zif3), ( 1)
where R i is a variable equal to 1 if country i rescheduled its debt during

1982-1987, and equal to 0 if there was no rescheduling. The vector Zi
includes the economic and political variables in the model. l/J is the
cumulative standard normal distribution.
The second model is a tobit model, based on the secondary market value
of the country's debt as of July 1987. The idea is as follows. The secondary
market value of a country's debt can be used as a cardinal measure of the
country's creditworthiness. Countries which have escaped the debt crisis will
have debt that sells at par or very close to par in the secondary market.
Countries enmeshed in the crisis will have debt that sells at a discount
relative to par, with the size of the discount providing a good indicator of
the political and economic incapacity of the country to service its debt.
A tobit model allows us to test for the factors that determine the size of
the discount on the debt, taking into account the fact that for a range of
creditworthiness the discount will be zero. The tobit model is specified as
follows:
Di=Zi+Gi if Di>O,
=0 otherwise, (2)
where D i is the discount on the debt and Zi is, as before, the vector of
explanatory variables in the model.
Throughout this study, our attention is focussed on commercial borrowers
and commercial bank reschedulings, as defined by the World Bank. The
World Bank and International Monetary Fund define commercial borrowers
as those developing countries for which at least one-third of foreign
303
borrowing is from private sector creditors. Thus, we restrict our attention to

the subset of developing countries with access to commercial bank lending
during the 1970s, and do not analyze the conditions leading to reschedulings
of official debt in the Paris Club. While our sample includes a few low-
income countries that did have access to commercial loans (e.g., India, Sri
Lanka, and China) most of the focus is on middle-income developing
countries with per capita ihcomes above $600 per capita. Even with the
restriction to commercial borrowers, the range of countries is enormous, with
per capita GNP in 1981 ranging from $260 in India to $5,670 in Trinidad
and Tobago.
Our sample is further restricted to countries with a population in excess of
1 million in 1980, and to countries for which the key income distributional
data are available. The resulting list of countries with their rescheduling
histories is shown in table 1. Note that there are 35 countries in the sample,
of which 15 have rescheduled with commercial creditors. In Latin America
and the Caribbean, ten of twelve countries are reschedulers, with Colombia
and Trinidad and Tobago the only two non-reschedulers. 2 In East Asia,
only one of nine countries, the Philippines, is a commercial rescheduler. In
sub-Saharan Africa, one of three countries rescheduled (Ivory Coast), while
two did not (Kenya and Mauritius). In Europe and North Africa, two out of
four countries rescheduled (Morocco and Yugoslavia).
We must stress the severe but inevitable problem of working with a very
small sample. Not only are we restricted to a subset of commercial
borrowers, but our hypothesis testing is limited by the fact that the number
of non-Latin American reschedulers is only five. Note that all of the
significance tests reported for the probits and tobits are justified asymptoti-
cally. Moreover, it should be recognized that our explanatory variables are
no doubt measured with error (especially the distribution of household
income, and the index of outward orientation).
We now turn to our principal explanatory variables.
A. Trade regime
There is now a considerable amount of evidence that outward orientation
of trade policy enhances the growth prospects of developing countries, as
well as their capacity to adjust to external shocks. Several classic studies
have addressed the relative merits of outward orientation versus inward,
import-substitution policies, as a strategy of long-term development. Vir-
2Colombia has not rescheduled its principal, but it has lost a measure of access to new
lending on normal market terms. In 1985, it negotiated a 'concerted' loan of $1 billion from the
commercial bank creditors, while remaining current on debt servicing obligations. As noted later
in the test, we may interpret Colombia as having had a 'mini-debt crisis'. Interestingly, in our
probit model, it turns out that Colombia is almost always estimated to be just on the borderline
between rescheduling and non-rescheduling.
304
Table I
Rescheduling history of commercial borrowers.
Name Rescheduling history· Discount b
Latin America
Argentina 1983, 1985, 1987 53
Brazil 1983, 1984, 1986 45
Chile 1983, 1984, 1985, 1987 33
Colombia None 19
Costa Rica 1983, 1985 67
Ecuador 1883, 1985 55
Mexico 1983, 1984, 1985, 1987 47
Panama 1983, 1985, 1987 36
Peru 1983 89
Trinidad & Tobago None o
Uruguay 1983, 1986 32
Venezuela 1986, 1987 33
East Asia
China None o
Hong Kong None o
Indonesia None o
Korea None o
Malaysia None o
Philippines 1986, 1987 33
Singapore None o
Taiwan None o
Thailand None o
Other
Egypt None 0
Hungary None 0
India None 0
Israel None 0
Ivory Coast 1985, 1986 40
Kenya None 0
Mauritius None 0
Morocco 1986, 1987 35
Portugal None 0
Spain None 0
Sri Lanka None 0
Tunisia None 0
Turkey None 0
Yugoslavia 1983, 1984, 1985 30
aRescheduling history: Dates of rescheduling agreements with
commercial borrowers, 1982 though 1987. Source: World Bank
(1987b, 1986).
bDiscount (DISC): 100 -the bid price for a $100 claim of debt
to financial institutions on the secondary market as of July 1987.
Note that source does not report a discount for the non-
reschedulers (except Colombia). We assign a zero discount for
such countries. Source: Salomon Brothers, in: Huizinga and Sachs
(1987).
305
tually all such studies reach the conclusion that outward orientation has
produced superior results in the intermediate term [see for example, Little,
Scitovsky and Scott (1970), the Bhagwati-Krueger NBER Study (see Krueger
(1978) for a summary of the conclusions), and Balassa (1982)]. More recently,
several authors have stressed that outward orientation has led not only to
better growth performance but also an enhanced ability to adjust to external
shocks, including the debt crisis of the 1980s. Balassa (1984) and Sachs (1985)
give evidence in support of such a conclusion.
It should be stressed that outward orientation refers to the relative
incentives given to the production of exportables versus importables (with a
zero bias or a pro-export bias both considered to be outward oriented), and
not to the extent to which the trade regime is laissez faire. As argued by
many authors, e.g., Bradford (1987), Lin (1985), Sachs (1987), several of the
most outward-oriented economies (such as Korea and Taiwan) have highly
dirigiste governments, with highly regulated trade. The difference of these
countries from the inward-oriented policies elsewhere is that the dirigisme is
directed towards export promotion rather than import substitution.
There are several linkages between trade orientation and the probability of
debt rescheduling. Most directly, outward-oriented economies have typically
maintained a lower ratio of debt service to exports, because of the rapid rise
of export earnings. Moreover, outward-oriented economies have tended to
maintain exchange rates at levels necessary to maintain export profitability,
given that exporters represent a major interest group with strong influence
on exchange rate policies. These countries therefore have avoided the
political commitments to overvalued exchange rates that characterized many
Latin American economies in the late 1970s and early 1980s (e.g., Mexico
and Venezuela during 1980-1982), and thus have avoided the worst excesses
of capital flight that were produced by exchange rate overvaluations.
Our basic measure of outward orientation comes from the World Bank
(1987) categorization of trade policies in 41 developing countries. The data
are reported in the fourth data column of table 2. The World Bank variable
divides countries into four categories (strongly outward oriented:' moderately
outward oriented, moderately inward oriented, and strongly inward
oriented), and we use this fourfold division as an index ranging from 1 (most
inward oriented) to 4. The great advantage of the World Bank measure over
other indicators of the trade regime, such as the growth in exports or the
share of exports in GNP, is that it is based on an assessment of trade policies
in the developing countries rather than trade outcomes.
It has two major problems however. First, it is available for only 24 of the
35 countries in our sample. To handle this we run two sets of regressions:
one with the 24 observations, and one with the 35, but correcting for the
missing observations (see details below). The second problem is one of
timing. The· variable is constructed for the 'average' policy orientation during
306
1960-1973, which is too early for our analysis, and for the average during
1973-1985, which is a bit too late, since it includes years after the onset of
the debt crisis. After experimenting with both measures, we have used the
later measure despite this timing problem (it turns out that an average over
the two periods produces similar results to the variable that we use).
We experimented with other 'outcome-based' measures of the trade regime,
such as the growth of the export-GNP ratio and the excess of the export-
GNP ratio over a predicted value. In general these alternative measures
entered the models with the expected sign but often with much less
explanatory power than did the World Bank variable. Their use did not
change the explanatory power of the other included variables. For the sake
of brevity, we do not report the estimates using the alternative measures.
B. Political determinants
For many countries, the debt crisis reflects a political crisis as well as an
economic crisis. The political crisis shows up most directly in the inability or
unwillingness of governments to restrain large and chronic public sector
deficits. In some cases, the large deficits reflect a decline in the legitimacy of a
governing party, which attempts to use public spending to maintain political
support and to buy ofT the opposition for as long as possible. In some cases,
the regime is so narrowly based and so precarious that it chooses to use the
public purse to enrich a small part of the population, aware that political
power may slip away at any time. The time horizon of fiscal policymaking
becomes short, and the incentives for any particular government in power to
balance the budget become extremely weak. In yet other cases, the political
process is paralyzed, because power is too widely dispersed among various
groups who hold a veto over economic policy, but who cannot coalesce
around a consistent economic program.
Because of data limitations, we cannot directly test for the importance of
fiscal deficits in the debt crisis, since available cross-country data on budget
deficits in developing countries are very poor. Without a detailed analysis of
the fiscal data, as in the country monographs in the NBER study on Foreign
Debt and Economic Performance; the Country Studies, edited by Sachs
(1988b), it is not possible to make a meaningful cross-country comparison of
budget deficits.
More generally, it is also not possible to construct clear direct measures of
the political determinants of country performance. In particular, we are
concerned that political weakness and instability come in many guises. We
may observe, for example, continuing political stalemate, a rapid alternation
of governments, the attempt of a ruling group to buy ofT the opposition
through unsustainable expansionary macroeconomic policies, political
violence, and so forth. We therefore choose to follow a 'reduced form'
strategy, by identifying two structural characteristics in the economies of the
307
280 ,
A. Berg and J. Sachs The debt crisis
T able 2
Basic in d ep en d en t variables.
Incom e d istrib u tio n b

Q uintiles
---------------------------- T rad e
N am e R escheduler3 L ow est H ighest R atio regime- A g /G N P d G N P /c a p ita '
L a tin A m erica
A rgentina Yes 4.4 50.3 11.43 1 9.7 2,560
Brazil Yes 2.0 66.6 33.30 3 13.1 2,220
Chile Yes 4.5 51.3 11.40 3 7.6 2,560
C o lom bia No 2.8 59.4 21.21 2 28.6 1.380
C o sta Rica Yes 3.3 54.8 16.61 2 20.3 1,430
E cu ad o r Yes 1.8 72.0 40.00 NA 15.1 1,180
M exico Yes 4.2 63.2 15.05 2 9.5 2,250
P an am a Yes 2.0 61.8 30.90 NA 11.8 1,910
Peru Yes 1.9 61.0 32.11 1 9.9 1,170
Trin. & T o b . No 4.2 50.0 11.90 NA 3 5,670
U ru g u ay Yes 4.4 47.5 10.80 3 10.2 2,820
V enezuela Yes 3.0 54.0 18.00 NA 5.9 4,220
Average 83% 3.2 57.7 21.1 2.1 12.1 2,259
E ast A sia
C h in a No 7.0 39.0 5.57 NA 32.5 300
H ong K o n g No 6.0 49.0 8.17 4 1.3 5,100
Indonesia No 6.6 49.4 7.48 2 28.7 530
K o rea No 6.5 45.2 6.95 4 20.3 1,700
M alaysia No 3.5 56.0 16.00 3 26.4 1,840
P h ilippines Yes 3.9 53.0 13.59 2 25.9 790
S ingapore No 6.5 49.2 7.57 4 1.7 5,240
T aiw an No 8.8 37.2 4.23 4 18.1 2,528
T h aila n d No 5.6 49.8 8.89 3 27.7 770
Average 11% 6.0 47.5 8.7 3.3 20.3 2,089
O ther
Egypt No 4.6 48.4 10.52 NA 24.5 650
H un g ary No 10.0 34.0 3.40 NA 18.1 2,100
India No 4.7 53.1 11.30 1 40.6 260
Israel No 8.0 39.0 4.88 3 5.3 5,160
Ivory C o ast Yes 2.4 61.4 25.58 2 26.1 1,200
K enya No 2.6 60.4 23.23 2 35.1 420
M au ritiu s No 4.0 60.5 15.13 NA 18.2 1,270
M orocco Yes 4.0 49.0 12.25 NA 18.2 860
P o rtu g al No 5.2 49.1 9.44 NA 13.6 2,520
Spain No 6.0 45.5 7.58 NA 8.2 5,640
Sri L anka No 6.9 44.9 6.51 2 28.6 300
T unisia No 6.0 42.0 7.00 3 18.3 1,420
T u rk ey Yes 2.9 60.6 20.90 3 23.8 1,540
Y ugoslavia Yes 6.6 41.4 6.27 2 13.2 2,790
A verage 29% 5.3 49.2 11.7 2.3 20.8 1,866
O verall
average 43% 4.8 51.7 14.1 2.5 17.7 2,123
308
Table 2 continued
aRescheduler (RESC): The dependent variable for the probit regressions. Countries which are
reschedulers (RESC = 1) rescheduled their foreign debt owed to commercial lenders between
1982 and 1987. Source: World Bank (1986, 1987b).
bIncome distribution data (RATIO): Data is originally from surveys of households, yielding
estimates of the country-wide size distribution of income by household. The surveys were
generally taken in the late 1960s or early 19705. Sources: Jain (1975), United Nations (1981,
1985), World Bank (1987a), Jodice and Taylor (1983).
cTrade regime (OU T 7385): The World Bank (1987a) reports estimates of the trade regime
over 1973 to 1985, for 41 developing countries, based on: the effective rate of protection, direct
trade controls, export incentives, and exchange rate overvaluation. The countries are classified
into four groups, from 'inward oriented' (to which we assign a value of 1) to 'outward oriented',
to which we assign a 4.
dAgriculture/GNP (AGV7081): The share of agriculture in GNP, averaged over the period
1970 to 1981. Sources: World Bank (1976, 1983) and CEPD (1984).
cGNP/Capita (GNPc81): GNP per capita, in thousands of 1981 U.S. dollars, Sources: World
Bank (1983) and CEPD (1984).
debtor countries that would tend to contribute to political polarization,

inefficient and dynamically inconsistent policies, and inability to respond
effectively to crises. In other words, we seek to identify fundamental
economic factors that might contribute to instability, rather than using direct
measures of the instability itself as predictors of debt rescheduling. In a later
study, we will attempt to draw the statistical linkages between our structural
'predictors' of policy ineffectiveness and alternative measures of political
stability.
We identify two fundamental characteristics that we believe should be
important for effective political management: the extent of income inequality,
and the division of the economy between agricultural and non-agricultural
sectors. The extent of income inequality should matter in several distinct
ways. Higher income inequality should be expected, all other things being
equal, to:
- raise the pressures for redistributive policies among the poor and working
classes;
- enhance the power of economic elites to resist taxation to the extent that
they command a large share of national resources;
- reduce the size of the more taxable income classes;
- decrease the political legitimacy of a government that defends the existing
distribution of income;
- contribute to direct labor militancy, which may theaten the stability of the
regime;
- raise the fears of violence in the form of urban rioting;
309
- increase the prospects of a military coup, by requiring a civilian govern-

ment to rely on the army to maintain civil peace;
- decrease the support for export-promotion measures that threaten to
reduce the labor share of income in the short term;
- increase the likelihood and importance of capital flight to the extent that
financial wealth is highly concentrated;
- more generally, impede the development of a social consensus around
policies that promote development in the long term, but which may
impose costs on some social groups in the short term.
Thus, one of our central hypotheses is that a high degree of income

inequality should be associated with a high probability of rescheduling, since
the income inequality undermines the political stability and political effective-
ness needed for successful macroeconomic management.
Alesina and Tabellini (1987) have presented a formal model showing how
distributional cleavages among competing income classes in a society can
contribute to a debt crisis. In their model, a left-wing labor force competes
with capitalists for political power (the competition mayor may not be via
the electoral process). The groups alternate randomly in their hold on power,
and both groups recognize that each government's tenure is likely to be quite
short. When labor is in power, it has an interest in squeezing the profits of
capitalists, while capitalist governments have the incentive to tax labor
heavily.
Whichever group is in power, there is a strong incentive of that govern-
ment to borrow up to the lending limit of the foreign banks. This is because
the group in power can benefit heavily from an increase in contemporaneous
government spending (financed by foreign funds), while there is a good
chance that the opposing group will be saddled with the debts, assuming that
political power alternates in the future. The shorter is the expected longevity
of the government, the greater is the government's incentive to over-borrow
from abroad (relative to the amount that the government would borrow were
it certain that it would maintain its hold on government forever). At the
same time, the risk of political alternation induces all residents in the
economy to hold their wealth outside of the country (i.e., to engage in capital
flight), and thereby to keep their wealth beyond the tax collections of the
opposIng group.
Note that the focus on income distribution as a causal factor in explaining

economic performance reverses the usual focus in the development literature
on explaining income distribution as the result of government policies and
the development process itself. In Adelman and Robinson's (1987) valuable
survey of 'Income Distribution and Development', for example, almost the
entire focus is on the effects of growth on income distribution, rather than
310
the possible effects of income distribution on growth. They focus on the

problem that in the growth process in developing countries the income
distribution tends to become more unequal before it begins to equalize [as
was suggested by Kuznets (1955)], and suggest that there may be an ethical
case for equalizing incomes (e.g., via land reform) before the growth process
begins (a strategy that Adelman has termed 'redistribution before growth', in
contrast to 'redistribution with growth').
A few authors have adopted the strategy here of reversing the direction of
causality, and attempting to explain economic performance as a result of the
income distribution. Pyo (1987), Sachs (1987), and Williamson (1987), all
suggest that the relatively equal income distribution in East Asia is an
important factor in that region's strong economic performance in the post-
War period. For a broad cross-section of developing countries, Pyo shows
that the Gini coefficient has a significantly negative effect on aggregate
growth during 1960-1980 (i.e., higher inequality is associated with slower
average growth). In our sample of countries it is also true that the average
GNP growth rate between 1960 and 1980 is highly and negatively correlated
with the degree of income inequality.3 Political scientists more than
economists have studied the effects of income distribution on social out-
comes. For a useful survey of the political science literature, and some
empirical results linking income inequality to political violence [see Sigelman
and Simpson (1977)].4
In many of the countries under study, the adverse effects of high income
inequality on policymaking are readily observable. According to the analysis
of Mexico by Buffie and Sangines in Sachs (1988b), for example, attempts to
contain social conflict during 1970-1982 contributed to heavy government
spending with a populist - redistributive aim, while at the same time the
government bowed to the objections of the economic elites, and dropped tax
reform measures that might have provided an adequate revenue base for the
increased government spending. The government spending boom was there-
fore financed heavily by foreign borrowing and by oil in the late 1970s and
early 1980s. This precarious financing base collapsed in 1982.
In Argentina, similar problems (inadequate tax revenues and pressures for
large government spending) have afflicted virtually all governments since
World War II. But the problems are greatly exacerbated relative to Mexico
3We use as a measure of inequality the ratio of income of the richest quintile of households to
the poorest quintile of households (we label this variable RATIO). Then, in a regression of the
average growth during 1965-1985 on RATIO we find:
GROWTH 6080=4.24-0.079. RATIO
(7.45) (2.33)
with R 2 =0.12 (t-statistics in parentheses).
4Sigelman and Simpson (1977) summarize the political science literature up till 1977 as
holding that ~antisystem frustrations are apt to be high where a substantial proportion of the
public does not share fully in the allocation of scarce resources' (p. 106).
311
by the powerful and well-organized Argentine labor movement, which has

resisted real wage cuts and fiscal austerity through direct labor militancy. As
a famous example, the worker riots in Cordoba during 1969 (known as the
'Cordobazo') effectively killed the Krieger-Vasena stabilization program
begun under a military government in 1967, and thereby set the economy on
a trajectory of sharply rising deficits and inflation. That instability continued
to worsen for several years, and led to the return of Juan ·Peron from exile in
1973, and eventually to a military coup that toppled Peron's wife from power
in 1976.
In Brazil, the fears have centered less on labor militancy than on the
potential for direct and destabilizing violence in the favelas of Rio and Sao
Paulo. It is frequently said of Brazilian governments in the past fifteen years
that they dared not risk a slowdown in the economy because of the possible
consequence of unleashing uncontrollable social conflict, and because of the
concern for protecting the course of redemocratization that has been
underway during this period. The government's felt need to maintain growth
at all costs because of the social pressureS was a major contributing factor in
Brazil's eventual crisis. Rather than cooling off the economy in the late
1970s, the government kept the economy in high-gear with heavy foreign
borrowing. At a crucial moment in 1979, when Brazil still had the chance of
avoiding crisis by slowing the economy, the Brazilian finance minister Mario
Simonsen was sacked for recommending austerity, and was replaced by
Delfim Netto, whose policies helped to run the economy straight into its
debt crisis.
Countries with a low degree of income inequality can likely avoid many of
these policy debacles. Sachs (1987) has suggested, for example, that the
extremely low levels of inequality immediately after World War II in Japan,
Korea, and Taiwan, can help to account for the economic success of those
countries, by giving the governments in power the opportunity to focus on
issues of growth rather than redistribution. 5 To some extent, the low levels
of inequality were fortuitous outcomes of the political upheavals of the time.
In Japan, the destruction caused by the war, followed by massive land reform
under the U.S. occupation authorities, and the high post-war inflation,
resulted in a profound narrow of income inequalities. In Korea and Taiwan,
the same factors (war, land reform, and high inflation) played a similar role,
as did the decolonization from Japan, which removed a class of wealthy
overlords from the two economies.
In more recent years, these economies have displayed the capacity to
5Dornbusch and Park (1987) suggest for the Korean case: 'Exactly how income distribution
has influenced growth, other than by promoting social stability, is open 10 discussion. But it
would certainly shape the domestic market firms face, it may influence saving behavior, must
influence politics, and may have important implications for the ease with which the government
can shift economic policies'.
312
Table 3
Kuznets curve estimation, with regional dummies (OLS estimation).
Regression Dependent
no. variable Constant GNPc8Ja (GNPc8J)2 LaCaD b EaAsD C R2
3.1 Ratio 13.47 0.0025 -6.5E-07 0.03
(3.18) (0.65) (1.05)
3.2 Ratio 16.24 -0.0032 2.3E-07 10.85 -2.61 0.35
(4.41) (0.94) (0.42) (3.47) (0.83)
aGNPc8J: GNP per capita in 1981, thousands of 1981 U.S. dollars, Source: World Bank
(1983) and CEPD (1984).
b LaCaD: Latin American/Carribean dummy variable.
CEaAsD: East Asia dummy.
adjust to external shocks with little public upheaval. At the same time that
Brazil sacked its finance minister in 1979 for urging fiscal restraint, South
Korea embarked on a period of fiscal austerity in response to the early signs
of tightening foreign credit conditions. Between 1980 and 1983, South Korea
reduced its budget deficits [from 3.2 percent of GNP to 1.6 percent of GNP,
according to Collins and Park, table 4 in Sachs (1988b)], while Brazil's
inflation-corrected deficit soared to 15.2 percent of GDP in 1983 [see
Cardoso and Fishlow, table 1 in Sachs (1988b)].
We are fully aware of the fact that a given degree of income inequality by
itself will have quite varying effects on the political order depending on the
political institutions in place in the society. Huntington (1968) suggests that a
country with strong political parties may be able to channel the grievances
over income distribution into partisan political conflict, with little jeopardy
to the fundamental political order. Similarly, a country with competing
interests organized by peak associations (e.g., a unified national labor
organization) may be able to incorporate potential opponents of the regime
at relative low cost, and thereby purchase a degree of political stability. This
is the strategy known as neo-corporatism, which is exemplified in the
developed countries by Sweden, and in the developing countries by Mexico.
In our empirical work, we measure income inequality by taking the ratio
of the income share of the top 20 percent of the households relative to the
income share of the bottom 20 percent of the households, as reported by the
World Bank and the United Nations (see table 2 for sources). As seen in the
third data column of table 2, this ratio is unusually high in the Latin
American countries, a point which remains true after controlling for the level
of per capita income. To see this, we follow the idea of the Kuznets curve
and regress, in cross-section data, the income ratio on per capita GNP, per
capita GNP squared, and regional dummy variables for Latin America and
for East Asia. As seen in regression 3.2 of table 3, the ratio of income of the
313
top to the bottom 20 percent is significantly higher in Latin America than in

East Asia. The ratio average 21.1 in Latin America (the per household
income of the rich is 21.1 times greater than the per household income of the
poor), and only 8.7 in East Asia.
We have restricted ourselves to income distribution data which in principle
come from household surveys of the entire population, use a common unit
(the household), and include income from all sources. This variable is
measured with error, of course; we can only hope that the cross-country
variation will dominate measurement error. For a discussion of the sources
and quality of this data, see for example Jain (1975).
A second indicator of political stability that we investigate is the share of
the national production that is located in the agricultural sector, as reported
in the fifth data column in table 2. The share of agriculture in production is
included to otTer a rough indication of the extent to which governments can
derive their political backing from rural interests rather than urban interests,
on the theory that a rural power base tends to be more stable and more
supportive of export-promoting policies.
We have already touched on Huntington's analysis of the links between a
rural base of power and political instability. Mobilized opposition to the
government tends to be found in the urban centers, where students,
government works, industrial workers, and so on, can be successfully
organized. Not only can these groups threaten the survival of a regime, they
can also apply effective pressure for government spending and low taxes on
the urban population as the price for political peace. There may also be a
direct link between agriculture and trade policy: in most countries agriculture
is a tradeable good that is hurt by an overvalued exchange rate and by a
heavy emphasis on import-substitution policies.
These ideas find initial support in our sample of countries. It is noteworthy
that among the 35 countries that we are considering, the incidence of violent
coups in the 1970s can be partially explained in a probit model as a negative
function of the share of agriculture in GNP during the decade, controlling
for the level of per capita income (higher income countries, ceteris paribus,
showed a smaller probability of a violent COUp).6 To see why this
relationship is found, note that of the 15 countries in the sample with a share
of agriculture in GNP of 15 percent or less, six countries (40 percent)
experienced a violent coup during the 1970s. Of the eleven countries with a
6The probit regression takes the form

COUP 7080= 2.01-0.115. AGV 7081 -1.4E-7. (GNPc81)2,
(1.78) (2.34) (1.84)
where 80% of the countries are correctly predicted and t-statistics are in parentheses. COUP 7080
is a dummy variable which takes a 1 if there was a coup during the 1970s for that particular
country and 0 otherwise.
314
share of agriculture in GNP of 25 percent or more, only Thailand (nine

percent of the cases) experienced a violent COUp.7
In our view, it is the importance of the rural base of politics that helps to
explain why Colombia is the only commercial borrower in Latin America to
have escaped a debt crisis in the 1980s. Colombia's share of agriculture in
GNP averaged 29 percent during 1970--1981, which was by far the highest
for the region, and more than twice the overall average for Latin America
and the Caribbean, 12.1 percent of GNP. It has been suggested by some
observers that the heavy political influence of the coffee growers in Colombia
contributed importantly to the government's decision to introduce the
crawling-peg exchange rate in 1967, a policy innovation which has been
instrumental in the past two decades in permitting Colombia to avoid the
worst ravages of currency overvaluation.
Along a similar line, Urritia [in Sachs (1988a)] explains Colombia's
relative fiscal prudence during the 1970s according to the unusual structure
of its politics:
Finally, .the government in 1974-1978 had a large rural base of support,

and the President had developed a strong commitment to promoting
development in the rural sector and dismantling the i.mport substitution
model of development. He was against subsidizing organized labor and
industrialists, was anti-bureaucracy, and had his urban support among
the unorganized who suffered most from inflation.... The main objective
of the government in power between 1974 and 1978 was to control
inflation, and with this objective, it carried out a tax reform in 1974, and
also to control inflation, the government did not increase the foreign
debt.
In contrast, in the early eighties, another government, whose political

base was largely the bureaucracy, increased debt and government
expenditure rapidly. That policy created a mini-debt crisis in 1983-1984,
but Colombia was the only country in Latin America that adjusted
successfully after 1982. It did it by almost wiping out the fiscal deficit in
1984-1985, not only by decreasing expenditures, but also by increasing
taxation.
3. Empirical implementation of the probability model

We now turn to the empirical implementation of the probability models.
We run two basic equations: a probit model that estimates a probability
function for reschedulings with commercial creditors, and a tobit model that
7The countries with at least one violent coup in the 1970s are: Argentina, Chile, Ecuador,
Peru, Thailand, Portugal, and Turkey.
315
estimates the size of the discounts on borrowing country debt sold in the
secondary markets. For each model, we use two distinct samples: a sample of
the 24 countries for which the World Bank's outward-orientation variable is
available, and a more inclusive sample of 35 commercial borrowers.
In order to include the outward-orientation variable in the large sample,
we follow a standard procedure [see for example Maddala (1977)]. In a first-
stage regression, we regress the outward-orientation measure on the other
right-hand side variables in our sample of 24 countries. Using the estimated
coefficients, we then create a fitted measure of outward orientation for the 11
missing countries, by applying the regression coefficients to the right-hand
side values for the 11 countries. The new synthetic outward-orientation
variable now has 35 observations, the 24 original observations and 11 fitted
values. 8
The basic probit model attempts to explain the pattern of reschedulings
and non-reschedulings according to four variables: the income distribution
(ratio of household income of top 20 percentiles over bottom 20 percentiles,
RATIO), outward orientation of policies during 1973-1985 (OUT 7385), the
share of agriculture in GNP during 1970-1981 (AGv7081), and the level of
per capita GNP (in $U.S.) in 1981 (GNPc81). The last variable is included
for several reasons. First, higher-income countries may be less likely to
reschedule than poorer countries since the costs of rescheduling (a loss of
access to new lending on normal market terms, a partial disruption of
normal trade relations, IMF surveillance, and so forth) would tend to be
more onerous for more advanced economics. Second, the high levels of per
capita income may reflect other characteristics of a country that would tend
to reduce the chances for debt rescheduling, e.g., more effective economic and
political institutions (controlling for income distribution, agricultural share of
GNP, etc.). Third, the other explanatory variables are also known to be a
function of per capita GNP. It is thus especially important to verify that
income distribution and the agricultural share are not simply proxying for
the level of economic development, but are indeed reflecting a deeper
structural feature of the economy.
In most of the regressions that follow, GNP per capita is actually entered
as GNP per capita squared, since some preliminary regressions indicated that
8This procedure will improve the efficiency of estimation in that it allows us to use a larger
sample of data. However, the use of the estimated explanatory variable will introduce
heteroskedasticity as well as additional small sample bias. The net effect is uncertain.
Furthermore the t-statistics shown in the paper are calculated as if the estimated values were the
true ones. They should probably be corrected for degrees of freedom, although of course these
tests are only asymptotically valid anyway. Finally, this procedure is consistent only for linear
estimation, since the expectation of a non-linear function is not equal to the function evaluated
at the expectation of its arguments. However, to make a careful correction for this problem
would require very special assumptions about the distributions. All this should serve to
emphasize that our econometric results are designed primarily to be descriptive of the data, not
rigorous statistical tests.
316
the non-linear specification slightly improves the performance of the model.

The variable always enters with a negative sign, suggesting that indeed
higher income countries are less likely to reschedule than poorer countries.
Since the variable enters best as a squared term, we find that the very high
income countries in our sample are considerably less likely to reschedule
than the poorer countries. Indeed, none of the countries with a per capita
income above $5,000 actually reschedules. Venezuela, at $4,220 per capita, is
the country with the highest per capita income to reschedule.
The probit equation for the sample of 24 countries proves to be an
embarrassment of riches. Specifically, the four variables in the model perfectly
discriminate among the reschedulers versus the non-reschedulers. What this
means is that there exists a linear combination of the right-hand side
variables such that a rescheduling probability of less than 0.5 is assigned by
the probit model for all countries that do not reschedule, and a probability
of greater than 0.5 is assigned for all countries that do reschedule. Suppose
that p is an estimated vector of coefficients with that property (technically,
Zp is greater than 0.5 if and only if R 1 = 1). Then, any multiple of /3, v * /3 for
v> 1, will also perfectly discriminate among the reschedulers. Indeed, higher
and higher values of v will raise the estimated likelihood function, since
higher v will assign probabilities closer to 1.0 for countries that actually
reschedule, and 0.0 for countries that do not.
The upshot of all of this is that because of the small sample, and the
'perfect' fit, we cannot actually estimate coefficients and standard errors for
the probit equation. We can, however, get an ordinal ranking of the
probabilities of rescheduling from 'most likely' to reschedule to 'least likely'
to reschedule. This list is shown in table 4. As advertised, the equation
perfectly orders the countries: those that are 'most likely' to have rescheduled
are exactly those at the top of the list, and those 'least likely' are on the
bottom.
The list itself is extremely illuminating. The 'worst' case is Peru. It is has a
highly unequal income distribution, a low share of agriculture in GNP, a low
per capita income, and an inward-oriented trade policy. It is perhaps not
surprising then that Peru's debt is also the lowest valued of all the
commercial borrower debt on the secondary market as of the end of 1987.
For all of the reasons that Peru is likely to have rescheduled, Israel escaped
rescheduling: the income distribution is quite equal, the agricultural share in
GNP is large, per capita income is large, and trade policy is outward
oriented. Looking at the ranking of countries, it is evident that the Latin
American countries rank near the very top (with the exception of Colombia),
while the East Asian economies are near the bottom.
The 'hard' cases are the countries like Turkey, Tunisia, Philippines, and
Colombia, which fall in the middle of the probability distribution. Interest-
ingly, Turkey is probably the rescheduling country that has recovered most
317
Table 4
Countries in order of decreasing pre-
dicted probability of rescheduling.-
Name Rescheduling
Peru Yes
Brazil Yes
Mexico Yes
Argentina Yes
Chile Yes
Costa Rica Yes
Ivory Coast Yes
Uruguay Yes
Yugoslavia Yes
Turkey Yes
Philippines Yes
Colombia No
Tunisia No
Kenya No
Indonesia No
Sri Lanka No
Malaysia No
Korea No
Thailand No
Taiwan No
India No
Hong Kong No
Singapore No
Israel No
·Calculated from probit estimation on
the sampie of 24 commercial borrowers
for which all data are available.
vigorously from the debt crisis. Colombia, on the other hand, narrowly
escaped a debt crisis (remember that Urritia calls the period 1983-1984 a
'mini-debt crisis'). The presence of the Philippines in the center of the
distribution might appear as a bit of a surprise. On most of the variables,
however, the Philippines is not an extreme case: it is fairly unequal in
measured income distribution, especially in comparison with its East Asian
neighbors, but is not as extreme as many Latin American countries; it has a
large agricultural sector which at least in principle should offer the oppor-
tunity for a moderately stable, rural based government. One is led to wonder
whether the peculiar characteristics of the Marcos regime, rather than the
inherent structural problems of the Philippines account for much of that
country's economic crisis in recent years.
Interestingly, the 'perfect' results are eliminated if we drop any of the
explanatory variables from the equation. In other words, each of the
variables is helping to account for the rescheduling experience. If income
distribution is dropped, for example, Tunisia and Turkey are misclassified. In
318
Table 5
Probit 6.1 with omitted variables.
Omitted Predicted to Predicted not

variable reschedule to reschedule
RATIO Tunisia Turkey
AGV7081 Colombia Chile
India Uruguay
Kenya Yugoslavia
OUT 7385 Tunisia Philippines
GNPc81 Colombia Philippines
Israel Turkey
table 5, we show how each of the variables on the margin improves the
predictive accuracy of the model.
The probit results for the sample of 35 countries are shown in regression
6.1. Note that all of the variables are of expected sign: income inequality
raises the probability of rescheduling, while outward orientation, agricultural
share, and GNP per capita squared, all reduce the probability of reschedul-
ing. The equation is no longer 'perfect' in the larger sample, so that we can
estimate coefficients and standard errors. Income distribution and agriculture
are statistically significant at the five percent level (i.e., t-statistics are greater
than 1.96). The outward-orientation variable is not significant in the large
sample. Again, remember that because of the procedures for concocting the
outward-orientation variable for the missing countries, that variable is
measured with error and should be expected to have a larger estimated
standard error, and a lower t-statistic.
The equation now properly predicts 89% percent of the cases (i.e., for 31
out of 35 countries, the probit model assigns a rescheduling probability of
greater than 0.5 for countries that actually reschedule, and a probability of
less than 0.5 countries that actually do not reschedule). The countries that
are incorrectly classified are: Mauritius, Portugal, Turkey, and the
Philippines. Table 7 presents fitted probabilities of rescheduling for this
sample. Note that Turkey and the Philippines are in the small sample, and
they are among the same countries that were estimated to be in the center of
the probability distribution in that sample.
It is worthwhile to test the robustness of these estimates by including other
variables that have been mentioned by other analysts as structural factors in
the debt crisis. One key variable is the terms of trade of the developing
countries in the 1980s relative to the 1970s. Are the reschedulers simply those
countries whose export prices deteriorated more significantly in the 1980s,
with our own candidate variables proxying for the terms of trade decline? To
319
N
\0
N
Table 6
Basic regression results (probits).-
Regression Dependent Percent

no. variable Constant RATIO OU77385 AGV7081 TT837s (GNPc81) LaCaD EaAsD correct b
~
6.1 RESC 6.64 0.190 -1.34 -0.272 -1.6E-07 0.89 t::c
~
(n=35) (2.03) (2.15) (1.32) (2.80) (1.64)
~
6.2 RESC 9.45 0.186 -1.77 -0.271 -2.17 -1.2E-07 0.91 Q
(n=33) ( 1.16) (1.92) (1.49) (2.67) (1.16) (1.34) E.

~
6.3 RESC 12.17 0.243 -2.58 -0.396 - 2.4E-07 -0.67 0.91
~ ~
(n=35) (2.05) (1.67) ( 1.72) (2.43) (1.93) (0.54) t)
N ~
a 6.4 RESC 12.05 0.246 -2.61 -0.391 -2.1E-07 -0.68 c 0.91 >orr
(n=35) (2.05) (1.62) (1.69) (2.35) (1.61) (0.55) ...,
:3"-
~
6.5 RESC 6.40 0.240 -1.03 -0.335 -2.5E-07 1.42 0.89 ~
(2.10) ~
(n=35) (2.33) (1.18) (2.55) (1.82) (1.10) goo
6.6 RESC 19.76 0.367 -4.09 -0.591 -4.7E-07 0.87 ~
....
c;;.
(n=23) (1.63) (1.58) (1.57) (1.75) (1.00) c;;.
aDefinitions and sources: RESC: see table 2; RATIO, OUT7385, AGV7081: see table 2; LaCad and EaAsD: see table 3; TT837s: see
table 8.
bpercent correct: Fraction of the sample for which the difference between Resc and the predicted probability of rescheduling is less than
! in absolute value.
cExc1udes Trinida9 & Tobago from Latin America/Caribbean countries.
Table 7
Comparison of fitted probability of rescheduling with actual
event (from regression 6.2).
Fitted probability
Name of resched uling Rescheduler
Peru 1.00000o Yes.
Ecuador 1.00000o Yes
Panama 1.00000o Yes
Brazil 0.999998 Yes
Argentina 0.999920 Yes
Mexico 0.999690 Yes
Chile 0.951620 Yes
Venezuela 0.934080 Yes
Ivory Coast 0.933460 Yes
Costa Rica 0.898180 Yes
Mauritius 0.886290 No
Morocco 0.774910 Yes
Uruguay 0.728700 Yes
Yugoslavia 0.615020 Yes
Portugal 0.537960 No
Colombia 0.464500 No
Turkey 0.399410 Yes
Philippines 0.274890 Yes
Kenya 0.116730 No
Egypt 0.109160 No
Tunisia 0.088340 No
Hong Kong 0.038940 No
Hungary 0.021690 No
Malaysia 0.019490 No
Singapore 0.013080 No
Israel 0.012420 No
Trinidad & Tobago 0.011230 No
Indonesia 0.006740 No
Sri Lanka 0.004700 No
Thailand 0.000450 No
Korea 0.000350 No
India 0.000150 No
Taiwan 0.000050 No
China 0.000006 No
Spain 0.000003 No
test this possibility, we include as a right-hand side variable the terms of

trade of the countries in 1983 relative to an average terms of trade in the
1970s (measured as the simple average for 1970, 1975, and 1980). As seen in
table 8, most of the countries experienced a terms of trade decline in the
1980s, but there is little evidence that the extent of the terms-of-trade
deterioration in fact played a major role in affecting which countries required
rescheduling and which ones did not. Many oil exporters (e.g. Venezuela), for
example, enjoyed a terms of trade improvement comparing the 1980s and the
1970s, but in fact succumbed to rescheduling, while many oil importers (such
321
294 Table 8
Debt-service ratios and terms of trade data.
Name LODPX81· LODPUX81 b TT837s c

Latin America
Argentina 268.9 109.2 0.74
Brazil 268.0 85.0 0.65
Chile 272.8 93.1 0.48
Colombia 121.4 107.6 1.07
Costa Rica 185.4 131.6 0.92
Ecuador 187.1 124.2 1.37
Mexico 238.6 99.8 0.94
Panama 26.3 15.6 0.78
Peru 160.0 142.0 0.64
Trinidad & Tobago 19.3 14.6 1.04
Uruguay 100.2 44.7 0.77
Venezuela 128.7 70.7 1.53
Average 155.2 84.4 0.9
East Asia
China 27.8 21.8 NA
Hong Kong NA NA 1.11
Indonesia 50.8 53.5 1.41
Korea 93.7 73.8 0.78
Malaysia NA NA 0.91
Philippines 212.4 161.9 0.68
Singapore NA NA 1.00
Taiwan 34.4 17.9 0.74
Thailand 82.5 73.5 0.59
Average 83.6 67.1 0.9
Other
Egypt 100.7 230.9 0.89
Hungary 84.7 37.5 NA
India 23.2 156.3 0.80
Israel 110.4 128.9 0.73
Ivory Coast 177.0 92.4 0.85
Kenya 100.3 118.5 0.86
Mauritius 36.9 76.6 0.60
Morocco NA NA 0.64
Portugal 143.2 83.6 1.27
Spain NA NA 0.70
Sri Lanka 54.5 154.1 0.92
Tunisia 48.4 74.4 1.05
Turkey 126.0 234.5 0.69
Yugoslavia 97.8 49.2 1.08
Average 91.9 119.7 0.9
Overall average 119.4 95.9 0.9
3LODPX 81 is the debt~xport ratio for 1981, where all
medium- and long-term debt owed to private creditors is added
to the short-term debt to calculate the numerator. Sources are
World Bank (1986, 1987b), and CEPD (1984).
bLODPU X 8/ is the ratio of public and publicly guaranteed
debt owed to public creditors to exports for 1981. Sources are
World Bank (1986, 1987b), and CEPD (1984).
cTT 837s is calculated as the terms of trade for 1983 by the
terms of trade index for the 1970s, calculated as an average of the
index for 1970, 1975, and 1980. Sources for terms-of-trade indices
are World Bank, (1983, 1987a) and CEPD (1984).
322
as Israel, Korea, Taiwan, and Thailand) suffered a sharp terms-of-trade

deterioration without a rescheduling.
The probit model in the sample of 35 countries is estimated with the terms
of trade in regression 6.2. The terms of trade is statistically insignificant,
while the other variables maintain their earlier signs and approximate
magnitudes. The variables for income distribution and agricultural shares
remain significant. The weak finding on the terms of trade is consistent with
earlier studies, particularly Sachs (1985), who showed that the differences in
experiences of Latin American and East Asian economies could not be
explained by differing patterns in the terms of trade.
Since most of the rescheduling countries are in Latin America, and since
the Latin American economies are characterized by extremely unequal
income distributions, it is important to check whether the income distri-
bution variable is merely proxying for other characteristics of the Latin
American economies (note that ten of the 12 economies in Latin America
and the Caribbean reschedule, while only five of the remaining 23 countries
reschedule). In other words, is the income distribution effect truly structural,
or is it merely a dummy variable for Latin America? To examine this
question, we introduce in regressions 6.3 and 6.4 two alternative dummy
variables for the region, depending on whether we count Trinidad and
Tobago as part of Latin America. (If the idea of the dummy variable is to
measure an effect specific to 'Latin' societies, Trinidad and Tobago should be
excluded; if the idea is to capture a geographical effect in which the creditor
banks redline the developing economies of the Western Hemisphere, then
Trinidad and Tobago should be included in the dummy variable).
Rather remarkably, the both versions of the Latin American dummy
variable are statistically insignificant, and while their introduction reduces
the significance of income "distribution, the magnitude of the coefficient on
income distribution increases and the dummy variable for Latin America has
the unexpected sign (lower probability of rescheduling, controlling for the
other variables)! In other words, once our structural variables are included,
the fact that a country is in Latin American does not seem to have raised the
probability of rescheduling. It is also worthwhile to verify that the equation
is not proxying for the East Asian economies. A dummy variable for East
Asia also is insignificant, has less effect on the other variables [eq. (6.5)], and
also has the unexpected sign. Adding both the Latin American and East
Asian dummy variables yields similar results (not shown).
Another convincing way to verify that we are picking up something more
than a 'Latin' effect in our regression model is to run the probit model for
the non-Latin American sample. There are, of course, a very small number of
countries that remain in the sample, but as seen in regression 6.6, all of the
structural variables maintain their signs and increase in magnitude in the
non-Latin sample of countries. Given the small size of the sample, the
323
statistical significance of the explanatory variables is reduced, but the income

distribution variable remains near the ten percent level of significance.
The next step in our investigation is to estimate a tobit model of the size
of the discount on each ·country's debt in the secondary market. The idea of
the tobit model is as follows. We assume that the discount on the debt is a
non-linear function of the explanatory variables that we have already
introduced, with the non-linearity arising from the fact that the discount on
the debt can be positive or zero, but never negative (the discount measures
the percentage difference in the par value of the debt and the secondary
market value). For a range of creditworthiness, the debt will sell at par, i.e.,
with a zero discount, If the creditworthiness falls below a certain threshold,
then the discount on the debt becomes positive.
The specific model is as follows. Let Dr be a latent creditworthiness
variable for country i, that is a function of the explanatory variables Zi and a
random error term Vi distributed normally, so that
DT = Z,fi + v„ (3)
where p is a vector of coefficients. Higher Dt signifies lower creditworthiness.

For Di less than or equal to zero, the actual discount D i is equal to zero,
while for Dr greater than zero, the actual discount Di is set equal to Dt.
That is,
£>,= 0 for Dr
D* <0,
< 0,
= £>? for Df> 0 (4)
In general, Dr represents a threshold for rescheduling. For countries that

have not rescheduled, the discount is zero (or very close to zero), while for
countries that have rescheduled, the discount tends to be positive.
In practice, this last observation may be violated. For example, Colombian
debt sold at a 40 percent discount at the end of 1987, despite the fact that
Colombia never rescheduled. For most countries that have not rescheduled,
the secondary market price of the debt is not publicly quoted (e.g., by the
investment banks, that send newsletters on secondary market prices). For
those countries, we assume in the tobit regressions that follow that the actual
market discount is equal to zero. This is probably a good assumption, since
if the country's debt in fact traded at a discount, the secondary market price
of the country's debt would tend to be quoted.
It is our basic assumption that the variables that conduce to reschedulings
are the same ones that lead to low secondary market prices for a country's
debt. This conclusion is borne out by the battery of tobit regressions
reported in table 9. As usual, regression results are reported for samples of 24
324
Table 9
Basic regression results (tobits).a
no. variable Constant RATIO OUT7385 AGV7081 (GNPc81)2 LaCaD EaAsD TT837s
9.1 DISC 1.11 0.012 -0.23 -0.030 -1.8E-08
(n=35) (4.43) (2.61) (3.13) (4.21) (1.80) ~
9.2 DISC 1.15 0.014 -0.20 -0.031 -2.6E-08 tz:,
~
(n=24) (5.43) (2.81) (3.53) (5.18) (2.12) ~
Q
9.3 DISC 1.23 0.011 -0.23 -0.028 -1.8E-08 -0.15 :::s
~
(n=33) (3.96) (1.87) (2.43) (3.90) (2.14) (0.88)
~
9.4 DISC 4.19 0.013 -0.20 -0.031 -2.6E-08 -0.02 ~
Q
~ (n=24) (4.19) (2.62) (3.50) (4.85) (2.08) (0.11) (")
N ~
.::t-
V, 9.5 DISC 1.00 0.007 -0.20 -0.024 -2.4E-08 0.20
(n=35) (3.74) (1.37) (3.10) (3.47) (2.67) (1.77) ~
::t-
~
9.6 DISC 0.94 0.011 -0.18 -0.024 -2.2E-08 0.15
~
(n=24) (3.82) (2.24) (3.34) (3.48) (1.58) (1.46) ~
(")
9.7 DISC 0.92 0.007 -0.20 -0.220 -1.9E-08 0.20 b .,c;;.
(n=35) (3.53) (1.45) (3.16) (3.20) (1.89) (1.84) c;;'
9.8 DISC 1.07 0.014 -0.23 -0.036 -2.1E-08 0.044
(n=35) (4.20) (2.95) (2.86) (4.06) (2.02) (0.31)
9.9 DISC 1.15 0.014 -0.02 -0.031 -2.6E-08 0.003
(n=24) (5.43) (2.74) (3.46) (5.07) (2.13) (0.03)
aDefinitions and sources: DISC: see table 1; RATIO, o U17385 , AGV7081: see table 2; LaCaD and EaAsD: see table 3;
TT837s: see table 8.
bSignifies the exclusion of Trinidad & Tobago from the countries designated to be Latin American.
N
\()
~
Table 10
Fitted and actual discounts from regression 9.2.
Discount
Name Fitted Actual Residual
Argentina 0.63 0.53 -0.10
Brazil 0.47 0.45 -0.02
Chile 0.30 0.33 0.03
Colombia 0.10 0.19 0.09
Costa Rica 0.29 0.67 0.38
Ivory Coast 0.25 0.40 0.15
Mexico 0.53 0.47 -0.06
Peru 1.05 0.89 -0.16
Philippines 0.12 0.33 0.21
Uruguay 0.17 0.32 0.15
Yugoslavia 0.22 0.30 0.08
and 35. In both cases, the income distribution variable is always posItIve
(higher inequality leads to a greater discount on the debt), while the
outward-orientation variable, the agricultural share variable, and GNP per
capita squared, are always negative (higher values tend to decrease the
secondary market discount). In most regressions, all of the explanatory
variables are statistically significant.
Consider the basic regression over the sample of 24 countries, reported as
regression 9.1. For those countries with a reported secondary market
discount, the actual and fitted values of the debt are reported in table 10.
Note that among countries with a discount on the debt, Peru has the largest
fitted discount, and the largest discount actually reported in the data, while
the fitted discount on Colombia is the lowest among the countries with a
positive discount. It is instructive to consider the sources of the fitted
discount on Peru as compared with the fitted discount on a hypothetical
aver~ge East Asian country. Peru's fitted discount is actually above 100
percent, at 105 percent, versus the discount of about - 2 percent for 'East
Asia'.9 Of this ditTerence of 197 percentage points, 31 can be attributed to
Peru's worse income distribution; another 31 can be attributed to the lower
level of agriculture in Peru; another 44 can be attributed to the greater
outward orientation of 'East Asia'; and, finally, a negligible amount can be
attributed to Peru's lower level of per capita income.
The tobit model is also an appropriate model for testing the role of terms
of trade shocks, and dummy variables for Latin America and East Asia.
9The 'predicted discount' cannot actually be negative, of course, but the prediction for the
average of the region is near enough to zero that no great violation is committed.
326
Various results are reported in table 9. We find that the terms of trade has
even less effect in accounting for the size of the discount on the debt. While
the dummy variables for Latin America and East Asia are always small and
insignificant once we control for the structural variables in our model, the
Latin American dummy variable does have more power than in the probit
regressions.
Many earlier studies have shown that the probability of debt rescheduling
is a positive function of the debt-export ratio. It is therefore worthwhile to
ask whether our variables help to account for the debt-export ratio, or
whether our variables work through some alternative mechanism (in which
case the debt-export ratio might be an additional explanatory variable). We
conclude this section by examining this issue. (Table 8 presents the debt-
export ratio data.)
As shown by regressions 11.1 and 11.2, in table 11, it is the debt owed to
private creditors rather than public creditors that poses the greatest risk of
forcing the country into a rescheduling or reducing the. secondary market
value of the country's debt (not shown). Note for example that the ratio of
debt to private creditors relative to exports is a highly significant predictor of
reschedulings, while the debt owed to foreign official creditors, as a
proportion of exports, does not help to explain reschedulings and even has
the wrong sign. The relative importance of debts to private creditors rather
than official creditors reflects the fact that the interest rates on most of the
private debt were set on a variable rate basis, and thus rose sharply when
U.S. interest rates increased after 1979. The interest rates on debts owed to
official creditors rose far more slowly in the early 1980s.
According to regression 11.4, our set of explanatory variables accounts
well for the cross-country differences in debt-export ratios (note that we now
restrict our attention to debt owed to private creditors). As per our earlier
political arguments, higher income inequality and a lower argicultural share
in GNP are associated with higher levels of debt relative to exports. The
relationship is not particularly robust, however, since the statistical signifi-
cance of the link between income distribution and the debt-export ratio
disappears when we move from the small sample of countries to the larger
sample (regression 11.3).
According to the probit and tobit equations in regressions 11.5-11.7, the
effects of income distribution, agriculture, and outward orientation on the
probability of rescheduling and the discount on the debt are fairly strongly
mediated by the debt-export ratio. Even after controlling for the debt-export
ratio, the key variable of our model remain significant in the tobit analysis.
The debt-export ratio itself is statistically significant once there other
variables are included in the regressions. Thus, while high income inequality
tends to raise the country's debt-export ratio, it also seems to reduce the
country's capacity to deal with any particular level of the debt. Given this,
327
w
8
Table 11
The debt-service ratio and structural variables.-
Regression Dependent Percent

no. variable Constant LODPUX8l LODPX8l RATIO OU17385 AGV7081 GNPc8l correct
~
11.1 RESC -1.91 -0.0059 0.0215 0.80 ~
~
(n=30) (2.66) (1.02) (2.91) ~
11.2 DISC 0.76 -0.0016 0.0016 0.01 -0.22 -0.02 -7.3E-09 ~
(n=30) (2.82) (1.50) (2.58) (3.42) (3.28) (2.59) (0.79) E.

R2 ~
~
~ 11.3 LODPX8l 253.44 1.48 - 15.16 -5.17 -4.3E-06 0.24 ~
N ("')
00 (n=30) (3.14) (0.99) (0.80) (2.73) (1.78) ..l r

11.4 LODPX8l 241.26 3.68 -15.16 -5.63 -2.4E-06 0.45 ....,
:so-
(n=21) (3.09) (2.15) (0.91) (3.03) (0.75) ~
~
11.5 RESC 4.49 0.0218 -1.22 -0.34 -1.7E-07 0.90 ~
0.23
(n=30) (0.73) (1.66) (0.98) (0.66) (1.38) (1.08) 2"
("')
.,
{;;.
11.6 DISC 0.72 0.0013 0.01 -0.21 -0.02 -9.9E-09 {;;.
(n=30) (2.76) (2.34) (3.17) (3.33) (3.50) (1.14)
11.7 DISC 0.87 0.0010 0.01 -0.18 -0.02 -2E-08
(n=21) (3.33) (1.47) (2.17) (3.29) (3.71) ( 1.51)
·Definitions and sources: LODPUX8l, LODPX81: see table 8; RATIO, o U17385 , AGV7081, GNPc8l: see table 2.
however, the level of the debt-export ratio seems to have some independent
effect.
4. Additional variables in the probability model

There are many additional variables that have been suggested in the
literature as having played a role in the debt crisis. To our rather
considerable surprise, most of the variables had little explanatory power in
the probit and tobit equations either by themselves or in conjunction with
our other variables. We examined, without success, the following variables
for a possible contribution to our models:
- the share of manufacturing exports in total exports (expected to reduce the

probability of rescheduling);
- the share of fuels, mineral, and metals in total exports (expected to raise
the probability of rescheduling);
- the rate of population growth between 1970-1985;
- the size of the population in 1981;
- the commodity concentration of exports (expected to raise the probability
of rescheduling, because of increased vulnerability to terms of trade shocks,
and increased difficulty in short-term export promotion);
- the rate of national savings (expected to lower the probability of
rescheduling).
Only the last two variables came at all close to adding to the explanatory
power of the model, but neither variable reached statistical significance. lO
The regressions with the additional variables are reported in table 12, the
data in table 13.
5. Towards an interpretation of the linkage of economic inequality and foreign

debt management
We have identified four key structural variables that help us to explain
which of the developing countries succumbed to debt crises in the 1980s, and
we have suggested some of the linkages between the structural variables and
the outcomes of debt management. In this section we discuss further the
possible linkages between income inequality and the quality of debt
management.
In terms of formal empirical analysis, we have so far made little headway
IOThe share of fuels, minerals, and metals in total exports came in significantly in the smaller
sample, but with a negative sign (a larger share reduced the predicted probability of
resched uling).
329
Table 12
Alternative structural variables.
no. variable Constant RATIO OUT7385 AGV7081 (GNPc81)2
Fuels, metals and minerals as percent of exports, 1980
FMMPE8(
12.1 DISC 1.19 0.011 -0.222 -0.03 - 2.1E-08 -0.00146
(n=33) (5.12) (2.69) (3.49) (4.74) (2.26) (1.04)
12.2 DISC 1.53 0.011 -0.185 -0.040 -0.0000 -0.0049
(n=24) (4.62) (2.53) (4.03) (4.29) (1.82) (2.33)
Population growth, average annual rate, 1965 to 1980

PopG6580
12.3 DISC 1.06 0.007 -0.209 -0.034 -0.0000 0.0848
(n=35) (4.44) (1.26) (3.04) (4.44) (2.22) (1.69)
12.4 DISC 1.15 0.013 -0.198 -0.032 -0.0000 0.0115
(n=24) (5.43) (2.26) (3.53) (4.93) (2.20) (0.243)
Commodity concentration of exports, 1970 to 1980

CC7080
12.5 DISC 1.06 0.013 -0.206 -0.031 -0.0000 0.1480
(n=24) (4.54) (2.83) (3.44) (5.15) (1.61) (0.78)
Population in 1981
Pop81
12.6 DISC 1.15 0.014 -0.196 -0.030 -0.0000 -0.0000
(n=24) (5.80) (2.99) (3.43) (4.94) (2.21) (1.07)
Percentage of labor force in services, 1977

PLFSv77
12.7 DISC 0.95 0.014 -0.194 -0.028 -0.0000 0.0033
(n=24) (3.13) (2.92) (3.43) (4.08) (2.15) (0.85)
Percentage point growth in urban population, 1965 to 1985

UrbG6585
12.8 DISC 1.03 0.010 -0.218 -0.029 -0.0000 0.0051
(n=34) (3.98) ( 1.78) (2.73) (3.88) ( 1.56) (0.59)
12.9 DISC 1.16 0.017 -0.187 -0.031 -0.0000 -0.0069
(n=23) (5.60) (2.66) (3.29) (5.33) (2.11) (0.78)
Manufacturing as percent of exports, 1980

MaPE80
12.10 DISC 1.09 0.015 -0.199 -0.031 -0.0000 0.0022
(n=23) (5.17) (3.00) (3.79) (5.41) (2.28) (1.02)
National saving as percent of GNP, 1970 to 1981 average

Sn Y7081
12.11 DISC 1.2 0.133 -0.202 -0.031 -0.0000 -0.0026
(n=24) (4.72) (2.73) (3.56) (5.15) (2.16) (0.38)
Sources: FMMPE80, CC7080, Pop81, SnY7081: World Bank (1976, 1983); PLFSv77: World Bank
(1979); UrbG6585: World Bank (1987) and CEPD (1984).
330
A. Berg and J. Sachs., The debt crisis 303
Table 13
Alternate structural variables. a
Name CC7080 Sn Y708 J Pop8 J PopG6580 UrbG6585 MaPE80 FM M PE80 PLFSv77

Latin America
Argentina 28.7 23.9 28,174 1.6 8.0 23.2 5.6 57
Brazil 33.3 17.1 120,507 2.5 23.0 38.6 11.2 38
Chile 62.0 10.9 11,292 1.8 11.0 20.2 58.6 52
Colombia 65.3 23.0 26,425 2.2 13.0 20.3 3.1 46
Costa Rica 60.7 13.4 2,340 2.8 7.0 34.3 0.7 41
Ecuador 71.0 20.1 8,605 3.1 15.0 2.7 56.1 29
Mexico 45.4 22.7 71,215 3.2 14.0 39.6 38.6 41
Panama 43.3 21.0 1,877 2.6 6.0 8.9 23.9 52
Peru 43.5 13.2 17,031 2.7 16.0 17.0 63.5 40
Trin. & Tob. 36.8 34.7 1,185 1.3 34.0 5.0 92.9 50
Uruguay 37.2 10.9 2,929 0.4 4.0 38.2 0.7 56
Venezuela 64.1 34.0 15,423 3.5 13.0 1.7 97.9 52
Average 51.1 20.2 25,348 2.4 14.2 20.6 40.7 45
East Asia
China 18.0 30.6 991,300 2.2 4.0 NA NA 13
Hong Kong 0.6 27.6 5.154 2.2 4.0 96.5 1.6 41
Indonesia 73.4 20.9 149,451 2.3 9.0 2.4 75.8 28
Korea 2.4 23.0 38,880 1.9 32.0 89.9 1.3 22
Malaysia 50.7 26.6 14.,200 2.5 12.0 19.1 34.9 36
Philippines 39.8 23.9 49,558 2.8 7.0 36.9 21.2 34
Singapore 4.6 29.8 2,444 1.6 NA 30.5 27.7 66
Taiwan 4.8 26.6 18,136 3.2 3.0 NA 8.3 39
Thailand 35.1 20.8 47.966 2.7 5.0 28.1 13.7 15
Average 25.5 25.5 146,343 2.4 9.5 43.3 23.1 33
Other
Egypt 57.9 17.8 42,289 2.4 5.0 11.0 66.7 23
Hungary 6.8 29.3 10.,712 0.4 12.0 65.8 9.0 23
India 16.2 20.1 690,183 2.3 6.0 58.6 6.9 16
Israel 8.3 3.1 3,954 2.8 9.0 82.2 2.2 55
Ivory Coast 67.3 21.4 8,505 5.0 22.0 8.4 4.8 14
Kenya 51.2 16.0 17,363 3.9 11.0 12.2 35.9 12
Mauritius 75.1 18.0 971 1.7 17.0 NA NA NA
Morocco 52.6 14.6 20,891 2.5 12.0 23.5 45.4 28
Portugal 3.6 9.0 9,826 0.6 7.0 71.7 7.1 37
Spain 6.5 19.9 37,973 1.0 16.0 NA 8.2 39
Sri Lanka 67.8 12.0 14,988 1.8 1.0 18.6 27.7 36
aSources and definitions: See table 12.
in measuring the direct linkages between high income inequality, political

and social instability, and external debt crises. We suspect, but have not yet
proved, that the observed correlations of income inequality and debt
rescheduling can be accounted for by two kinds of linkages operating at a
more basic level: between income inequality and political instability; and
between income inequality and the choice of macroeconomic policies.
331
We have pointed out that income inequality is likely to affect political

stability in several different ways, making a test of the role of income
inequality for political stability exceedingly difficult to quantify. In some
countries, the income gap between strongly competing social groups may
lead to a coup (as in many Latin American countries, when the government
has been captured by populist forces); in other cases, the same kind of
competition may lead to a fruitless and debilitating alternation of power
between populists and orthodox politicians. In still other cases, a government
may be able to hold on to power for a considerable period but only by
'bribing' the organized opposition, at the expense of fiscal discipline.
Through these effects, and others as well, we suspect that high income
inequality hinders the adoption of needed policy changes on a timely basis.
The basic decisions to liberalize trade or to cut budget deficits become too
risky to bear in an environment of high income inequality. With regard to
trade policy, for example, the shift' away from inward-oriented growth
towards outward-oriented growth seems to require an initial large real
devaluation and sharp reduction in real wages, demonstrated by several
historical examples: Korea in the early 1960s, Brazil in the mid-1960s, Chile
in the 1970s, and Turkey in the early 1980s. It may be the case that income
inequality must -be sufficiently modest at the beginning of such experiments
in order to carry out and sustain politically a major change of this sort. 11
Similarly, the maintenance of realistic exchange rates and balanced budgets
is probably more difficult the greater is the income inequality. Unfortunately,
because of the absence of good cross-country data on budget deficits we have
not yet made any formal tests of the links of income inequality and budget
deficits. It is our intention to piece together better data on a country-by-
country basis as a prelude to such a test. 12
Our analysis remains much too sketchy to draw any strong policy
implications from our findings. The evidence presented in this paper says
little about how to adapt policy recommendations to the political constraints
that arise from the structural factors we have discussed. If the causal
mechanisms we discuss are important, however, then successful policies, in
particular successful stabilization and structural adjustment programs, will
take into account distributional consequences.
While the evidence suggests that low income inequality is a precious asset
for any economy, we have not yet investigated the efficacy of different kinds
II It is our guess that at least some of the staying power of the outward-orientation model in
East Asia results from the relative equalities of income in the region. In Latin America, shifts in
the trade regime towards outward orientation have been tried many times, and have repeatedly
failed, under the weight of political protest by aggrieved workers.
12 Similarly, measures of fundamental exchange rate misalignment, such as those presented in
Edwards (1988), might allow a direct test of the importance of exchange rate misalignment and
its relation to our structural variables.
332
of redistributive policies as ways to enhance the long-term political stability,

and the effectiveness of economic management, in developing countries. In
the absence of an improved distribution of income, however, we might
pessimistically conclude that many Latin American economies will be faced
with continuing cycles of political and economic instability.
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334
Classes, Sectors, and Foreign Debt
in Latin Alllerica
Jeff Frieden
Since 1965 international financial conditions have become a major factor in economics and
politics within the less developed countries (LDCs). The impact of international finance on
the LDCs provides an excellent opportunity to analyze the relationship between external
events and LOC domestic economic and political development. There was in fact great
variation in the response of LDC debtors to similar international financial circumstances.
Some liberalized their trade and investment policies as they borrowed; others tightened
them. Some used borrowed funds productively; others experienced enormous capital flight.
The 1982-1984 financial crisis saw the rise of new democratic regimes in some countries
and the consolidation of authoritarianism in others.
This paper uses the recent experience of five Latin American nations with overseas
financial markets to explore the effects of foreign economic trends on domestic economic
and political development. The paper develops a framework to explain why the five major
Latin American debtors-Mexico, Brazil, Argentina, Venezuela, and Chile-responded
differently to a nearly identical set of external constraints and opportunities. Its principal
explanatory tool is the character of socioeconomic and political cleavages within the
borrowing countries, especially the nature of relations within the business community and of
relations between the business community and the labor movement. When international
financial resources were readily available, the level of conflict between economic elites and
the labor movement determined whether governments relied primarily on the market
mechanism to allocate external resources or used sectoral policies to reinforce their social
bases of support. When the financial crisis hit and regimes were forced to reduce domestic
public spending, the kinds of assets held by different segments of the private sector
determined their economic .and political response, which ranged from capital flight to
political protest.
The first section describes the international financial setting and summarizes the analytical
issues the study addresses. The second section presents the study's analytical framework.
The third section applies the framework to the experiences of the five countries in question.
The fourth section draws broader inferences from the cases.
The Setting and the Issues
In the 1960s international financial markets began to rebuild ties with Latin America that had
been shattered by the widespread bond defaults of the 1930s. Mexico was the earliest major
Latin American Euromarket borrower in the early 1960s, followed by Brazil around 1967,
by Venezuela in the early 1970s, and finally by Chile and Argentina shortly after their
335
Comparative Politics October 1988
militaries disposed of worrisome Socialist and Peronist governments in 1973 and 1976
respectively. By 1977 the lending side of the Euromarket was both flush with funds and full
of aggressive new entrants, so that credit was extremely easy in the late 1970s.
Euromarket interest rates began to rise after the beginning of Paul Volcker's antiinflation
crusade in the United States in 1979. Eurodollar deposit rates went from 9 percent at the end
of 1979 to 21 percent in late 1981, yet bank lending was still easy to obtain. Argentina's April
1982 invasion of the Falkland/Malvinas Islands sped a chain of events already in motion, and
by mid 1983 almost no voluntary Euromarket loans were being made to Latin America.
We can regard the five major Latin American borrowers as having faced an essentially
identical supply of foreign finance. This generalization is oversimplified, since the market
usually distinguished between borrowers of different nationalities, but for our purposes
supply constraints were the same for all. Although they began borrowing at different times,
by 1976 all five were regular Euromarket borrowers. The supply of foreign finance began to
diminish for all five countries at roughly the same time.
Certain features of the Latin American economies during the recent financial expansion and
contraction are analytically unproblematical, inasmuch as they behaved as expected in all cases.
During the upswing of the latest Latin debt cycle, the greater inflow of foreign resources led
to a generalized increase in economic activity. At the same time, the opening of new avenues
of private capital importation reduced the relative significance of more traditional fonns,
especially foreign direct investment; the relative weight of multinational corporate investment
declined as borrowing increased. Greater financial integration allowed local firms with access
to foreign funds to expand their share of local economic activity; this effect redounded primarily
to the benefit of govemment-owned frrms and the very largest local private fmus. 1
The downswing of the Latin American financial cycle had two subperiods, each with a
few predictable results. As international interest rates rose after 1980, they exerted great
pressure on both Latin debtor sectors and local financial systems; these pressures were
exacerbated by the concurrent international recession and trade stagnation. Higher interest
rates increased interest payments on the floating rate foreign debt and forced debtors to
borrow ever more abroad and at home and to divert more resources to meet debt service
payments. Because the debtors' financial systems had become quite integrated with those
abroad, rising overseas interest rates forced domestic interest rates in Latin America sharply
higher. The result was a generalized financial and speculative boom: extraordinarily high
local interest rates diverted local savings from productive investment, sucked in foreign
capital, and kept exchange rates overvalued amid rampant speculation against them due to
the highly uncertain environment.
In 1982 the supply of external funds virtually dried up, which exploded the financial
bubble that had built up after 1979. Strapped debtors were thrown back onto already
crowded domestic financial markets. Inflation skyrocketed as governments attempted to
cover their obligations by monetizing their deficits; interest rates rose even further as nearly
insolvent debtors attempted to cover their obligations by borrowing even more. Declining
investment, rising inflation, high domestic interest rates, and cuts in public spending
everywhere drove the continent into depression.
If much of the recent Latin American experience with intemation~ financial markets was
predictable-prosperity during a time of easy money, austerity when the spigot was turned off,
all coupled with an increased responsiveness of domestic financial markets to overseas trends-
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Jeff Friede"
there was great frequency and amplitude in variations between national policies and the ori-
entation of national private sectors. Policy ranged from extreme economic "neoliberalism" to
massive state intervention. Borrowed funds were used overwhelmingly for productive invest-
ment in some instances and dissipated in capital flight in others. As economic crises broke over
Latin America after 1980, regimes were reinforced in a few countries, toppled in others, and
weakened but left intact in still others. Most discussions of the experience are content to ascribe
the differences to policy peculiarities of a more or less random nature, but it is no more
intellectually acceptable to explain differences among national policies as the result of "policy
mistakes" than it is to blame business cycles on managerial stupidity.:!
Our purpose is to explain, not simply assert, differences among national reactions to
external conditions. The variations that require explanation can be drawn together on two
dimensions, one measuring government policy and the other ranking private sector reactions
to government policy. First, government policies can be said to vary from market to inter-
ventionist extremes. At one end of the continuum public policy plays no role in channeling
private investment and restricts itself to "the preservation of order;" at the other end the state
actively chooses areas in which to invest and to encourage private investment, thereby
manipulating sectoral rates of return. Second, private economic agents can react either with
confidence in the government or with skepticism. At one extreme private investors respond
to sectoral incentives with sectoral investments or to general stability with long-range in-
vestment horizons; at the other extreme private economic agents regard government actions
with suspicion and search either for alternatives to investments that rely on government
policies or for a new government. On the policy dimension, Chile after 1973 was closest to
the free-market extreme, Brazil closest to the interventionist; the other three were in between,
with Argentina closer to Chile and Mexico and Venezuela closer to Brazil. On the other
continuum, governments in Brazil (before 1981) and Chile enjoyed the most confidence from
the private sector, in Argentina the least, in Mexico somewhat more than in Venezuela.
There are important analytical and policy reasons to explore the tension between market
and state intervention and between private sector support for and wariness of government
economic policies. The implications of state intervention in the developing economies are of
course extremely controversial. A better understanding of why some governments intervene
more than others is clearly an important step toward evaluating this intervention. In a related
way, economic policy in the development process is in its essence an attempt to stimulate
private investment in new productive capacity, and its success depends in large part on the
private sector's confidence in the government. Private sector faith in the government can
lead to increased investment and economic growth, while private sector skepticism about
government commitments can dampen investment and drive the business community to
political protest. An explanation of the factors influencing both government economic
policies and private sector reactions to them will thus help to clarify some of the central
issues in Latin American politics and economics.
An Analytical Framework
In this section we show how relations between labor and capital and divisions within the -
business community can be expected to affect government policy and the private sector's
337
response to this policy. 3 The underlying principle that motivates this discussion is that all
policies, no matter how rational or necessary, have differential effects. Devaluing an
overvalued currency or stopping a hyperinflation may be desirable for society as a whole,
but the costs and benefits of such policies are not borne equally by all, which is why they are
controversial.
The first broad cleavage in the Latin American political economies divides the modem
business community from the industrial labor movement, the most concentrated and
strategically located focus of popular discontent. The more confrontational Latin American
labor-capital relations are, the more individual capitalists will be concerned about the
maintenance of property rights rather than about their sectoral needs. In such circumstances
the business community will be amenable to delegating a great deal of independence to the
government in the interests of law and order. For its part, the regime will be less tied to
specific groups of capitalists and freer to implement economic policies that safeguard the
investment climate generally without picking and choosing its favorites. The reduction in
sectoral demands will lead governments to undertake more market-oriented policies, which
tend to have a "disciplining" effect on the labor movement. 4 This is especially true in Latin
America, where years of import substitution have allowed industrial wages to rise above
their levels in other, more open developing countries.
The more hostile the labor movement is, then, the more Latin American capitalists tend to
delegate authority to a government that tends to implement market-oriented policies. High
levels of class tension reduce bourgeois demands for sectoral incentives, increase demands
for the general preservation of acceptable business conditions, and override capitalist
resistance to laissez-faire economic policies. More peaceful and cooperative labor-capital
relations, on the other hand, give businessmen little reason to refrain from demanding
subsidies specific to them; indeed, they can ally themselves with "their own" workers in
lobbying for government support. The less antagonistic labor-capital relations are, then, the
more Latin American governments will follow interventionist sectoral policies.
To understand the economic and political reaction of the private sector to government
economic policies, we focus on the divergent interests of different sectors within the
business community. Although there are many divisions among investors, we group them
under two broad headings: holders of liquid and fixed assets. s Liquid assets, such as bank
deposits, can easily be turned into ready money and transferred from one application to
another; fixed assets, such as shoe factories, are tied to a particular location and economic
activity. To a certain extent this overlaps with market competitiveness, since liquid asset
holders will be found only in sectors with high rates of return, while fixed asset holders may
be "stuck" in struggling sectors. The division is hardly stark, and the specifics vary from
country to country and over time. But generally liquid asset sectors include finance, real
estate, services, and domestic and foreign trade; fixed asset sectors include industry and
agriculture.
In their economic reactions to government policies, liquid asset holders are more sensitive
to general market conditions, while fixed asset holders respond more to government
measures specific to their lines of business. This is not to say that market trends do not
matter to industrialists or subsidies to bondholders, only that both the intensity of policy
preferences and the relative responsiveness to policy differ. Generally, market-oriented
338
Jeff Frieden
policies benefit liquid asset holders more than fixed asset holders, while sectoral policies are
more beneficial to fixed asset holders.
Different kinds of investors also have different propensities to engage in political action,
as Albert Hirschman has noted. Holders of liquid assets are better able to shift their
investments in response to changes in government policy and will be less likely to react to
such changes with political protests. Fixed asset holders, on the other hand, will be forced
more quickly into the political arena if their assets are threatened. In other words, when
investors in liquid assets face uncertain or unfavorable policies, they can "retreat" into
reliance on market alternatives; when investors in fixed assets find their interests threatened,
they will voice their dissatisfaction since market alternatives are less available to them. 6
Thus increased economic uncertainty or unfavorable economic policies will lead liquid asset
holders to shift their funds into safer outlets at home or abroad, while fixed asset holders will
react with political protests and demands for more favorable government actions.
We can combine all these elements into a dynamic picture of how economic policy and
private economic agents interact in Latin America. Governments in societies with major
class cleavages will pursue more market-based policies, while governments of societies
without significant labor-capital conflict will pursue more sectoral policies. Over time,
market-oriented policies will strengthen liquid asset holders more than fixed asset holders,
while sectoral policies will have the opposite effect. A shift in government policies that
increases uncertainty and/or reduces rates of return will lead liquid asset holders to pursue
more attractive market alternatives, including capital flight, while fixed asset holders will
increase pressure on the government for a change in policies. Of course, since fear of labor
dominates sectoral concerns, unfavorable policies will call forth less bourgeois dissent the
more important class conflict is.
This framework can be tested against the two exogenous shifts in the availability of
external finance that bracket the recent Latin American borrowing experience. External
conditions are altered at the beginning of the test by the dramatically increased supply of
foreign finance, to which domestic policy responds; the countries evolve on the basis of this
policy. External conditions are changed again when external finance dries up, which forces
a shift in government policy that calls forth a private sector response. A simplified sketch of
the different national reactions is as follows.
I. Once the supply of external finance to a country opened up, the government faced a
choice over how funds would be allocated. Capital inflows could either be channeled to
favored borrowers or allowed to follow the dictates of the marketplace. The more serious
class conflict was, the more the government tended to remove itself from the allocation
process. Of our five cases, Chile clearly had the most hostile labor-capital relations and
pursued the most market-oriented policies; Argentina also had a long history of labor strife
and followed relatively free market policies. Both Mexico and Venezuela have powerful
labor movements that have nonetheless developed relatively stable relations with capital and
the state; regimes in both countries tended to mix reliance on sectoral intervention with
market-oriented policies. Brazil's industrial working class has generally been weak and
nonconfrontational'l and Brazilian economic policy has been the most sectoral in all of Latin
America.
2. From the beginning of recent borrowing until the early 1980s, each country evolved
along the lines set by the policies outlined above. Chilean financial and commercial
339
liberalization strengthened liquid asset holders and newer groups of entrepreneurs outside of
traditional industry; a similar but less pronounced process took place in Argentina. In
Mexico and Venezuela the mix of policies strengthened favored sectors, especially in
industry, while market trends allowed liquid asset holders, especially in trade, finance, and
real estate, to grow as well. Brazil's sectoral incentives helped build very powerful basic
industrial and agribusiness communities, especially in Sao Paulo state. The relative
evolution of the five countries' manufacturing, wholesale and retail trade, and financial
services sectors in the 1970s is illustrative, although the time periods are not strictly
comparable and the data are somewhat suspect. In both Chile and Argentina the share of
manufacturing in Gross Domestic Product (GDP) declined between 1970 and 1980, while
that of trade and finance combined rose: trade and finance grew almost four times as fast as
manufacturing in Chile, and twice as fast in Argentina. In Mexico, Venezuela, and Brazil
the trend was the opposite: manufacturing grew between one-quarter and two-thirds more
rapidly than trade and finance. 7
3. The position and power of different sectors of the business community illuminate the
five countries' response to the cutoff in external finance after 1982. The crisis forced all
governments to reduce spending, but the private sector reaction varied widely. In Brazil the
fixed asset holders who had been so strengthened by previous policies fought back against
government austerity and eventually drove the military from office in favor of a more
congenial civilian regime. In Chile, on the contrary, the centrality of bourgeois fears about
labor dampened the opposition of the business community, whose protests have been scarce
and ineffectual. In Argentina, Mexico, and Venezuela, governments have attempted to
balance the demands of both industrial constituents and liquid asset holders with varied
results.
The following section presents a more detailed analysis of the five major Latin American
borrowers' economic and political reactions to external financial trends, organized around
two features of the societies in question, the character of labor-capital relations and of
relations between groups of private investors. In each case we examine, first, government
policies pursued during the financial expansion and the private sector economic and political
response to them and, second, government policies during the contraction after 1980 and
how the private sector responded to them both economically and politically. 8
Five Cases
Brazil9 The Brazilian experience most closely approximates our ideal type of a society in
which class cleavages are secondary to sectoral divisions. The Brazilian labor movement has
never been especially radical; the three-year orthodox stabilization program that followed the
1964 military coup served to weaken and moderate it still further. Brazilian economic policy
from 1967 to 1980, then, was overwhelmingly sectoral, and the government built close ties
with favored sectors. When after 1980 international financial conditions required sectoral
programs to be cut back, the resulting protests drove the military from power.
After 1967 the Brazilian regime developed a vast network of subsidies and incentives to
encourage rapid industrial growth. The government's strongly interventionist policies were
led by a public sector that was a major user of overseas finance. Over three-quarters of the
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Jeff Frieden
country's foreign debt is owed by the public sector, and the bulk of Brazilian borrowing was
done directly or indirectly by finns in basic industry, the provision of crucial industrial
inputs, and capital goods. There is general agreement among analysts that the Brazilian
government managed its debt well by Third World standards and that most foreign funds
were channeled to productive investment.
From 1967 to 1980 massive public investments pulled the Brazilian economy forward at a
rapid rate, as the private sector responded with alacrity to the incentives it was offered. In the
"miracle" period, from 1967 to 1973, industrial production rose by III percent, led by
producers of consumer durables, especially automobiles and appliances; basic industries also
grew rapidly. From 1974 to 1979, often known as the "big projects" period, the government
began construction of a series of largely debt-financed investment projects aimed at increasing
the supply of essential industrial inputs and/or expanding production of exportable goods.
Although the state dominated the process, the investment boom also led to impressive growth
in the private sector finns that were supplying capital and intennediate goods to the parastatals.
Rapid industrial development depended on extremely close relations between Brazil's
government and its capitalists, especially fixed asset holders. Close ties were built between
state firms producing basic industrial inputs and their local suppliers and customers, public
development banks and local industrial borrowers, and industrial and agribusiness exporters
and various farm and export credit agencies. If this web of public-private interaction sped
Brazilian industrialization and immensely strengthened Brazil's industrial bourgeoisie, it
eventually led to the military's downfall when external conditions forced it to cut off many
of its former supporters.
As international interest rates rose after 1979, pressure on Brazilian debtors, especially the
state sector, increased. The government was forced to cut domestic spending even as heavily
indebted finns that depended on public sector orders themselves came under increasing
financial pressure. The country's deteriorating terms of trade combined with growing debt
service payments to squeeze the payments balance, forcing a curtailment of imports. All in
all, by 1981 the economy was in a tailspin, led downward by Sao Paulo heavy industry.
From 1981 to 1983 manufacturing production dropped nearly 15 percent, and capital goods
production by half.
Liquid asset holders could take advantage of high return financial instruments, but fixed
asset holders, especially the powerful industrialists, immediately voiced their displeasure in
the political arena. Sao Paulo's influential industrialists, who had come to rely heavily on
parastatal orders and inputs, swung heavily toward the opposition. This broadening elite
opposition led to the defection from the government of much of the ruling party and to the
indirect election of an opposition civilian president by a major coalition of the major
opposition party and dissidents from the official party in 1984. Upon the unexpected death
of the pr~sident-elect, vice president-elect Jose Sarney took office in March 1985. Since
then, despite a recovery in Brazil's export earnings, the new government has pursued
generally more nationalistic policies on the debt issue, and domestic economic policy has
moved to favor the growth of industrial production for the local market.
In Brazil, then, the lack of any major threat from labor pushed government policy in a
highly sectoral direction, and fixed asset holders responded industriously. After 1980,
however, as the financial crisis forced a curtailment of sectoral policies, previously favored
sectors reacted with massive, and ultimately successful, political protests.
341
Contparative Politics October J988
Chile 10 The Chilean story is virtually the polar opposite of Brazil's. The extraordinary
salience of the labor-capital divide in Chile dampened intercapitalist conflict, led elites to
give the military dictatorship a very free hand in the economy, and pulled economic policy
toward an extreme free market orientation. The business community reacted quickly to the
market opportunities the regime's policies presented. The economy boomed as foreign
finance flooded in, then collapsed violently after 1981. Despite the depth of the crisis,
bourgeois protest has been muted by fear of labor.
Broad elite support for the coup that toppled the left-wing government of Salvador
Allende in 1973 translated into relative autonomy for the armed forces in power. The
dictatorship led by Augusto Pinochet thus undertook a radical reordering of Chilean society,
while elite dissatisfaction was always dampened by the latent fear of a return of the
Socialists.
After taking power, the military regime temporized for a year, then subjected the
economy to a severe antiinflation program that threw the country into a short but deep
depression. In 1976 the economic team began to implement its neoliberal program. Capital
movements were liberalized and tariffs reduced; by 1979 Chile· had a uniform 10 percent
tariff on imports, extremely low by virtually any standard. Between 1975 and 1977 most of
the finns that had been nationalized by Allende were sold back to the private sector.
Economic liberalization had a clear political content. The Chilean regime regarded
existing protection to domestic industry as a major cause of the strength of the industrial
working class. The exposure of domestic industry to international competition would
squeeze excess labor and inflated wages out of the industrial sector; access to foreign capital
would allow entrepreneurs either to modernize their businesses or to start new ones more in
line with Chile's comparative advantage. More generally, the military expected the market
refonns to strengthen the private sector both economically and politically.
The regime's policies allowed investors, especially liquid asset holders, to expand very
rapidly. A group of new private conglomerates centered on nonindustrial activities were the
greatest beneficiaries of the free market reforms. Most of the conglomerates bought
inexpensive assets sold off by the government after the 1973 coup and were thus highly
diversified, including finns in finance, commerce, real estate, and some industries. A large
bank was usually at the core of the group, and the bulk of Chilean borrowing was done by
these conglomerate banks.
Chile's per capita foreign debt is one of the world's highest, yet it was almost exclusively
private finns that did the borrowing. Between 1974 and 1981 public sector foreign debt went
from $4 billion to $5.5 billion, which represented a decline in real tenns; the Chilean private
sector's overseas debt rose from $1 billion to $10 billion in the same period. Much of the
private borrowing was used for productive purposes, especially in the modernization of
agriculture and some labor intensive industries. Yet a large part of the borrowed funds went
into such less productive activities as luxury housing construction, the building of large
conglomerates, and the purchase of imported consumer durables, often through former
industrial firms that had switched to importing. As elsewhere, the use of borrowed funds is
difficult to measure and politically controversial; nonetheless, it is probably safe to assert
that Chilean foreign borrowing was about evenly divided between financing local investment
and fueling local consumption and speculation.
Even during the boom, a few economic alarms began to sound. In an attempt to reduce
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Jeff Frieden
inflation, which was already quite low, Pinochet froze the peso in 1979 at 39/dollar and
committed the government to maintain this parity. Although domestic inflation went down
to only 10 percent in 1981, it had been far enough above world levels that the peso became
progressively overvalued. This made foreign capital and goods even cheaper, and after 1979
Chile experienced a patently unsustainable spurt of foreign borrowing and imports. Yet
entrepreneurial confidence in the government was strong enough that there were few
expectations of devaluation until 1981. In the meantime, the neoliberal policies were indeed
reducing the size of the industrial sector: even in 1980, at the height of the boom, industrial
production per person was well below 1973-1974 levels.
In 1981 the rise in international interest rates and stagnation in world trade signaled
impending difficulties. By mid 1981 the euphoria had passed, and in late 1981 the financial
system was rocked with successive waves of bankruptcies. The economy collapsed, as
virtually all major private firms faced overseas interest payments they could not afford to
meet. Gross domestic production dropped by 15 percent in 1982-1983, open unemployment
shot to over 20 percent, and inflation returned to 21 percent in 1982.
Although the Chilean depression led to a resurgence of popular discontent, Pinochet
succeeded in holding onto power in conditions at least as disastrous as those that toppled
military dictatorships in Brazil, Uruguay, and Argentina. A major reason for Pinochet's
staying power, and for the relative ineff~tiveness of the opposition, is that the business
community did not join the open opposition to the government. The business community,
and especially the industrialists, despite great dissatisfaction with government economic
management, indeed stayed on the political sidelines. Businessmen still confront the specter
of a return to power of the Left, and their fear of the Left tempered their discontent with the
dictatorship.
The prominence of labor-capital hostility in Chile led a powerful and independent regime
to pursue very market-oriented policies. Liquid asset holders profited greatly, while most
other investors' complaints were muffled by concern over labor. The crisis, again, led to
serious economic distress, but the threat from the Left served to stifle bourgeois protest.
Before moving on to the three int~rmediate cases-Mexico, Venezuela, and Argentina-
we can make two points about the polar cases. First, in both Brazil and Chile generalized
bourgeois confidence in the government helped alleviate real or potential problems with
capital flight. Close sectoral ties in Brazil led investors there to regard the policies of the
early 1980s as aberrations that could be corrected with well-applied political pressure, thus
making it unnecessary to invest abroad. Chilean investors' faith in the government led them
to discount the possibility of a devaluation until it was too late, while their belief in the
regime's stability encouraged them to accumulate tangible assets (real estate, luxury cars) in
Chile rather than abroad. Second, there were outliers from the general pattern in both
countries. In Brazil, liquid asset holders were relatively unharmed by the crisis and remained
supportive of the military until the end; they were simply overwhelmed by fixed asset
holders whom the military's own sectoral policies had served to strengthen. Chile was a
mirror image of this: many fixed asset holders were hard-hit both by liberalization and by the
crisis, but the overwhelming weight of the military-encouraged liquid asset holders, coupled
with fear of the Left, made their concerns nearly irrelevant.
While sectoral concerns clearly dominated the Brazilian political economy, and class
concerns the Chilean, none of the three remaining cases is so clear-cut. Relations between
343
labor and capital are more hostile in Mexico, Venezuela, and Argentina than in Brazil, but
not so confrontational as in Chile. Sectoral patterns of cooperation and conflict are more
important than in Chile, but not so central as in Brazil. The result in all was government
policies that were neither as militantly free market as Chile's nor as totally sectoral as
Brazil's and a private sector response that combined cooperation over sectoral programs, a
flight into market alternatives, and political protest.
Mexico I I Since World War II Mexico's ruling Partido Revolucionario Jnstitucional

(Revolutionary Institutional Party or PRJ) has walked an increasingly thin line between
catering to the demands of industrialists, farmers, and workers, on the one hand, and
allowing more footloose investors freedom to operate, on the other. The sectoral component
of Mexican policy goes back to the close ties built between urban capitalists, labor, and the
middle classes in the aftermath of the revolution. The free market component responds to
underlying fear of the labor movement and to the ready availability of an enormous safe
haven for investors just across the Rio Grande. Conflicting pulls on economic policy led the
country into severe crises, first in 1975~1976, then after 1982.
Mexico led the way in the most recent round of Latin American borrowing: the Mexican
government floated its first foreign bond since the revolution in 19~2, and within a few years
loans from overseas banks were the country's chief source of foreign capital. New access to
overseas funds allowed the public sector to provide large-scale subsidies to the private
sector, especially in the form of artificially cheap inputs.
About three-quarters of Mexico's foreign borrowing was done by the public sector, and
most of it went to fund investment in the country's rapidly growing basic and intermediate
industries. Some private industrial firms were large borrowers, including both local affiliates
of multinational corporations and larger private domestic firms. Private banks also funded
ever larger portions of their operations abroad, taking funds in New York or London and
relending to Mexican firms.
Access to overseas finance did not eliminate the conflict between Mexico's sectoral
incentives and market stability, and the country went through two cycles of boom and bust
between 1970 and 1983. The first began during the administration of Luis Echeverria
(1970-1976). Echeverria attempted a major push to both accelerate economic growth and
broaden the regime's political base by making heavy use of foreign borrowing to expand
public sector investment and social programs. Although the economy expanded as fixed
asset holders responded to many of the government's investment incentives, holders of
liquid assets were increasingly concerned about the growing strength of the Left in the PRI
and moved much of their money to safer, usually Ameri·can, soil. In 1975 and 1976, indeed,
much of the country's foreign borrowing went to support an overvalued peso, only to be
channeled right back abroad by Mexican speculators against the peso.
Unable to expand his public investment program, Echeverria stepped back toward more
orthodox measures. Echeverria left his successor, Jose Lopez Portillo (1976--1982), an
already signed IMF stabilization program that committed Mexico to domestic austerity and
limited foreign borrowing. Yet the 1976-1979 adjustment plan was overtaken by the rapid
increase in Mexican oil exports from $121 million in 1974 to $13.5 billion in 1981, due to
a combination of massive new discoveries and the 1979 jump in world petroleum prices. Oil
both appeared to solve Mexico's export problems and made the nation even more attractive
10
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Jeff Frieden
to foreign financiers. From 1978 to 1981 Mexico experienced an extraordinary economic

expansion, as GOP grew by 36 percent; the production of consumer durables and investment
goods rose by 70 percent. Rapid growth was funded both by petroleum exports and by
overseas borrowing; Mexican foreign debt went from $34 billion to $72 billion in the period.
The expansion, again, ran on two tracks. The public sector offered immense sectoral
incentives: fixed asset holders benefitted from increased government orders and subsidies and
from easy access to credit. At the same time a measured financial liberalization allowed
footloose investors access to more diversified and attractive investment vehicles than ever
before, including "Mexdollar" deposits, denominated in U.S. dollars and earning
internationally competitive interest rates.
After several years of frenzied economic growth, strains once more began to appear in the
Mexican economy. As inflation mounted and the peso became progressively overvalued,
devaluation expectations began to grow in late 1980, and speculation against the peso started
again. The decline in the world price of oil and the continued rise in world interest rates also
served to increase pressure on the Mexican payments balance. The process reached absurd
proportions in 1981 and early 1982, as the public sector increased its overseas debt by $25
billion and the private sector by $5 billion, while Mexican private investors are estimated to
have sent $20 billion abroad.
By early 1982 the situation was unsustainable. In February the peso was devalued, but
capital flight continued. Finally, in August 1982 the bubble burst: the government declared
a unilateral moratorium on debt service payments and devalued the peso again. The
government first swung radically away from market-oriented policies: it imposed exchange
controls, nationalized the country's private banks, and forcibly converted all domestic dollar
deposits ("Mexdollars") to pesos. After several months, in which the new interventionism
scared ever more liquid asset holders and capital flight continued, policy swung back. The
new administration of Miguel de la Madrid Hurtado (1982-1988) negotiated yet another
IMF agreement, cut government domestic spending to reduce the budget deficit, and
scrambled to meet steep interest payments. The laboring classes were especially hard-hit, as
real wages are estimated to have dropped by nearly 45 percent in 1983-1984}2
The economic shocks after 1982 were cushioned somewhat by government policies that
included a bail-out of indebted firms, the maintenance of below-market interest rates for
some time, and selected subsidies for consumption. At the same time, the government
moved cautiously to liberalize some commercial and financial transactions, thus bowing to
insistent pressure from liquid asset holders and the more competitive agricultural and
industrial producers, especially in the country's North. The most salient political
development of the period was indeed the growth of a conservative opposition, centered on
the Partido de Accion Nacional (PAN), whose economic preferences are relatively
market-oriented.
Between 1965 and 1985, then, Mexico alternated between economic expansions, heavily
financed with foreign borrowing, and market-oriented adjustments precipitated by payments
crises involving an overvalued peso and capital flight. Fixed asset holders expanded their
activities with each bout of major public investment, but the expansions soon ran up against
the lack of confidence of more footloose investors, calling forth concessions to them in the
form of market liberalization. Neither the sectoral policies nor the market-based initiatives
were concerted or consistent enough to satisfy the two disparate groups of investors, so that
11
345
today the government faces real difficulties in mobilizing the resources of either sector. Tom
between conflicting demands, the PRI has continued to temporize.
Venezuela lJ As in Brazil and Mexico, the government of Venezuela undertook major

sectoral programs in the 1970s. Although massive public investment had much of the
desired effect, the country's great oil wealth and borrowing also reinforced very powerful
liquid asset holders. Great tension between the mostly industrial beneficiaries of the sectoral
programs, including the country's influential labor movement, on the one hand, and the
financial, commercial, and real estate sectors, on the other, pushed the government after
1979 to reduce public spending. The result was economic stagnation and massive capital
flight, as liquid asset holders sent billions abroad while fixed asset holders lost many of the
sectoral stimuli they had come to rely on.
Since the establishment of an open electoral system in 1958, Venezuelan politics has been
dominated by the social democratic Accion Democratica (AD) and the social Christian
COPEI parties. Although the differences between the two parties are sometimes hard to
discern, in economic policy AD has been more interventionist and developmentalist than
COPEI. As would thus be expected, the former tends to draw elite support from
entrepreneurs in protected industries, while the latter is more closely associated with the
financial, service, and foreign trade sectors.
Despite Venezuela's earnings from petroleum exports, the country had accumulated a
foreign debt of over $32 billion by 1982. This was in part due to the easy supply of funds:
the country's oil wealth made it so attractive a borrower that funds were offered cheaply.
Another cause of the country's debt build-up was the near total freedom of capital
movements before 1983, which gave both private and public firms and individuals free
access to overseas financial markets. In any event, most of the foreign debt is owed by the
public sector, especially by the large state firms in petroleum, iron ore, steel, hydroelectric
power, and bauxite, and by the national development agency. Private banks and firms also
borrowed, especially to finance industrial expansion and urban construction.
Venezuelan Euromarket borrowing began in earnest after the 1973 OPEC oil price
increases. The country's windfall encouraged the Accion Democratica administration of
Carlos Andres Perez (1974-1979) to embark on an ambitious program to spur heavy
industrial growth and develop Venezuela's rich natural resources. The petroleum and iron
ore industries, nationalized in the aftermath of the oil price hikes, made large new
investments, along with steel, hydroelectric power, bauxite and aluminum, transportation
and communications, and public housing. Given AD's populist orientation, Perez made sure
that large portions of the country's middle and working classes shared in the prosperity of
his "Greater Venezuela" program. Government employment was expanded dramatically,
subsidized services were provided, and the flood of dollars allowed for a huge increase in
popular access to consumer durables. Concurrently, the Perez administration encouraged
industrial entrepreneurs to produce (or supply components to firms that produced) the
consumer durable, capital, and intermediate goods needed to satisfy burgeoning demand
from both the parastatal investment projects and the newly prosperous middle class.
The size of the Perez era economic boom is indicated by the fact that public investment
went from a billion dollars a year in the early 1970s to nearly six billion a year between 1976
and 1979, while annual private investment went from under two and a half to over eight
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Jeff Frieden
billion dollars in the same period. Overseas borrowing from 1974 to 1978 was $13.2 billion,
four-fifths by the public sector. This was matched by a more or less analogous increase in
overseas assets held by the public ($9.6 billion) and private ($2.8 billion) sectors, so that
borrowing allowed reserve accumulation to proceed along with the massive sectoral
investments. 14
In 1979, Accion Democratica was voted out of office, and COPEI took power, led by
Luis Herrera Campins. The new administration, along with liquid asset holders, was
concerned both by a gradual increase in inflation and by what it viewed as the Perez period's
overinvestment. The COPEI administration thus moved away from sectoral policies, wound
down many of the large projects, and concentrated on fighting inflation. Domestic interest
rates were controlled, and the increasingly overvalued Bolivar (fixed at 4.3/dollar since
1963) was supported. In both cases the intent was to avoid inflationary shocks. Yet
continued inflation, low domestic interest rates, and devaluation expectations led
Venezuelan liquid asset holders to invest more and more heavily in overseas bank accounts
and real estate. In August 1981 domestic interest rates were freed, and capital flight tapered
off, but within a few months the weak world oil market and the gathering international
financial storm led to renewed expectations of Bolivar devaluation. Between April 1982 and
mid February 1983, $14 billion in flight capital left Venezuela; in the first six weeks of 1983
capital fled at the rate of a half billion dollars a week, a remarkable pace for a country of
eighteen million people.
By February 1983 it was no longer possible to maintain the value of the Bolivar. The
currency was devalued, which made much of the heavily indebted private sector insolvent,
and a recession ensued. In the midst of the crisis the COPEI was voted out, and Jaime
Lusinchi led Accion Democratica back into office in February 1984. The new government
mixed sectoral and market-oriented policies: it bailed out many domestic private finns and
banks to avoid a more serious collapse but committed itself finnly to austerity and
stabilization.
Despite impressive oil wealth and easy access to Euromarket borrowing, Venezuelan
economic policy has been pulled in two opposing directions. Great prosperity allowed for
the coexistence of sectors that were tightly tied into world financial and goods markets, on
the one hand, and those that grew up behind high protective barriers, on the other. With the
end of easy economic growth, the former, grouped around the Grupo Roraima lobby, has
applied pressure for less government intervention at home and freer trade and payments
abroad; the latter group has insisted on new efforts at import substitution. Just as these
sectoral clashes constrained economic policy in the 1970s and early 1980s, their outcome
will determine the economy's future orientation.
Argentina IS The depth of conflict on both class and sectoral dimensions has marked
Argentine politics for over fifty years and accounts for much of the country's chronic
political instability, the wild swings in its economic policies, and its generally poor
economic performance. 16 Argentine politics has indeed been characterized by two deep
divisions: one separates the conservative free market traditionalists of the financial,
commercial, and agroexporting sectors from the more progressive and nationalistic urban
industrial areas; the other divides the country's powerful Peronist-led labor movement from
the propertied classes. Between 1976 and 1983 the military dictatorship generally pursued
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347
COlnparative Politics October J988
market-oriented policies, but with enough sectoral exceptions to preserve the country's
political and economic schizophrenia.
The 1976 military coup that overthrew a three-year-old disunited Peronist government had
broad elite support. City and countryside, protectionists and free traders, conservatives and
moderates, all saw military intervention as the only alternative to populist chaos and social
disintegration.
The military and its supporters agreed that the labor market had to be restructured. Import
substitution had created industries that were inefficient even by Latin American standards
and had swelled both the size and the bargaining power of the industrial work force. Labor
discipline needed to be reimposed, and measures to this end included repression and,
eventually, policies designed to subject industry to stiffer competition. However, the desire
to subject the economy to purgative market forces was tempered first by the military's ties to
some uncompetitive sectors and second by the fact that some of the country's least efficient
enterprises were run by the military itself. Policy thus combined continued subsidies to a few
favored sectors with more general market liberalization.
The military dictatorship's economic policies between 1976 a"nd the end of 1978 centered
on reducing wages, in order to both restrain inflation and deflate the Peronists' support base,
and on making substantial public infrastructural investments. Real wages dropped by a third
from 1975 to 1978, and the public corporations expanded their investments, largely with
funds borrowed abroad. 17 After the 1976 military coup opened the Euromarkets to
Argentina, the country made ample use of foreign credit. From 1976 to 1978 public firms
borrowed to fund modernization in such sectors as telecommunications without squeezing
domestic financial markets; in this period public foreign debt went from five to nine billion
dollars, while overseas private debt rose from three to four billion.
The military's economic team introduced a far-reaching neoliberal reform package in
December 1978. The package liberalized both foreign trade and capital flows, and the
government began announcing the rate of currency devaluation in advance. Freer trade was
expected to force domestic producers to improve their performance in the face of foreign
competition. The preannounced exchange rate (the so-called tablita) was to dampen
inflationary expectations since the rate of devaluation implied a belief that domestic inflation
would decline rapidly.
The December 1978 neoliberal program was extreme even by Argentine standards, and it
became even more extreme in succeeding years. Concern about the labor movement, which
had originally solidified bourgeois support for the military, was not sufficient to quiet the
discontent of fixed asset holders who were hard-hit by the military's turn toward radical
market-based reforms. Many industrialists, who welcomed the military"s repression of labor
militancy" were disturbed by the removal of traditional protective barriers. The progressive
overvaluation of the peso as' the government lagged the exchange rate similarly served to
make Argentine goods less competitive. The agricultural sector supported freer trade in the
manufactured products it consumed" but it too found the peso's overvaluation increasingly
troublesome as even Argentine wheat came close to being priced out of world markets.
The economy did not respond as hoped to the reforms. As finance flooded in, the public
sector"s external debt rose from $9 billion in 1978 to $20 billion by 1981, the private
sector"s from $4 billion to $16 billion. Much of agriculture and some industries bought
imported capital goods to modernize their operations. Yet a large portion of the 1979-1981
14
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Jeff Frieden
capital inflow was used for consumption or for purely speculative purposes. Indeed,
industrial production as a share of GDP dropped from its historical 28 percent to just 22
percent by 1981.
In the meantime, the country was experiencing a substantial consumption boom that also
helped temper discontent. With the peso ever more overvalued, imports were extraordinarily
cheap; more sophisticated consumer goods produced with cheap imported inputs or in some
cases simply imported directly were suddenly within reach of middle class Argentines for
the first time. Imports as a proportion of GDP soared from historical levels of around 8
percent to 15 percent in 1979-1981. So too were foreign travel and foreign investment
increasingly attractive; Argentine visitors flooded into Miami, New York, and Paris, and
many left sizable bank accounts behind when they returned to Argentina.
The economic team tried to reduce public spending, but the parastatal finns, highly
independent and often controlled by influential generals, simply went abroad to borrow to
finance their operations. State petroleum, public works, telecommunications, and
transportation finns thus undertook or continued large investment programs, adding to the
economic boom. The economy careened crazily between market-based neoliberalism and
massive public investments of dubious worth.
In early 1980 the overextended financial system began to show signs of strain. As the
peso became extraordinarily overvalued, devaluation expectations grew, and capital flight
increased. The government began borrowing heavily abroad to support the peso. Rising
world interest rates and stagnant world trade put even more pressure on the payments
balance, and by the end of 1980 the private sector was clamoring for a change in policies.
In March 1981 General Roberto Viola became president, with the apparent intention of
decompressing the economic and political systems gradually in order to be able to tum
power back to moderate politicians. Viola responded to the business community's
complaints and dismissed the neoliberal economic team, discarded the preannounced
exchange rate, devalued the peso significantly, and bailed out heavily indebted banks and
corporations. However, in yet another Argentine swing, at the end of 1981 hard-liners
forced an ill Viola out of office and restored the neoliberal economic team. Their attempts to
return to previous policies were of course overtaken by the Malvinas/Falklands war and then
by the generalized financial crisis of 1982-1983. In the aftennath of the military and
economic fiasco the anned forces handed power back to the elected civilian regime of
Radical Raul Alfonsin in late 1983. After a year and a half of temporizing the Alfonsin
government launched a dramatic stabilization program, even while the ruling Radicals
attempted to consolidate their position against the Peronists.
In Argentina, then, cross-cutting class and sectoral cleavages pulled both economic policy
and the private sector in conflicting directions. The military attempted free market orthodoxy
to break the labor movement but was unable to overcome entrenched opposition from fixed
asset sectors of the business community and the public sector itself. By the same token, the
private sector reacted to the vagaries of government policy with increasing wariness as time
went on: liquid asset holders simply got their assets out of Argentina, while fixed asset
holders complained with increasing bitterness of the reforms. The mix was unsustainable, and
the most important question today is whether the Alfonsin government will succeed where
so many other governments have failed.
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349
Observations and Implications
A skeletal sketch of an analytical framework and five abbreviated case studies hardly
constitute scientific evidence, but our survey demonstrates the utility of an approach that
sees Latin American economic policy as given by the character of domestic socioeconomic
interests and overseas economic events. External conditions have powerful effects on Latin
American societies, yet national responses to external events differ in accordance with
domestic relations among classes and sectors.
Class and sectoral relations in the five countries were reflected in government policy
during both the borrowing boom and subsequent crisis. In Chile and Argentina the regimes'
resolve to weaken the industrial working class gave government policy a neoliberal bias that
strengthened the financial and commercial sectors, along with much of the urban middle
class. The Brazilian military relied primarily on a broad network of incentives to modem
industrialists and farmers. The Mexican and Venezuelan regimes combined interventionist
and market-oriented policies that strengthened especially the heavy industrial sectors and
domestic financial investors.
The crisis after 1981 began to strip away successive layers of regime supporters. As
industrial production dropped precipitously throughout Latin American, industrialists (and
industrial workers) clamored for relief. In Chile, an already weakened industrial sector's
dissatisfaction with the regime was tempered by fear of the working class, and the clamor
was low-key. In Argentina, with less fear of labor, protests were louder, while in Brazil,
where industrialists were not particularly worried about labor militancy, industry defected
nearly wholesale to the opposition. Eventually the Argentine and Brazilian regimes left
power and were replaced with industry-oriented governments. The Mexican and Venezuelan
governments have tried to balance the demands of traditional import-substituting industries
on the one hand against those of the financial and commercial sectors on the other. Yet
major battles continue in both countries between interventionist and market-oriented sectors.
The cases suggest some conclusions about economic development and democratization.
Recent experience highlights how important productive investment is for economic growth
and how difficult it is for governments" to find a stable mix of economic predictability and
sectoral incentives to ensure desirable levels of private investment. Brazil was perhaps the
most successful of our five cases in providing extensive sectoral incentives that kept local
investment attractive. Both Mexico and Venezuela used sectoral programs to good effect
during the 1970s, but a growing inability to satisfy the requirements of both traditionally
protected investors and more footloose ones led to serious crises and massive capital flight.
At the other extreme, the Chilean private sector was willing to forego sectoral incentives in
return for suppression of the labor movement, and the resultant reliable investment climate
led the private sector to lengthen its time horizons enough to carry out some local
investment, although there was an inordinate amount of consumption of imported goods.
The Argentine government had the least success in juggling the provision of specific
investment incentives and the maintenance of a stable investment .climate and was
chronically unable to elicit cooperation from the private sector.
The reactivation of domestic investment will be a central policy dilemma facing Latin
America in the next decade. Public investment must be increased in order to stimulate
private investment, but this can not be done at the expense of raising investor expectations
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Jeff Frieden
of inflation or overvaluation. To make matters more difficult, foreign lenders, who were
major financers of public investment in the 1970s, are unlikely to return to Latin America in
the near future. Policymakers will thus be faced with insistent demands for government
incentives to private investment, alongside equally insistent demands for the monetary and
fiscal conservatism private investors regard as necessary for general economic stability. This
tension already affects much of the region, and it is likely to continue for the foreseeable
future.
Recent Latin American experience also illustrates the importance of those we have called
fixed asset holders, especially the industrial sector, to the region's political future. The role
of industrialists was indeed central when, in 1964, 1973, and 1976, respectively, the
Brazilian, Chilean, and Argentine elites agreed that democracy had led to intolerable threats
to social stability and supported authoritarianism. In Brazil in the late 1970s, movement
toward political democratization was given a major push by the Sao Paulo industrialists,
whose demands became more insistent as government economic policy took an antiindustrial
course after 1979. In Argentina the industrial bourgeoisie remained worried about Peronist
labor, yet the authoritarian regime's increasing divorce from its original social base threw
many businessmen into opposition; under the current Radical regime they are hoping for a
democratic solution in which labor will be a more pliant junior partner. The Chilean
industrial bourgeoisie, of course, remains both weak and afraid of popular opposition; its
timorous complaints about Pinochet's economic policies are far from enough to drive them
into the anns of an opposition they distrust.
The relatively open political systems of Mexico and Venezuela have been quite free with
the distribution of resources to strategic portions of industrial labor and capital. Yet in both
countries this mix of populism and developmentalism depended largely on massive inflows
of petroleum rents and foreign loans. In the future neither petroleum earnings nor foreign
finance will provide the room to maneuver formerly available to the two governments. In
¥exico and Venezuela, therefore, both intraelite conflict and labor-capital strife will grow.
Austerity has indeed driven a wedge between more competitive market-oriented
entrepreneurial groups on the one hand and traditionally protected industrial sectors on the
other, even as it has continued to erode popular support for both Mexico's PRI and
Venezuela's AD.
Conclusions
Economic and political developments in Mexico, Brazil, Venezuela, Argentina, and Chile
responded to external conditions in ways detennined by the domestic correlation of class and
sectoral forces. During the relative prosperity of the borrowing boom the five countries'
governments pursued policies ranging from free market liberalism to thorough-going state
intervention. The level of tension between labor and capital was, in the Latin American
context, the principal determinant of the degree of government economic intervention. The
countries ranged from Chile, with great class conflict and strongly neoliberal policies,
through Argentina, Venezuela, and Mexico, to Brazil, with little class conflict and a great
deal of government intervention. In all countries, liquid asset holders were favored by
market-oriented policies, fixed asset holders by sectoral intervention.
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351
When external shocks after 1980 drove Latin America into severe economic crisis, the
result was fierce conflict among economic agents over who would bear the principal costs of
adjustment. The behavior of fixed asset holders, especially the industrial sector, was crucial
to political developments during the crisis. The authoritarian governments of Brazil and
Argentina resisted pressure from the domestic industrial sector for relief and were swept
aside in part because of this. The Chilean military dictatorship, despite its general
unresponsiveness to the business community, remains powerful due to general elite fear of
the popular opposition. The Mexican and Venezuelan governments were forced to jettison
much of their public spending under the pressure of the crisis and face both increased social
pressure and strident elite discontent.
This paper demonstrates the analytical utility of a focus on relations between labor and
capital to explain the extent of government economic intervention in present-day Latin
America and of an examination of the varied interests of liquid and fixed asset holders to
explain the private sector's response to government economic policies. The points made here
are relevant in understanding the important unresolved economic and political issues that
continue to beset Latin America. They may also be of some use in thinking about a potential
resolution to the serious problems left by the aftermath of the region's financial expansion
and collapse.
NOTES
The author would like to thank the foHowing for comments and suggestions: Leon Bendesky, David Dollar. David
Felix, Al Fishlow, Barbara Geddes, Stephan Haggard, Nora Hamilton, Robert Kaufman, David Lake. David Mares,
Tim McKeown, Angel Palerm, Manuel Pastor, Miguel Rodriguez, and Michael WaHerstein. Financial assistance from
the Tinker Foundation, the UCLA Academic Senate's Committee on Research, and the UCLA International Studies
and Overseas Programs is also gratefuHy acknowledged.
1. Jeff Frieden, "Third World Indebted Industrialization," International Organization, 35 (Summer 1981).
2. In an archetypical example, John Williamson has criticized Jeffrey Sachs' explanation of variations in national
performance with the traditional insistence that differences are due to, welI, differences: "a more convincing
explanation" than that of Sachs, Williamson says, is "the simpler hypothesis of policy errors." See Jeffrey D. Sachs,
"External Debt and Macroeconomic Perfonnance in Latin America and East Asia," Brookings Papers on Economic
Activity. 2 (1985), 523-564: Williamson's comment is on p. 568. As Stephen Krasner put it in "State Power and the
Structure of International Trade," World Politics, 28 (April 1976). 319, "stupidity is not a very interesting analytic
category. "
3. The following argument is probably not generalizable to all LDCs, since it is closely related to certain common
Latin American peculiarities. Especially important here are the relative scarcity of labor today, along with the
accumulated institutions and interests built up during the colonial experience, the 1870-1930 export boom, and import
substituting industrialization since the 1930s.
4. See. for example, Alejandro Foxley, Latin American Experiments in Neo-Conservative Economics (Berkeley:
University of California Press, 1983), and Adolfo Canitrot, "La disciplina como objetivo de la politica economica: Un
ensayo sobre el programa economico del gobierno argentino desde 1976," Desarrollo Economico. 19 (January-March
1980).
5. While sectoral approaches to Latin American politics are hardly new, the division between fixed and liquid asset
holders in this context is relatively novel. The intuition. however, is familiar to political economists, and related
analytical distinctions are common. They are, for example, at the core of specific factors models of international trade.
For a seminal statement see Ronald W. Jones, "A Three Factor Model in Theory, Trade, and History," in Ronald W.
Jones, International Trade: Essays in Theory (Amsterdam: North-Holland, 1979). There is no question that the
dichotomy is oversimplified: capital markets allow capitalists to diversify their portfolios, as do the formation of
integrated conglomerates. Nonetheless, the framework captures certain important features of different business
interests. At this stage. it should be regarded as a hypothesis whose rigorous testing requires more systematic empirical
research. For a more general discussion of sectoral conflict, see Markos J. Mamalakis, "The Theory of Sectoral
Clashes:' Latin American Research Review, 4 (1969), 9-46. and Markos J. Mamalakis~ "The Theory of Sectoral
18
352
Jeff Frieden
Clashes and Coalitions Revisited," Latin American Research Review, 6 (1971), 89-126. A fascinating treatment of the
interaction between government policies and private investors, with an application to Brazil's alcohol program, is
Michael Barzelay, The Politici:.ed Market Economy (Berkeley: University of California Press, 1986).
6. The quintessential general statement is Albert O. Hirschman, Exit, Voice and Loyalty (Cambridge, Mass.: Harvard
University Press, 1970). Robert H. Bates and Da-Hsiang Donald Lien, "A Note on Taxation, Development, and
Representative Government," Politics and Society, 14 (1985), 53-70, assert that governments will generally be more
responsive to those whose assets are more liquid, since they can defect more easily. However, their government is
interested solely in maximizing tax revenue, while we focus on political pressure on governments from capitalists. On
the role of risk and uncertainty in capital flight, see Mohsin Khan and Nadeem UI Haque, "Foreign Borrowing and
Capital Flight," lMF Staff Papers, 32 (December (985), 606-628.
7. Calculated from Inter-American Development Bank, Economic and Social Progress in Latin America: Annual
Report /986 (Washirigton, D.C.: IADB, 1986).
8. Representative general and comparative studies on Latin American debt include Robert Aliber, uThe Debt Cycle
in Latin America:' Journal of lnteramerican Studies and World Affairs, 27 (Winter 1985-1986), 117-124: Ricardo
Ffrench-Davis, ed., Deuda e.werna, industriali:.acion y ahorro en America Latina, special issue of Estudios CIEPLAN,
17 (September 1985): Carlos' Diaz Alejandro, "Latin American Debt: I Don't Think We Are in Kansas Anymore,"
Brookings Papers on Economic Activity, 2 (1984), and "Da repressao financeira a crise: Experiencias do Cone Sui'"
Pesquisa e Planejamento Economico, 14 (December (984); Joseph Ramos, Neoconservative Economics in the
Southern Cone of Latin America, /973-/983 (Baltimore: The Johns Hopkins University Press. 1986): and Vittorio
Corbo and Jaime de Melo, "Lessons from the Southern Cone Policy Reforms:' World Bank Research Obsen'er, 2
(July 1987), 111-142. For purposes of comparability, in what follows, except where noted, statistics on domestic
economic developments are drawn from the Inter-American Development Bank's annual reports on Economic and
Social Progress in Latin America: those referring to external debt are drawn from Inter-American Development Bank.
£wernal Debt and Economic De"elopment in Latin America (Washington, D.C.: IADB, 1984).
9. On Brazil see, for example, Edgar Bacha, "Choques externos e perspectivas de crescimento: 0 caso do Brasil-
1973/89:' Pesquisa e Planejamento Economico, 14 (December 1984); Monica Baer, La internacionali:acion
financiera en Brasil (Mexico City: ILET, 1983): Carlos Diaz Alejandro, "Some Aspects of the 1982-83 Brazilian
Payments Crisis:' Brookings Papers on Economic Acti,'ity, 2 (1983): Persio Arida. ed .• Divida £rterna, Recessao, e
Ajuste Estrutural (Rio de Janeiro: Paz e Terra, 1982): Jeff Frieden, "The Brazilian Borrowing Experience: From
Miracle to Debacle and Back," Latin American Research Review, 22 (1987): and Paulo Nogueira Batista Jr.• Mito e
Realidade na Di"ida £werna Brasileira (Rio de Janeiro: Paz e Terra, 1983).
10. On Chile see, for example. Armando Arcmcibia. "Chile: Mitos y realidades del proyecto autoritario," Economia
de America Latina, 8 (1981): Jose Pablo Arellano. "De la liberalizacion a la intervencion: EI mercado de capitales en
Chile 1974-83:' Estudios CIEPLAN, II (December 1983): Sebastian Edwards and Alejandra Cox Edwards,
Monetarism and Liberali:.ation: The Chilean £\:periment (Cambridge: Ballinger, 1987); Ricardo Ffrench-Davis, "The
Monetarist Experiment in Chile: A Critical Survey:' World De"elopment, II (1983); Vincent Parkin, "Economic
Liberalism in Chile, 1973-1982," Cambridge Journal of Economics, 7 (September-December 1983): Roberto Zahler.
"Recent Southern Cone Liberalization Refonns and Stabilization Policies: The Chilean Case, 1974-1982:' Journal of
/nteramerican Studies and World Affairs. 25 (November 1983).
II. On Mexico see, for example, Jose Manuel Quijano, ed., La Banca: Pasado y Presente (Mexico City: CIDE.
1983): Rosario Green. EI endeudamiento publico externo de Mexico /940-/973 (Guanajuato: EI Colegio de Mexico.
1976). and Estado.r banca transnacional en Mexico (Mexico City: Nueva Imagen. 1981); Isabel Molina Warner. "EI
endeudamiento extemo del sector privado y sus efectos en la economia mexicana." Comercio £,oterior, 31 (October
1981 ): Guillenno Ortiz and Leopoldo Solis. Estructura Financiera e £\:periencia Cambial Mexico /954-/977 (Mexico
City: Banco de Mexico. 1978). and Substitucion de Moned{,s e /ndependencia Monetaria: EI caso de Mexico (Mexico
City: Bank of Mexico. 1981); Jose Manuel Quijano. Mexico: Estado y Banca Pri"ada (Mexico City: CIDE. 1981):
Jose Manuel Quijano. Hilda Sanchez. and Fernando Antiam. Finan:.as. desarrollo economico y penetracion extranjera
(Puebla: Universidad Autonoma de Puebla. 1985): Ernesto Zedillo Ponce de Leon. "External Public Indebtedness in
Mexico" (Ph.D. diss .. Yale University. 1981).
12. Inter-American Development Bank, Economic and Social Progress in Latin America /985 (Washington, D.C.:
IADB, 1985). p. 86.
13. On Venezuela see. for example. Moises Nairn and Ramon Pinango. eds.. EI Caso Vene:.uela: Ulna i1usion de
armoni" (Caracas: IESA. 1985): Oscar A. Echevarria. La Economia Vene:.olana /944-/984 (Caracas: Fedecamaras.
1984): Ricardo Hausmann and G. Marquez. "La crisis economica venezolana: Origen. mecanismos y
encadenamientos." /m'estigacion Economica. 165 (July-September 1983): Felipe Pazos. "Efectos de un aumento
subito en los ingresos externos: La economia de Venezuela en el quinquenio 1974-1978:' mimeo. 1979: Fernando
Porta. Miguel Lacabana and Victor Fajardo, L" internacionali:acion financiera en Vene:uela (Mexico City: CET.
1983): Miguel Rodriguez. .. Auge Petrolero. Estancamiento y Politicas de Ajuste en Venezuela:' Coyuntura
Economica (Bogota) (December 1985). 201-227.
14. Banco Central de Venezuela. Anuario de cuentas nacionales (Caracas: BCV. 1983). pp. 119-120. and Miguel
Rodriguez. "Consequences of Capital Flight for Latin American Debtor Countries." mimeo. 1986.
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353
15. On Argentina see, for example, L. Beccaria and R. Carciofi, "The Recent Experience of Stablising and Opening
Up the Argentinian Economy," Cambridge Journal of Economics. 6 (June 1982); Guillermo A. Calvo, "Trying to
Stabilize: Some Theoretical Reflections Based on the Case of Argentina," in Pedro Aspe Armella et al., eds.,
Financial Policies and the World Market (Chicago: University of Chicago Press, 1983); Adolfo Canitrot, "Teoria y
practica del liberalismo: Politica antiinflacionaria y apertura economica en la Argentina, 1976-1981," Desarrollo
Economico. 21 (July-September 1981); Juan Carlos de Pablo, "Mas alIa de la sustitucion de importanciones: El caso
de la Argentina," Trimestre Economico. 45 (January-March 1978), and "El enfoque monetario de la balanza de pagos
el fa Argentina: Analisis del programa del 20 de diciembre de 1978," Trimestre Economico. 50 (April-June 1983);
Jose Maria Fanelli and Roberto Frenkel, "La deuda extema argentina: Un caso de endeudamiento forzado," mimeo,
1985; David Pion-Berlin, "The Fall of Military Rule in Argentina: 1976-1983," Journal of Interamerican Studies and
World Affairs. 27 (Summer 1985); Oscar Oszlak. ed.. "Proceso," crisis y transicion democratica (Buenos Aires:
Centro Editor de America Latina, 1984); Carlos Alfredo Rodriguez, "Politicas de estabilizacion en la economia
argentina. 1978-1982," Cuadernos de Economia, 20 (April 1983); Jorge Schvarzer, Argentina 1976-1981: El
endeudamiento externo como pivote de la especulacion financiera (Buenos Aires: CISEA, 1984); Juan Sourrouille,
Bemardo Kosacoff, and Jorge Lucangeli, Transnacionalizacion y politica economica en la Argentina (Buenos Aires:
CET, 1985).
16. See. for two classic statements. Carlos Diaz Alejandro, Essays in the Economic History ofthe Argentine Republic
(New Haven: Yale University Press. 1970), and Guillermo O'Donnell, "State and Alliances in Argentina,
1956-1976." Journal of Development Studies. 15 (1978-1979), 3-33.
17. Ramos, p. 40.
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354
THE UMTED STATES AND LA11NAMERICA
IN THE 1960s·
by JOSEPH S. TULCHIN
INfRODUCTION
&STROSPECTIVE CONSIDERATION OF UNITED STATES rela-
tions with Latin America during the decade of the 1960s has
centered on the Alliance for Progress and the Cuban Missile Crisis.
The second of these has been analyzed and re-analyzed as a case
study in decision making and as a critical point in the nuclear con-
frontation between the United States and the USSR. Recently, a
series of meetings, both political and scholarly, was conducted
with what amounts to a nostalgic atmosphere to reevaluate the
crisis. All of the participants recalled the episode within the con-
text of East-West relations. The fact that Cuba was a part of Latin
America scarcely entered into their reconstructions of events. The
scholars who took part in these meetings were specialists in na-
tional security issues, in Soviet affairs or in military affairs. Latin
Americans or Latin Americanists were conspicuous by their ab-
sence.
By contrast, no one seems interested in celebrating the twen-
ty-fifth anniversary of the Alliance for Progress, or the thirtieth an-
niversary of the Social Progress Trust Fund. At this distance, most
scholars consider the entire effort a noble failure, a well meaning
effort doomed from the start by inertia, conservative opposition
Joseph L. Tulchin is Professor of History and Director of Internation-

al Programs at the University of North Carolina, Chapel Hill. He is a
former editor of the LATIN AMERICAN RESEARCH REVIEW. His recent
publications include ARGENTINA AND TIlE UNITED STATES: A HIS-
TORY OF MISUNDERSTANDING (Twayne, 1989), and, with Heraldo
Munoz, LATIN AMERICAN NAnONS IN WORLD POLITICS (Westview,
1986).
• The author wishes to thank James H. Townsend for his help in
preparing this article.
355
in this country and elsewhere in the hemisphere, and an underly-

ing contradiction between the call for fundamental refonn and the
fear of instability. Such an interpretation gives to the policy and to
the effort to execute it the image of an aberration. In that manner,
little effort has been made to understand the origins of the policy,
much less to evaluate its impact on the hemisphere and on rela-
tions between the nations of Latin America and the United States.
Tl1at is an error. This paper attempts to understand both of these
episodes, and others dUling the decade, in the broad context and
historical dynamics of inter-American relations. That context in-
cludes an analysis of US policy during the decade, but cannot be
limited to such an analysis. It must include a consideration of the
elements leading up to the formulation of the Alliance for
Progress, conditions in Latin America that contril)uted to the en-
thusiasm with which the program was announced as well as to
the failure to carry out its terms, and to the global concerns of the
US government that shaped policy toward Latin America.
Ever since the independence of the republics in the Western
hemisphere, the United States has considered the region a special
preserve, one that should be kept free of European influence to
the extent possible. For nearly a century and a half, the notion of
the 11emisphere as a special preselve, first stated baldly in the Mon-
roe Doctrine (1823), existed side by side with a more romantic
ideal of the Western hemisphere as a special community of na-
tions sharing secular beliefs and cultural norms, particularly the
belief in freedom and democracy. The events of the 1960s chal-
lenged ooth ofthese traditions and forced the leaders of the United
States to reevaluate their policy toward Latin America. By the end
of the decade, although policy was still very much in flux, the na-
ture of hemispheric relations had changed. No one, either in this
country or in Latin America seriously proposed that the region any
longer represented a family of nations or a special preserve in
which our security was essentially privileged. The Cold War had
been brought into our backyard through the Cuban missile crisis.
The fundamental premises on which our national security policy
had been based were challenged and found wanting. When Presi-
dent Lyndon B.Johnson left the White House inJanuary 1969, our
Latin American policy was in shaml)les. What once had been a
coherent line of policy was blurred 11y the obsessive focus on
events in Southeast Asia, so that policy toward the region became
356
11JLCHIN: TIlE U.S. AND LATIN AMERICA IN TIlE 1960s 3
another victim of the severe distortions of the global framework

within which the United States understood its national security.
As a consequence of the everi:ts of the period, national security
interests in the region were redefined. Latin Americans moved
toward a more distant or wary posture toward the United States.
By the end of the decade, the nations of Latin America had begun
to define their position in world affairs independently of the
United States. This trend toward independence, together with the
persistent drive for economic development, has reduced the
leverage once exercised by the United States over the nations of
the hemisphere and has weakened our hegemony, perhaps per-
manently. To accomplish its objectives in the region, the United
States now has to act more on its own and has found itself increas-
ingly isolated from the rest of the hemisphere. In order to reverse
this trend, the US government must observe Latin American reality
with greater care, listen more attentively to the policy objectives
of our colleagues in the hemisphere than it has in the past, and
bring our policy more in line with that reality and those goals if it
hopes to protect the nation's security.!
There are three keys to understanding the Latin American
policy of the United States during the decade of the 19605. The
first is that policy was the result of a shift from a regional perspec-
tive on the hemisphere to a global perspective, a transition begun
as a response to the world war and that permeated the policymak-
ing process by the end of the war. Despite that shift, policymakers
continue to base their efforts on the Wilsonian assumptions that
our system, our way of life, was perfectly exportable and that all
right-thinking or responsible Latin Americans shared our values
and our view of the world. The second key is the fact that within
this global framework, the region had been a low priority of US
concerns. Third, that there was an unresolved .debate within the
US government concerning the relationship between US national
security and economic development, including what was then
called good government, in the Western hemisphere.
HISTORICAL BACKGROUND
RE
REGIONAL AND GLOBAL PERSPECfNES were never
dichotomous or mutually exclusive in either the theory or prac-
tice of United States security before World War II. In the formula-
357
tion of the Monroe Doctrine, it is clear that the desire to keep Latin
America free of European influence was an intimate part of the
more general or global concerns of the US government. Toward
the end of the century, as the writings of Alfred Thayer Mahan
came to have increasing influence over policy planning, the
elaoorate proposals for coaling stations, an isthmian canal and
protection of shipping lanes in the Caribbean Basin were part of
Mahan's global project for the United States as a great power.
As the succeeding administrations put Mahan's national
security theories into practice, the anxiety over European inter-
vention was focused almost exclusively within the Caribbean area.
There, the United States came to believe that bad government and
fiscal irresponsibility - the two were virtually interchangeable in
US thinking - led to instability, and that it was instability that
created the conditions for external intervention that would
threaten the security of the United States.
The process culminated in the confident assertion by President
Woodrow Wilson that the United States, with its democratic
government and its liberal capitalist economy, was the ideal model
for all the nations of the world. Although the intensity of his mes-
sianic zeal fluctuated over time, Wilson considered it the respon-
sibility of the more advanced nations of the world to teach the less
fortunate peoples of the world how to enjoy the benefits of the
economic and political system that had evolved in the United
States. That conviction, that arrogance, never has been absent en-
tirely from US policy in this hemisphere.
At the end of World War I, the threat of direct intervention by
European powers in the Caribbean seemed to have disappeared.
This, together with the profound disillusionment with the Wil-
sonian project of exporting democracy which overcame the
United States following the war, provoked a significant retreat
from the interventionist policies followed since the days of Wil-
liam McKinley.. The definition of United States strategic concerns
was expanded to include specific commodities and services which
the war had demonstrated to be vital to the national security. At
the same time, however, the protection of adequate supplies of
petroleum, open channels of communication, and the free flow
of financial capital in Latin America and elsewhere no longer
seemed to require direct intervention in the internal affairs of
weaker nations in the hemisphere. Through the decade of the
358
lULCHIN: THE U.S. AND LATIN AMERICA IN ruE 19605 5
1920s, the United States government worked to devise a policy

through which it could feel comfortable protecting the national
security of the United States through the use of financial and
economic . In
. fl uence. 2
There were episodes of direct, military intervention in the
Caribbean danger zone during the decade, but they were never
specifically aimed at preventing European intervention. lbey
were expressions of the paternalistic, Wilsonian sense of respon-
sibility for good government in the region. Of course, as is well
known, the nations of South America, which always had seen
themselves as different from the nations in the Caribbean basin
and, therefore, exempt from the obnoxious tutelage of the United
States, were uncomfortable with the growing reach and suffocat-
ing control of United States economic influence. Led by Argen-
tina, which traditionally had been the strongest voice in the
hemisphere against United States hegemony, the nations of the
hemisphere began to use the forum of the Pan American Union
to curb the interventionist arrogance of the United States. Begin-
ning at the hemispheric meeting in Havana in 1928, the Latin
Americans hammered away on two issues: limiting intervention
in the internal affairs of other nations, and the adaptation of trade
and investment for the greater IJenefit of the peoples of the hemi-
sphere.
From this perspective, the Good Neighbor policy in the 1930s
was an effort to project United States hegemony throughout the
hemisphere by means of a compromise with the nations of the
hemisphere: "good behavior" by the United States, defined as in-
creasingly clear adherence to the principle of non-intervention, in
return for "good behavior" by the Latin Americans, defined as
hospitable treatment for the capital and trade of United States
citizens and the acceptance of United States hegemony in the
event of any threat from Europe.
During the second world war, although there were fears of in-
vasion and, before the United States entered the conflict, fears that
the hemisphere would become a theater of operations between
the European belligerents, the Western hemisphere was an area
of privileged security. With only one major exception, Argentina,
the nations of the hemisphere followed the lead of the United
States in declaring their allegiance to the Allied cause, particular-
ly in providing the Allies with strategic commodities at prices, and
359
in amounts, dictated by the Allies themselves. Even Argentina sold

its foodstuffs and other primary products to the Allies under
favorable terms. By the end of 1942, the US military command no
longer anticipated any serious threat from - or through - Latin
America. Nevertheless, Argentine deviance continued to be con-
sidered a serious offense in Washington. Hostility toward Argen-
tina eventually grew to the point where it bore little relation to the
broader objectives of the US war effort and even created con-
siderable friction between our government and the government
of our principal ally, Great Britain. 3
The official reason for sustaining hostility toward Argentina,
even after there was no reasonable threat to US security, was that,
by its failure to toe the line established by the United States, Ar-
gentina was, or could become, a focus for subversion from out-
side the hemisphere. The fear of subversion, anticipated from the
Nazis during the war, was a new concept in the definition of
United States security policy. The notion that foreign ideologies
could undennine the stability of a government in the hemisphere
and, in so doing, introduce the influence of a foreign, potentially
hostile power and thereby threaten the security of the United
states created an entirely new dimension in national security
policy. It was a dimension that would become increasingly
prominent in the period following the defeat of the Axis powers.
Because of its imprecision, it is a concept which has created dif-
ficulties between the United States and the nations of the hemi-
4
sphere.
Prosecution of the war brought the United States to a broad,
global definition of its security. That definition, together with the
perception, even before the war had ended, that the Soviet Union
would not be a faithful ally and would represent a threat which
would have to be countered, led the United States to create a
global network of protection for its security. Within the hemi-
sphere, this took the form of an effort by the United States to rein-
force that sense of community which had been part of the Good
Neighbor policy and to create a defense organization directed
against possible threats from outside the hemisphere.
This policy of regional identity within a global framework ran
into difficulties from the very outset, at the hemispheric meeting
at Chapultepec (Mexico) in March 1945. The La tin Americans were
not opposed to strengthening a sense of hemispheric community,
360
lULCHIN: TIlE U.S. AND LATIN AMERICA IN TIlE 1960s 7
but they insisted that membership in the community could not be

determined unilaterally by the United States, and that relations
among the members of the community had to include considera-
tion of the economic and social well-being of all. Specifically, this
meant an end to United States efforts to isolate Argentina plus
commitments to stimulate the economic development of the Latin
American nations, delayed, they argued, by their loyal coopera-
tion in the war effort.
The US government did not consider the Latin American posi-
tion unreasonable. It simply felt that other claims on its attention
and resources were more immediate. As a result, it adopted a
policy of delay, attempting, in effect, to maintain Latin American
support in the emerging global struggle against the Soviet Union
by a minimum expenditure of time and energy. Basically, the
government's policy toward Latin America seemed to be, "Ifit ain't
broke, don't fix it." As far as the Latin American request for
economic aid to stimulate development, the US position was a
friendly but firm insistence that the best fuel for the engine of
growth was private capital. Instead of asking the United States for
public loans, the nations of the hemisphere should do whatever
might be necessary to make their countries attractive to foreign in-
vestment. In the period 1945-1952, Belgium and Luxemburg
received more aid than all of Latin America. Assistant Secretary of
State Spruille Braden lectured the Latin Americans:
The institution of private property ranks with those of
religion and family as a bulwark of civilization. To tamper
with private enterprise will precipitate a disintegration of life
and liberty as we conceive and treasure them. The time has
come to realize that the United States Treasury is not an in-
exhaustible reservoir (Green, 1971: 262).
On the issue of defense, the only obstacle to signing a treaty
was the peculiar struggle within the United States government, in
which Braden was a notorious participant, over how to deal with
the Argentine government, still unrepentant in its resistance to
United States dominance (Tulchin, forthcoming: chapter 8; Wag-
ner, 1970). Finally, the nations of the hemisphere met at Rio, on 2
September 1947, and managed to sign a treaty of mutual defense.
In signing this treaty, it was the hope of the United States to insu-
late the hemisphere from external threats - a return to the hal-
cyon days of the inter-war period - or to induce the Latin
361
Americans to leave the security of the hemisphere to the United

States. By signing, it was the hope of the Latin Americans that they
could bring the United States to a public consideration of the
economic and social issues they considered fundamental to their
security. This asymmetty in the security interests of the signatories
to the treaty would undermine its effectiveness from the perspec-
tive of both the United States and Latin America.
During the decade following the end of World War II, the
United States gradually came to define its national security re-
quirements in terms of the bipolar competition, and the nuclear
confrontation, with the USSR. The concept of "containment" gave
the global reach of the nation's security interests both military and
political components. How Latin America fit into these global con-
cerns was a question to which the answer - or answers - were
always ambiguous. By focusing attention elsewhere, Soviet policy
facilitated efforts of the United States to take Latin American ac-
quiescence or support for granted, and to fit the region into its
own scheme of priorities where it rested, painfully, near the bot-
tom.
Because of perceived political threats from the USSR in various
regions of the world, the United States employed public funds to
fight underdevelopment and misery' in such places as India,
Korea, and Southeast Asia, and used public monies to reconsttuct
Europe, all in the name of national security ·and morality. Latin
America was treated differently, less because of the tradition that
the region was special and different from the rest of the world, al-
though that was given as the reason on some occasions, than for
the negative reason that the region was considered relatively
secure from Soviet invasion or subversion and, therefore, a low
priority in United States global policy.
United States policy, so preoccupied with the Cold War in its
bipolar formulation, considered as an adequate policy goal in
La tin America the achievement ofa condition in which subversion
was either absent or at least modulated. So long as the area was
considered stable, the United States government was more or less
content. During the 1950s, the achievement of stability was ac-
complished in a wide variety of political fonns. Many of these were
non- or anti-democratic. By the mid-1950s, a wide number of
governments throughout the hemisphere had come to power by
non-democratic means or governed in non-democratic ways. That
362
11JLCHIN: TI-lE u.s. AND LATIN AMERICA IN THE 19605 9
was nothing new. What was new was that, in the early 1950s, this
was not seen as a problem in Washington. In fact, the use of US
force in 1954, through manipulation of a military puppet to oust
the reformist democratic government of Guatemala, was con-
sidered one of the great successes of the administration. Lamen-
tably, it was held up as a model for future operations in Latin
America and elsewhere. It was considered the ultimate success in
counterinsurgency.5 At the time, Latin American outrage, ex-
pressed at the Caracas meeting of the Organization qf American
States (OAS) and after, was either ignored or not heard.
During this decade, when as many as 13 out of 20 Latin
American states were ruled by dictators, the Eisenhower ad-
ministration changed its view and came to see the lack of
democratic governments in Latin America as a serious policy
problem. Anti-democratic or non-democratic regimes were con-
sidered to be unsympathetic to the problems of underdevelop-
ment and to the misery of the populations in the area. Therefore,
they were considered to be inherently unpopular, hence poten-
tially unstable. Since it was instability that, along with misery, was
considered to provoke subversion, policy planners concerned
with Latin America during the second Eisenhower administration
increasingly came to the conviction that anti-democratic regimes
in the hemisphere were a liability and that the United States should
do something about them. 6
Within the government in Washington, the thinking came to
focus on the linkage between development and democracy
through a series of events and the concurrent public debate over
them. First the president's brother, Milton Eisenhower, made
several trips through Latin America, reporting directly to the presi-
dent concerning conditions in the hemisphere. It was Milton
Eisenhower's belief, from the first trip through the last, that
development and democracy were inextricably linked and the ab-
sence of both were a liability for United States national security.
His first report, in 1954, was filed without comment. By 1957 and
1958, however, successive reports were finding an increased echo
within the foreign policy establishment and among the informed
public. They were having more echo because of events contem-
poraneous with them, and because a growing consensus among
academics and policy advisers confirmed their conclusions. 7
363
Perhaps the most influential academic argument for the use of

public funds to aid general societal development in under-
developed countries was that put forth by Rostow and Millikan
(1957) at the Massachusetts Institute ofTechnology (MIT). Repeat-
ing many of the apocalyptic sentiments of George Kennen, they
called on the United States to rededicate itself to its "sense ofworld
mission." Rostow's arguments were grounded in a thoroughlyop-
timistic view of US society. His prescription was for the United
States to look beyond its borders to problems in the Third World,
whose nations shared the priorities and values of US liberalism. It
remained for US foreign policy to "increase the awareness else-
where in the world that the goals, aspirations, and values of the
American people are in large part the same as those of the people
in other countries." These arguments would influence the Eisen-
hower administration, but would have a much more profound im-
pact on Kennedy and his circle.
The most important event occurred in May 1958, when Vice
President Richard Nixon visited Latin America. During this trip, in
Caracas (Venezuela), Nixon was stoned, spat upon, and very near-
ly hurt seriously. Some think his life was in danger. Washington
was in shock. Why was there such anti-Americanism in Latin
America? What started this fear and hatred in Latin America? A
month later, in June of 1958, a formal proposal - in which the
linkage between underdevelopment and democracy on the one
hand, and hemispheric security on the other, was made in the
strongest possible terms - was sent to President Eisenhower by
the President of Colombia, Alberto Lleras Camargo, and the Presi-
dent ofBrazil,Juscelino Kubitschek. Kubitschek's letter, which ac-
companied the memorandum, referred to the unpleasant episode
in Caracas the previous month, indicating to President Eisenhower
that it was time for the United States to act. The president
responded by sending a task force to Brazil to have conversations
with the two Latin American leaders. The resulting memorandum,
known as Operation Pan America, proposed a hemispheric
program of public aid to alleviate the conditions of underdevelop-
ment and instability. It was no coincidence that, during the months
in which these memoranda were drafted, a movement of guerril-
las in the Cuban hills was gathering force, so that, by mid-1958,
most people who bothered to look, including those in
Washington, were convinced that the rebel movement led by Fidel
364
11JLCHIN: lHE u.s. AND LATIN AMERICA IN THE 19605 11
Castro was bound to win. On 31 December 1958, Fidel marched

into Havana in triumph. He immediately called for massive refonn
throughout Latin America and began a campaign against US in-
fluence, or US imperialism as he calls it, which he continues to this
day.
It is important to remember that the Latin Americans had been
clamoring for public funds to aid them in the quest for develop-
ment ever since the end of the war. Their frustration with the US
disdain for their concerns led them to consider ways to solve their
problems without depending upon the United States. Given the
global reach of the struggle with the Soviet Union, tendencies
toward independence or neutralism were not looked upon with
favor from Washington, but they did not prompt a constructive
response until the end of the 1950s. The Latin American approach
consisted oftheoretical and practical dimensions, just as the policy
process did in the United States. The theoretical dimension began
with a series of fonnulations explaining international economic
relations in terms of unequal exchange between the developed
nations, at the center of the world economy, and the under-
developed, at the periphery. Of great significance was the fact that
these theoretical formulations did not spring from an academic
source. They began in the research arm of the United Nations
Economic Commission for Latin America (ECLA), under the fer-
tile, energetic leadership of Raul Prebisch, a conservative Argen-
tine economist and banker forced into exile by Peron. An entire
generation of Latin American social scientists and policymakers
learned the principles of international economics according to
Prebisch and refined them. Dependency theory is an intellectual
descendent of the work of the Prebisch group in ECLA (or, as it is
known in Spanish, Comision ECOtlOmica para Latttlamerlca -
CEPAL) during the 1950s. The CEPALinos argued strenuously that
structural rigidities in the international economy could be over-
come only with state intervention and with international state-to-
state aid. Private investment could not accomplish the task. As if
to strengthen their argument, in 1956 Khrushchev offered to help
the Latin Americans develop their economies with Soviet aid. Of-
ficials in Washington watched closely. Catching the mood of the
times, inJuly 1959 Fidel Castro - at the inter-American economic
conference in Buenos Aires - boldly called on the US govern-
ment to provide $30 billion in aid to the Latin American nations. 8
365
All of these events, coming together, convinced the United

States administration that the policy towards Latin America which
had been in effect since the second World War was no longerade-
quate. A hands-off policy focused on private enterprise and in-
vestment would not work. It was time for a concession to the Latin
American demand for economic cooperation. At the next formal
meeting of the OAS, in Bogota in September 1960, the United
States, for the first time, signed a multilateral convention calling
for, or agreeing to, multilateral measures for economic and social
development of the nations in the hemisphere. The Inter-
American Development Bank (IDB), created a few months ear-
lier, was designated to serve as the vehicle for such multilateral
efforts. Further, the United States made a commitment of funds-
called the Social Progress Trust Fund - which would serve as its
contribution to the hemispheric effort to alleviate conditions of
underdevelopment. In fact, those monies would not be committed
formally until the new administration took office in 1961, when it
became a commitment which that administration embraced will-
ingly and with great energy.
Although creation of the IDB represents a significant innova-
tion in US policy toward Latin America, there is evidence that, like
the policy it supplanted, it was authorized because it fit the general
assumptions underlying global policy. Arthur Schlesinger (1965)
reports that plans were being made for a similar institution in the
Middle East, leading Under-Secretary of State Douglas Dillon to
argue that, under such circumstances, continued resistance to a
bank for Lcitin America would be untenable (Dillon & Mansfield,
1960). Despite recurrent crises, Latin America remained a relative-
ly minor strategic priority for US policymakers. Competing with
the feiment in Latin America for.attention, in the late 1950s, were
conflicts in other areas of the world deemed to be of far greater
impol1ance to US interests, including Europe, Southeast Asia, and
the Middle East. Faced with a choice between devising a set of
policies tailored specifically to Latin America and relying on
general approaches formulated on the basis of experiences in
other regions and tested- in other regions, officials often chose the
latter course.
These events served as one of the important campaign issues
in the debates between Vice-President Nixon, running for presi-
dent, and the democratic contender, John F. Kennedy. Kennedy
366
TIJLCHIN: THE U.S. AND LATIN AMERICA IN THE 1960s 13
was particularly energetic in his attacks on the Republican failure

to support democratic governments in the hemisphere. He also
pounded on the administration's weakness and complacency in
allowing a communist base to be established at the "back door"
of the United States. After his election, Kennedy made Latin
America one of his top priority issues.
Ironically, US intervention in support of democracy was being
urged publicly by a number of Latin American leaders at the end
of the 19505, especially Jose Figueres of Costa Rica and R6mulo
Betancourt of Venezuela. In Operation Pan-America, they ex-
plicitly advocated multilateral efforts in favor ofgood government.
They wanted the United States to join them, through the Organiza-
tion of American States, to get rid of dictatorship and to oust bad
governments so that democratically-elected popular governments
could lead the movement toward development. Because it
seemed to fit the global policy of containment and because con-
tinuing to refuse carried increasing risks, the United States, reluc-
tantly at first and then, once Kennedy had assumed office, with
more conviction and energy, seized upon this policy and made it
its own. In so doing, the US government deliberately manipulated
its Wilsonian past and promised to act in concert with Latin
American allies in ousting dictators, like Trujillo in the Dominican
Republic, in return for support in the campaign to neutralize the
influence of Fidel Castro in the hemisphere.
In the 1945-1960 period, US policy displayed a significant con-
tinuity, although the Eisenhower administration was more dis-
posed than its predecessor to view inter-American relations within
a global Cold War framework. Eisenhower was innovative as well,
both in using economic and social intervention to build progres-
sive democratic nations to fight communism and in the expanded
list·ofwhat actions might be "deemed appropnate" to protect US
national security and win the Cold War CRabe, 1988: 176-78;
Zoumaras, 1987). Within the same framework, his successor
would be more innovative still - and he would be much more
Wilsonian than Eisenhower.
367
UNITED STATES UNDER KENNEDY AND

JOHNSON
The Kennedy Administration

IN EVAlUATING THE NEW ADMINISTRATION we have to take
into account the personality of the President. He was markedly
different from his predecessor: almost 30 years younger, ener-
getic, playing touch football in Hyannis Port with his extended
family. All of this was enormously appealing in Latin America.
With a channing, attractive, and Spanish-speaking wife, who was
used almost as a public relations agent in the first two years of the
administration. Speaking in Spanish on several trips to Latin
America, the duo evinced an image of energy, youth, and op-
timism. The president had a charismatic appeal that virtually
swept the people of Latin America off their feet. That, together
with the idealism projected in the Kennedy rhetoric, defined a new
policy for the United States.
Kennedy's style was also markedly different from that of his
predecessor. He was an avid reader, of l10th newspapers and
reports, and loved to participate in the debate of policy alterna-
tives. He considered himself an intellectual and enjoyed the give
and take of debate among his advisers. In this, as in all matters,
style was important to him, so that a clear argument elegantly
presented impressed him more than mountains of data or
evidence presented in an indiscriminate fashion. While he
preferred to have his advisers arrive at a consensus on matters of
policy, he was not reluctant to decide between alternatives nor to
take sides in an unresolved debate. At the beginning of his ad-
ministration, this style gave an advantage to the assertive and the
articulate among his advisers; it also had the unintended result of
drowning out minority opinions within the inner circle. After the
Bay of Pigs episode, Kennedy tried to insure that there always
would be a devil's advocate represented in the discussion of
policy, someone who would disagree with the majority and ask,
"What if?"
In his inaugural address, Kennedy promised Latin Americans
an alliance in the quest for progress, "To assist free men and free
governments in casting off the chains of poverty." But, he warned:
368
ruLCHIN: mE u.s. AND LATIN AMERICA IN THE 1960s 15
this peaceful revolution of hope cannot become the prey of

hostile powers. Let all our neighbors know that we shall join
them to oppose aggression or subversion in the Americas and
let every other power know that this hemisphere intends to
remain the master of its own house (Public papers, 1961: 170-
175).
Here was the central dilemma of the Kennedy policy in Latin
America and in the Third World: how can you effect change
without pitching the nations undergoing change into a condition
of instability that invites subversion by communist agents? As Al-
bert Hirschman warned in 1963: "To advocate refonns in Latin
America without tolerating, accepting, and sometimes even wel-
coming and promoting the only kinds of pressures which have
proven effective in getting refonns is to risk being accused of
hypocrisy and deception" (Hirschman, 1963: 260). To some ex-
tent, the government expected change to be accompanied by in-
stability. Secretary of Defense Robert McNamara noted,
Roughly 100 countries today are caught up in the difficult
transition to modern societies. This sweeping surge of
development has turned traditionally listless areas of the
world into seething cauldrons of change. The years that lie
ahead for the nations in the southern half of the globe are
pregnant with violence. This would be true even if no threat
ofConununist subversion existed - as it clearly does (Shafer,
1988: 80).9
To contain this seeming contradiction, Kennedy proposed a
dual approach of (a) supporting economic development and
political reform while (b) providing military aid to facilitate
counterinsurgency, to bring about a non-violent revolution in
Latin America. At the same time, his administration sponsored
Project Camelot to identify the causes and patterns of instability
in Latin America. In this way, he hoped to resolve the intellectual
battle over the nature of development and change, as well as to
avoid getting caught up in the political debate between those who
considered direct military aid the best response to communist
threats on the one hand, and those who considered economic
development the best defense against subversion on the other-
a debate that nearly had mired the Eisenhower administration in
inaction.
369
Part of the stimulus to merge the two approaches to the Third

World came from the liberal critique of the Eisenhower ad-
ministration. Liberals argued that the Republicans had lost sight of
the nation's revolutionaty heritage, and that there was a crucial
distinction between communist initiatives and the progressive
programs which the United States had to offer the world. Failure
to take advantage of the nation's leadership of liberal forces in the
world was one of the principal causes of the nation'~ slippage as
a world power. The US had failed to market effectively the values
that made the nation great. Kennedy had used this argument to
good advantage during the campaign and had won the support
10
of many liberals.
The transition ~eam Kennedy appointed to draft a Latin
American policy for his administration contained several
prominent liberals and was chaired by Adolph A. Berle. Berle as-
serted that the hope of Latin America lay with a new generation
of moderate democratic leaders emerging throughout the region.
These leaders, he argued, would steer a middle course between
right-wing oligarchy opposed to change and communists, who
advocated revolution and followed the lead of the Soviet Union.
What Berle found particularly attractive about these politicians
was that they shared US values. Many had been educated in the
United States. They understood and revered the United States.
Here were leaders to whom the United States could entrust the
process of change in Latin America (Berle, 1959: 20).11
Later, in his inaugural address, Kennedy gave voice to his dual
approach in describing his administration's attitude toward
foreign aid:
To those peoples in the huts and villages of half the globe
struggling to break the bonds of mass misery, we pledge our
best efforts to help them help themselves...not because the
Communists are doing it, not because we seek their votes,
but because it is right. If a free society cannot help the many
who are poor, it cannot save the few who are rich (Sorenson,
1965: 245-248).
Thus, in his early statements, Kennedy was resurrecting the
Western hemisphere idea, the tradition of excluding Europe from
the affairs of the hemisphere. Of course, in the 1960s, Kennedy
was anxious to exclude only that portion of Europe dominated or
responding to the interests of the Soviet Union. Though he
370
11JLCHIN: TIlE U.S. AND LATIN AMERICA IN THE 1960s 17
promised to contribute to change, both political and economic, at

the same time he warned that we would not accept any subver-
sion of the hemisphere.
A month after his inauguration, Kennedy summoned the rep-
resentatives of the hemispheric nations in Washington to a meet-
ing in the White House at which he called upon them to initiate,
at the l1ighest level of government, a multilateral effort to put his
new policy into effect. The hemispheric nations met in August
1961, at the beach resort of Punta Del Este (Uruguay), and
declared themselves bound together in an alliance for progress.
JFK sought to harness the power ofdemocracy and the strength
of the US economy to the US tradition of revolution in order to
deny to communism, or to the enemies of the United States more
generally, the existence of misery or of social discontent as a
weapon to ])e fielded against the United States. He told the con-
ferees at Punta del Este,
We live in a hemisphere whose own revolution has given
birth to the most powerful forces of the modern age - the
search for freedom and· self fulfIllment of man (US Dept. of
State Bulletin, 1961: 1).
They drafted a charter for the alliance which enumerated all of
the social, economic, and political goals of the hemisphere. They
were a litany of demands that Latin Americans had made over the
preceding fifty years. The Alliance for Progress would attempt to
improve and strengthen democratic institutions, to accelerate
economic and social development, to carry out urban and rural
housing programs, to encourage - in accordance with the charac-
teristics of each country - programs of agrarian reform, to assure
fair wages and satisfactory working conditions for all workers, to
wipe out illiteracy and increase the facilities for higher education,
to press forward with programs of health and sanitation, to refonn
the tax laws (demanding more from those who have the most), to
maintain monetary and fiscal policies which would protect pur-
chasing power of the people, to stimulate private enterprise in
order to encourage economic development, to solve problems
created by excessive price fluctuations and basic commodity ex-
ports. Finally, to accelerate the economic integration of Latin
America.
John F. Kennedy committed the United States to a decisive role
in the establishment and strengthening of free societies in the un-
371
derdeveloped world. It was an outgrowth of the global contain-

ment policy, intimately tied to national security policy, and a ring-
ing endorsement of the dominant social science paradigms
concerning the relationship between political organization and
economic development. The United States was committed to
spending $100 billion in a decade, the amount of a single year's
budget. Of that, 80Vo was supposed to come from Latin America.
Half of the US share was to come from public money, half from
. 12
pnvate sources.
The multilateral mechanisms to be employed were the crucial
differences between the Alliance and earlier efforts. They were
not part of any social science orthodoxy. They, were a political
response to pressure from the nations of the hemisphere and in
other regions. They helped to create a sense of partnership with
Latin America, which was especially significant in the realm of in-
tervening on behalf of good government. lbis was a major depar-
ture for Latin America as well, offering to join with the United
States to insure that democracy would reign in the hemisphere.
No one would disagree with those goals in 1961. No one would
disagree with them today. lbe idealistic rhetoric used and the na-
ture of the goals won widespread support. It was a dream set in
motion. Unhappily, the reality was markedly different. From the
very beginning the Alliance for Progress ran into difficulty. In
retrospect it is easy to see that it was an illusion, that it was a
Quixotic adventure. It had so many structural deficiencies and
flaws. It had obstacles on every side.
To begin, it was the largest public program of aid ever con-
ceived by the United States. There was no administrative
machinery in existence to carry it out. lbe president attempted to
create the machinery and ended by creating a layer ofbureaucracy
within the Agency for International Development (AID), then a
part of the State Department. The new organization ran into ex-
isting groups within the bureaucracy at every turn. The project had
opposition within the executive branch and in the Congress. It
was opposed by those who feared granting to the executive the
kind of long tenn commitment - ten years - without which the
planning function in the Alliance was unthinkable. It was opposed
also by those in the United States who quite honestly felt that the
promotion of social change in the language of revolution,
however moderate and desiral)le such a revolution might be, was
372
11JLCHIN: TIlE u.s. AND LATIN AMERICA IN TIlE 1960s 19
contrary to national security interests. Instead of forestalling the

spread of communism, the fomenting or instigation of social
change would only accelerate the spread of communism.
There was opposition in Latin America as well. Even some of
the regimes or administrations which had, in the late 1950s,
embraced the idea of development the most warmly now looked
at the list of objectives and realized (1) that putting them into ef-
fect would more or less destroy their governments and (2) that it
was far beyond the means, both political and economic, of their
societies to bear such a program. From the conservative oligarchi-
cal regimes, still in power in many countries, there was passive
resistance. Even in those countries where there were constitution-
al and democratic regimes, there was resistance. Such simple
programs as taxes, for example, were considered anathema by
middle-of-the-road administrations. lbe Christian Democratic
regime in Chile was center-left and very nationalistic. It threatened
to expropriate US properties and was populist in its language. Its
leader, Eduardo Frei, was one of the strongest advocates of social
refonn in the hemisphere. When a representative of the United
States Treasury visited Santiago (Chile), in 1962, to help the
government institute an income tax, he was told that such an in-
come tax was a communist tool and the Chileans would have none
of it. lbese were moderates! lbe hostile response to such social
refonn programs was even greater from the more conservative
regimes.
There was opposition too - unexpected opposition - from
some of the people the reforms were designed to help: for ex-
ample, Indians in the highlands, whose lands were suddenly sub-
ject to expropriation decrees because of national land reforms.
These reforms may have been proposed with the best of inten-
tions, but they involved pushing Indians off communal lands and
small holdings so that the lands could be used for the production
of foodstuffs. These were the same measures by which, in the
name of progress and modernization, positivistic regimes of the
19th century had despoiled native populations of their lands. As
they had previously, the Indians resisted. All across the hemi-
sphere, from Mexico down through Chile and Argentina, there
was opposition to reforms from groups who had no political input
whatsoever.
373
The Alliance virtually did not get off the ground. The United
States fulfilled its commitment to the Social Progress Trust Fund
and $400 million dollars was committed by Congress at the end
of 1961 to the Inter-American Development Bank. By 1965, $2 bil-
lion in public monies had been committed to public aid programs.
However, this represented only a fifth of what the US government
had pledged itself to provide at the meetings at Punta Del Este.
For their part, the Latins, who were supposed to put up four dol-
lars for every one provided by the United States, had come through
on the order of approximately 10 cents on the dollar. They had
not met their commitments any more than had the United States.
There were a number of controversial issues raised by the Al-
liance, several of which continue to have an impact on policy.
First, essential to the Alliance was the concept of government in-
volvement in the development process. Prior to that date, the
United States had explicitly rejected the idea of government-to-
government aid in Latin America. The official policy had called for
making the region safe for private investment, as the appropriate
means toward the goal of self-sustaining growth. With the Al-
liance, government intervention became a central element in
hemispheric dialogue and remains so to this day. Closely related
to the issue of statism was the concept of centralized planning.
The notion that the United States encouraged, indeed demanded,
centralized planning from free enterprise, democratic societies,
was a subject that caused considerable discussion. The US Con-
gress, for example, debated for three months in 1962 as to whether
such planning was democratic or not. Significant elements of the
Congress considered such planning, and the commitments it rep-
resented, to be the essence ofsocialism. Consequently, broad ele-
ments in the Congress opposed such planning, despite the fact
that the United States, along with the other countries in the hemi-
sphere, had been signatories to the Declaration of Punta del Este,
in which centralized planning was stipulated in virtually every
major clause.
The linkage between democracy and development, and the
relationship of both to national security, became a bone of con-
tention among the nations of the hemisphere from the very first
declaration of the Alliance, and it continues to complicate US
policy to this day. Indeed, it had been a problem in the last months
of the Eisenhower administration, but the implications of the
374
TIJLCHIN: TIlE U.S. AND LATIN AMERICA IN THE 1960s 21
linkage were not so apparent then as they became in the elal)ora-

tion of the measures related to the Alliance. Kennedy and his ad-
visers never for a moment questioned the linkage between
development and US national security. At the same time, theyas-
sumed us security interests were identical with Latin American
security interests. The success of the Alliance, Secretary of State
Rusk told the delegates to the second Punta del Este conference,
depended on the security of the hemisphere against communist
interference (NYf, 1962: 1).13
The Bay of Pigs episode, in particular, unnerved many govern-
ments in the region. They feared both unbridled interventionism
by the United States and the threat of uncontrolled revolution rep-
resented by Castro triumphant. This mixture of reactions made it
impossible for any nation to share with the United States the sense
that the mere existence of the Castro regime was a threat to its own
national security. In this case, after the fiasco at the Bay of Pigs,
Kennedy's youth and personality served to stiffen ooth his policy
and his posture, making him less tolerant of reform and radical
movements in the hemisRhere. He felt that he could not fail again
(Blasier, 1976: 243-248).14 Furthennore, to the constant frustration
of policymakers in Washington, Castro remained a model for en-
ding the status quo. The Cuban crisis undennined the ability of
the executive in the United States to keep long-term political and
social goals in focus during debates on national seculity.
Indeed, analyzing the episodes from the perspective of more
than twenty-five years suggests that the Kennedy administration
was, from its inception, ambivalent aoout its Wilsonian liberalism
and uncertain in· its support for democratic regimes under pres-
sure. Certainly, it is fair to say that, other things being equal, the
Kennedy administration preferred democratic regimes to non-
democratic ones, and that it would support and defend them in
times of crisis if there were no other factors involved which might
endanger national security. Nevertheless, they were vulnerable
from the outset to domestic attacks from the Right, attacks which
suggested they might expose the nation to danger through some
liberal, idealistic, or romantic defense of political forces in a
foreign country. Let me describe this ambivalence very briefly, in
two cases.
After Peron was deposed in 1955, the first democratically
elected president, Arturo Frondizi (1958-1962), tried to stimulate
375
economic growth by massive investments in infrastructure, much

of it with foreign capital. His foreign policy emphasized hemis-
pheric affairs in a manner that seemed a throwback to Roberto
Ortiz and Jose Maria Cantilo prior to World War II. He cultivated
the friendship of the United States; he declared his government
opposed to the Soviet Union; he was one of the strongest sup-
porters of the Alliance for Progress; he made shrewd use of the
personal ties between his foreign minister, Miguel Angel Carcano,
and the family ofJohn F. Kennedy. At the same time, Frondizi tried
to balance these overtures to the United States and demonstrate
his independence by maintaining relations with Fidel Castro's
Cuba. This displeased the US government and upset the Argen-
tine military, whose ideological propensities were hostile to the
doctrines represented by Castro.
Frondizi's domestic economic policy, known as Developmen-
talism, sought to control the foreign investment entering the
country in order to free Argentina from its dependence on foreign
capital. This policy called for mild doses of nationalistic rhetoric,
but Frondizi was a moderate in comparison to some of his
nationalistic critics, who opposed all foreign investment and who
were skeptical of the virtues of democratic government. In April
1961, Frondizi signed a treaty of friendship and consultation with
the president of Brazil, Janio Quadros, in the border city of
Uruguayana. This rapprochement with Brazil was part of
Frondizi's efforts to build a bloc of underdeveloped countries and
use foreign policy to further economic development. As explained
by his undersecretary for foreign relations:
Argentina is a Latin American country, that is to say, it is part
of a geographical area belonging to the underdeveloped con-
tinents of the world, but she has conditions of negotiations
that are very inferior to those of the other areas by virtue of
her lesser strategic significance.... Our present solidarity with
Latin America arises not only from the obvious traditional
sympathy by reason of blood and language, but also from
the sense that only action can call attention to our necessities,
as was demonstrated, to a small degree, by the partial suc-
cess achieved with Operation Pan-America (Tulchin,
forthcoming: Chapter 9).
The key to Frondizi's hemispheric policy was to be in his at-
tempt to arbitrate the growing differences between Cuba and the
376
11JLCHIN: TI-lE U.S. AND LATIN AMERICA IN THE 19605 23
United States. At the OAS meeting in Punta del Este, in January

1962, Frondizi joined in the general condemnation of the Cuban
regime, but opposed tlle imposition of joint sanctions. He hoped
the role of mediator would demonstrate Argentina's inde-
pendence of action and its influence in world affairs. This would
calm nationalists within the military who were nervous about
Castro's politics and calm those within the military, Frondizi's own
party, and the Peronist labor movement, who considered his ef-
forts to attract US investment a mark of subservience. In rebuffing
the Argentine initiative and increasing the pressure on Frondizi to
break relations with Cuba, the United States did force a rupture in
relations; but, as in World war II, it achieved its narrow, short-tenn
objective at the cost of playing into the hands of the more extreme
nationalists then contending for power in Argentina, in this case
the anti-democratic military looking for an excuse to get rid of
Frondizi.
The parallels with earlier episodes are striking. Frondizi
publicized his efforts to mediate between Cuba and the United
States, just as he publicized his support for the Alliance for
Progress. Washington acknowledged only the first. In September
1961, the US government made public a batch of documents pur-
loined from the Cuban embassy in Buenos Aires that purported to
show the links between Cuba and Argentine officials. Frondizi
reacted strongly, characterizing the documents as forgeries,
denouncing a Cuban exile group for their interference in Argen-
tine affairs, and complaining to the US government about un-
friendly pressure to influence normal relations with another
sovereign nation. This finn defense of Argentine sovereignty
helped Frondizi for a little while, but it did not win him any new
permanent allies. The combination of pressure from the United
States and from his own military forced him to break relations with
Cuba in February 1962, virtually upon his return from Punta del
Este, and led, in the space of little more than a month, to his ouster.
The military golpe stimulated an angry response from the
Department of State. Officials there called upon the president to
make a public statement condemning the coup. DeLesseps Mor-
rison, the US ambassador to the OAS, opposed such a move. He
considered Frondizi an unstable troublemaker. To win support for
his position, he went up to Capitol Hill and got key senators to
talk to the president. There was no public condemnation of the
377
Argentine military. To make the point clearer, just four months

later, the administration took a vigorous unequivocal stand against
the military golpe that overthrew Peruvian President Manuel
Prado. Kennedy announced that the Alliance had sustained a
"serious set-back." The military's action, had "contravened" the
common purposes of the inter-American s~stem. Prado was con-
1
sidered a team player on the Cuban issue. A year later, Morrison
again played an important role in defining the uncompromising
position which Washington assumed to deal with]oao Goulalt, in
Brazil. In 1964, Goulart was overthrown by the military, who then
proceeded to wield power for nearly twenty years. Roberto Cam-
pos, a consetvative economist and participant in the events,
criticized the United States for weakening already unstable
regimes. Kennedy and his advisers did not like instability (Baily,
1976: 95-105; Parkinson, 1974: chapters 7_9).16
Closer to home, and closer to Cuba, Kennedy had declared the
Dominican Republic the "showcase" of the Alliance. However, it
was there that an episode occurred that strained the patience of
the US government as much as any other. Juan Bosch, a social
democrat who had been in exile for many years, returned to lead
the Dominican Revolutionary Party and, in 1962, appeared to have
won the first free election in more than thirty years. Bosch was a
charismatic speaker with a strong populist bent, and he
denounced US imperialism in many speeches throughout the is-
land and the Caribbean. Many in Washington considered him a
dupe of the regime in Cuba, if not of the Soviet Union. Others
thought him misguided or, simply, inefficient. In any event, they
believed he would not be able to maintain stability in the island
republic. The US government expressed its dissatisfaction, but
continued to provide his regime with significant quantities of aid.
At the same time, however, members of the US military advisory
group maintained extremely close relations with their counter-
parts in the Dominican military, many of whom had been officers
under Trujillo and who had little sympathy for democratic fonus
of government. Bosch proved unable to consolidate his power
and was overthrown in a bloodless coup in 1963. The Kennedy
administration considered its options and chose to remain inac-
tive.
By mid 1963, the Kennedy administration had lost patience
with the policy of intetvention to support democracies in Latin
378
11JLCHIN: TI-lE U.S. AND LATIN AMERICA IN TI-lE 19605 25
America. The president was convinced that the Latins were not
with him. He was supposed to be the leader of a multilateral ef-
fort to defend democracy, but he found that most of the Latin
leaders who had encouraged his activitism would not back US ac-
tions in the hemisphere designed to support democracy. lbe
United States, through its policy of non-recognition and its policy
of political intervention in support of democracy, found itself iso-
lated in the hemisphere and subject to increasing criticism. Fur-
thermore, Kennedy was not convinced, nor were his advisers, that
the activist policy in support of democracy contributed to stability
in the hemisphere. lbere was a rising tide of comment that sug-
gested that it was undermining stability, and stability, he was con-
vinced, was the root cause of subversion. The belief in diversity
had all but disappeared.
At the same time, there were events elsewhere which were
throwing Kennedy's hemispheric policy into doubt. lbere were
the quickening events in Southeast Asia, particularly Vietnam and
Laos. lbe Soviet Union took a particularly hard line in its confron-
tations with the United States in 1961 and 1962, as if to test the
new president. The high point of this pressure came in October
with the Cuban missile crisis. lbere was significant and wide
debate within the United States concerning national security
doctrine, which had its echo in hemispheric policy, in the in-
creased concern over political stability. In the Congress as well,
there was an ever more insistent questioning of public aid as an
instrument of foreign policy.
The commitment to democracy, ambivalent from the start, was
undenninedfatally by Washington's profound, persistent faith in
counterinsurgency. This faith formed part of the broad rejection
of nuclear deterrence strategy, dominant during the Eisenhower
administration. Kennedy, as a member of the Senate Foreign Rela-
tions Committee, had cited the limitations of massive retaliation
for dealing with "brush-fire wars" which were "nibbling away at
the fringe of the Free World's territory and strength, until our
security has been steadily eroded in piecemeal fashion" (Ken-
nedy, 1960). He adopted with enthusiasm the flexible response
approach of Maxwell Taylor, which shifted some of the burden of
defending the country away from nuclear weapons and onto con-
ventional forces. An important component of Taylor's formula for
defense was the concept of counterinsurgency, which advanced
379
new ways to fight the brush-fire wars which concerned Kennedy

(Taylor: 1960). The major appeal of flexible response to the New
Frontiersmen was that it purported to be an innovation in strategic
thinking without jeopardizing their credibility with the US public
as tough-minded realists. After winning the closest presidential
election in history, Kennedy was always sensitive to the currents
of public opinion, and he almost certainly kept in mind Henry
Luce's warning, passed on to him by his father, "if he shows any
weakness in defending the cause of the free world [i.e., anti-com-
munism], we'll tum on him...we'll have to tear him apart" (Hal-
berstam, 1972: 18; Lieuwin, 1964: 124).
Counterinsurgency was considered a response both to
Khrushchev's boast that the Soviet Union would win the war for
the Third World and to Castro's strategy of world revolution. The
United States countered with a multi-faceted approach involving
the Central Intelligence Agency (CIA), Federal Bureau of Inves-
tigation (FBI), police training, and the use of AID public safety
program (Blasier, 1976: 246). As Michael Shafer has shown recent-
ly, the policy was a misapplication of a paradigm aimed at the
Soviet Union, based on a misperception of reality in the Third
World, and even deliberate distortion of the analysis of the results
of the policy's application (Shafer, 1988).17 However, at least until
1967, when Che Guevara was hunted down and killed in Bolivia,
it was hard to deny the paradigm. Everyone appeared to live ac-
cording to its rules - the Cubans, the Soviets, the Chinese, and,
of course, the Vietnamese.
According to Walt Rostow, counterinsurgency was an essen-
tial ingredient in the strategy of nation-building. As he told a
graduating class of Green Berets at Fort Bragg, in 1961,
Your job is to work with your fellow citizens in the whole
creative process of modernization. From our perspective in
Washington, you take your place side by side with those
others who are committed to help fashion independent,
modern societies out ofthe revolutionary process now going
forward. I salute you as I would a group of doctors, teachers,
economic planners, agricultural experts, civil servants, or
those who are now leading the way in fashioning new na-
tions and societies (Rostow, 1965: 115-116).
The result was a painful confusion within the government as
to the priorities of its Latin American policy. For example, in
380
TULCHIN: THE U.S. AND LATIN AMERICA IN THE 1960s 27
country after country, the military advisory group was poised to

defend the free world while the Department of State and the exe-
cutive attempted to coax refonnist regimes into constructive chan-
nels of cooperation. In EI Salvador and the Dominican Republic,
the result was civil war, in which the United States was implicated
on the side of reaction, and serious undermining or questioning
of the United States claim to support democracy and social justice
in the hemisphere. 18 After 1963, when Thomas Mann became the
dominant force in the fonnulation of US policy toward Latin
America, his severe doctrine of official nonintervention had the
effect of giving even greater prominence or influence to the
security forces operating in each country.
The Johnson Administration

Kennedy's assassination, in November 1963, seems to have
triggered a shift in US policy. The timing of the changes suggests
the influence of personality in the direction policy takes. Where
Kennedy was dynamic and charismatic and operated with a high
degree of rhetorical flourish, Lyndon B. Johnson was none of
those things. His political strength always had been quiet
manipulation or massaging of groups, the brilliant orchestration
of political forces, particularly in the Congress. Johnson had little
interest in the concerns which underlay the Alliance for Progress
and, in a series of very swift personnel changes, removed all of
the warriors who had fought with Kennedy in the Quixotic
episode of the Alliance. He replaced them with professionals who
adopted a more fonnal, cautious approach to the region. There-
after, he left policymaking to those advisers, much the way Eisen-
hower had. He never attempted to achieve the same command of
detail as he did on domestic issues, nor did he evidence the same
intellectual interest that Kennedy had in the foreign policy issues
themselves. 19
While it is tempting to explain the changes in US policy during
the 1960s in terms ofpresidential personality and leadership, there
is an accumulation of evidence which suggests that the Alliance
for Progress would never have worked, and that Kennedy himself
had become disillusioned with the Wilsonian policy of interven-
tion on the side of democracy. The basic concerns of the Cold War
were as high on his agenda as they were on Johnson's. Would
381
Kennedy have intervened in the Dominican Republic in 1965? We

cannot say with any certainty. We can say, however, that the
episode was a spasmodic response to domestic political concerns
over "anotherCul)a" (Langley, 1982; Tulchin, 1967). Kennedy was
at least as vulnerable as Johnson to such domestic pressures.
Those advisers who might have taken a different view ofreformers
in the Carit>bean than did the military advisers, Thomas Mann and
the others around Johnson, had been cowed and chastened by
the Bay of Pigs. Kennedy gave no more evidence than Johnson of
his ability to use the nation's power in a restrained manner. His
disposition to cooperate with Latin American nations, the most
distinguishing feature ofhis policy, had begun to weaken by 1963.
If anything, Kennedy was even more in thrall to the paradigm of
counterinsurgency and stability than was Johnson. On balance,
Kennedy supporters who would have us believe things would
have been different had he lived make an unconvincing case.
In any event, the episode in the Dominican Republic effective-
ly brought to an end any effort during the decade for multilateral
cooperation. Following that intervention, the nations of L'ltin
America were no longer willing to deal with the United States
within the framework of the OAS. The OAS was considered a tool
of US policy, even though, ironically, President Johnson held the
lowest opinion of that organization. He is reported to have said
that the GAS was so ineffective it couldn't "pour piss out of a boot
if the instructions were written on the heel." The Dominican in-
telvention marked a great break in hemispheric relations. It
marked an end to effolts on the part of the United States to
cooperate within multilateral agencies in an effort to bring about
social change. It marks a break on the Latin American side as well,
particularly in the willingness to cooperate with the United States.
That lack of confidence in the United States is a legacy with which
the US n1ust still live today.
Of course, as the decade wore on, events outside the hemi-
sphere came to assume transcendent impoltance in US policy
planning, so thatJohnson, having once broken away from the lead
of John F. Kennedy, was content to leave the hemisphere to its
own devices. He maintained the high level of direct public aid,
but, in effect, Latin America returned to the position of low priority
on the US policy agenda which it had held prior to 1958. Events
in Asia, IJeginning with the Gulf of Tonkin episode, quickly took
382
11JLCHIN: TI-lE u.s. AND LATIN AMERICA IN THE 19605 29
the attention of the US administration away from the Western

Hemisphere and skewed US policy so as to redefine national
security in terms of the experience in southeast Asia. After 1966,
us foreign policy debate focused so obsessively upon events in
Asia as to change totally the perspective on national security
which had shaped policy since World War II. That obsession so
haunted President Johnson that it finally drove him from office. It
continued to haunt his successor, Richard Nixon, and his principal
adviser, Henry Kissinger. Kissinger believed the war in Vietnam
threatened the delicate world balance of power, and he sought to
restore the normal balance by bringing an abrupt end to the war,
almost at any price. The balance which Kissinger had in mind, and
toward which he worked during his years in Washington, was a
traditional view of global power, one in which Latin America was
viewed as insignificant so far as US strategic thinking was con-
cerned.
There is an anecdote which captures the dilemma of Latin
America as the subject of us policy. After retiring as Secretary of
State, Henry Kissinger was much in demand as a speaker and
public figure. One of his speaking engagements was in Buenos
Aires (Argentina) during the last years of the military dictatorship.
His visit was a big story in Buenos Aires. In an interview with a
weekly feature magazine, Siete Dfas, Kissinger was quoted as
saying, "Argentina is a fascinating country. It is a pity that I didn't
pay any attention to it while I was Secretary of State." He might
have said the same thing about Latin America as a whole.
CONCLUSION
BYTI-IE END OFTI-IE DECADE, the United States was thorough-
ly embittered by the threats to its security from within the hemi-
sphere, and by the sense of having its sphere of influence violated
and destroyed by external influences without any constructive
cooperation from the other nations in the hemisphere. On the
other hand, from the Latin American perspective, their alienation
from the United States had become so complete that there was al-
most no disposition on their part to cooperate with the United
States in multilateral efforts nor to sympathize with the US percep-
tion ofnational security issues. Another consequence of the events
of the decade was that the issue of development had become
383
central to discussion of foreign policy and, more specifically, to

discussion of national security, although there remained a glaring
asymmetry in the perception, north and south, of the linkage be-
tween the two. Latin America was poor and getting poorer. During
the decade, the income of the developed countries increased 43%
while the income of the developing countries increased only 270/0
(Baily, 1976: chap. 1). They expressed their disillusionment with
the United States and their conviction concerning the necessity for
development in the public statements following the meeting at
Viiia del Mar in May 1969.
Although its influence was already on the wane by the end of
the 1960s, Castro's Cuba was still seen by many in Latin America
as an alternative model of national development. The fierce, al-
most compulsive US rejection of Cuban initiatives, wherever they
might be encountered, contributed, by the end of the decade, to
another consequence which would have staggered Kennedy or
Johnson, had either of them understood it: the United States was
seen by many people in the hemisphere not as a force for change,
refonn, and democracy, but as a counter-revolutionary power, a
reactionary force in hemispheric affairs. That is perhaps the most
painful irony in the evolution of United States-Latin American rela-
tions in the decade of the 1960s. Having begun as the spokesman
of change, in a ringing challenge to the nations of the hemisphere
to join in a cooperative venture to seek the benefits of progress
and democracy, the United States had ended the decade as a blind
opponent of progressive regimes and an equally blind supporter
of military regimes, whose only claim to legitimacy was fervent
anti-communism and the violent suppression of dissidents. The
reasons for this change were (1) the confusion between the short-
tenn goal of anti-eommunism and the long-tenn elimination of
conditions assumed to invite communist subversion, (2) an in-
ability to use power in a restrained manner, and (3) an inability to
consider the region's development except as an element in the na-
tional security of the United States alone, rather than in the broader
context of the entire hemisphere.
Today, US policy toward Latin America continues to be
hamstrung, as it was in the 1960s, by failure to take the history and
contemporary reality of the region into account; by the persistent
imposition ofbipolar dichotomies on situations in the hemisphere
which cannot be understood adequately, nor dealt with effective-
384
TIJLCHIN: TI-lE u.s. AND LATIN AMERICA IN THE 1960s 31
ly, in tenns of those dichotomies; and by the persistence of the

Wilsonian assumption that everybody should become, or want to
become, like the United States. Current realities in the region sug-
gest that the United States needs to come to terms with Latin
America as it is, rather than continue to ignore it, or attempt to
mold it in its own image. Further, the United States needs to ap-
preciate the important differences which have divided the hemi-
sphere and which have made a mockery of efforts to maintain a
semblance of Pan American cooperation. The desire for change,
for development, characterizes all nations in the hemisphere.
While most proclaim their devotion to pluralistic democracy, the
fact remains that development and solving the most pressing so-
cial and economic issues take precedence over concern for politi-
calor institutional niceties. At the same time, all nations in the
hemisphere want to achieve development without falling further
into dependency upon the United States. Dignity and autonom~
2
ofaction are goals high on the list of any nation's set of priorities.
There is a desperate quality to the quest for a viable hemis-
pheric relationship because the OAS continues to be ineffectual,
while the debt crisis continues to stifle every economy and inter-
national commodity prices remain at depressed levels. The Cuban
mooel of development, so attractive in the 1960s, is virtually ex-
hausted. The experience of Nicaragua's revolutionary regime has
demonstrated that outside help, so vital to the suIVival of the
Cuban economy, is no longer available. The Soviet Union has
declared repeatedly, and confinned by its actions, that it considers
the contest for the Third World to have been won by the West.
Revolutionary, or reformist, regimes which seek to restructure the
distribution of resources within their societies will have to come
to terms with the United States or subject their citizens to
prolonged periods of sacrifice and hardship.
The United States has an opportunity for constructive work in
the hemisphere that is as inviting as any since the beginning of the
1960s. However, to seize the opportunity, it is necessary for the
US to abandon the extreme caution of its funding agencies and
return to program aid, rather than narrow project aid. More
generally, it is time for the United States to leave behind the ar-
rogant, positivistic Wilsonianism which has led it to impose its way
on others. Finally, it is necessary for the US government, once and
for all, to shuck off a myopic, distorted view of the world as a
385
lJipolar struggle for power with an evil empire which is constant-

ly seeking to undennine US security. The world has changed since
1950-and since 1960. To deal effectively with the new configura-
tion in power relationships, the United States must recognize the
diversity of a multipolar world, as well as the legitimate aspira-
tions of the peoples in Latin America, and work with them to reach
their goals. Only in that way will the United States be able to
protect its security and preserve its own way of life.
NOTES
1. For a description of the foreign policies of various Latin American
nations in the 1970s, see Munoz and Tulchin (1984).
2. This process is described in great detail in Tulchin (1971).
3. This episode is dealt with in great detail in Tulchin (forthcoming),
and it is also the subject of the volume edited by Oi Tella and Watt (1988).
4. There had been concern with Bolshevism earlier, shown by
Secretary of State Kellogg in Mexico and Central America, in 1926-1928,
and by Secretary of State Hull in Cuba in 1933, but neither seriously an-
ticipated that the Soviet Union would enter the Caribbean through such
means. They were concerned with instability and the threat to US proper-
ty and US hegemony.
5. On the Guatemala episode, see the summary discussion and sour-
ces cited in Rabe (1988).
6. For a general discussion of these issues, see Packenham (1971).
7. In an early review of policy, a listing of US objectives in Latin
America indicated that all of these were of concern, but, at that point,
the precise relationship among them was not specified (NSC, 1953).
8. These initiatives are recounted in Parkinson (1974). For another
perspective, see Baily (1976).
9. Quotation originally appeared in The Department of State Bulletin
54, 6 June 1966, and was quoted by Shafer in his book.
10. For the critical liberal arguments that influenced policy, see
Bowles (1956), Hertzberg (1954), Schlesinger (1960), and Niebuhr
(1961). For a recent analysis of the relationship between national security
and foreign policy, see Schoultz (1987).
11. This is the same argument that would be used to justify training
Latin American military leaders in the US. It remains in use to this day,
although there is considerable public debate as to its validity.
12. For a convenient summary of the Alliance, see Levinson and de
Onis (1970) and IESC (1973). The social science literature that gropes
toward this linkage is vast; for an example, see Almond and Coleman
(1961).
13. For Latin American disagreements, see HispaniC-American Report
(1962).
386
nJLCHIN: mE u.s. AND LATIN AMERICA IN TIlE 19605 33
14. Kennedy frequently spoke of "tests of nerve and will" that he

believed the Soviets had in store for the United States, and thus he sought
to maintain an image of toughness in conducting foreign affairs (see
Public Papers of the Presidents of the United States, 1962: 625).
15. These episodes can be followed in the pages of the Neu' }'ork
Ttmes(1962) 29 January to 29 August; see also Johnson (1978: 350).
16. For detailed analyses of the golpeand US involvement, see Black
(1977) and Parker (1979).
17. Critical to an understanding of this paradigm is the evolving view
of the military in the Third World, from predatory ally of the oligarchy
to agents of change and development.
18. On El Salvador, see Montgomery (1983). For a good summary of
the episode in the Dominican Repu blic and citation of the standard sour-
ces, see Langley (1982). Blasier (1976) suggests that the threat to US
private investments has played too large a role in shaping United States
response to reformist regimes in the hemisphere. He gives as examples
the expropriation of IPe in Peru, the sugar companies in the Dominican
Republic, and others. Blasier also says that our fear of action by the great
power rivals motivates the response of the United States, even though
Soviet help to the regimes in question, other than Cuba, has been minor.
In several cases, we have forced reformers to turn to Eastern Europe for
aid or arms because the United States refused to provide one or the other
or both.
19. For an introduction to the rapidly growing literature on the
Johnson administration, see Sigelmann (1986), Matusow (1985), Divine
(1981) and Conkin (1987).
20. For a recent, cogent statement of the asynunetry in national
security perspectives between Latin America and the US, see Munoz
(1986). The Inter-American Dialogue has been an effort to improve com-
munication and correct perceptions on both sides.
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390
WORLD ECONOMIC CYCLES
AND CENTRAL AMERICAN
POLITICAL INSTABILITY
By MARC LINDENBERG·
INTRODUCTION
S INCE the 1950S there has been considerable debate about the impact
of international economic forces on political and economic autonomy
in the developing world. On the one hand, theorists of neo-imperialism
l
argued that international capital imposed externally rooted class struc-

tures on developing countries to maintain social control of the population
and to extract surplus. 2 They maintained that this dependent relationship
not only inhibited local capital formation, but also heightened political
instability as an increasingly impoverished population challenged the
dominance of local elites subservient to foreign interests. In contrast,
modernization theorists argued that political instability in developing
countries was not the result of economic dependence, but rather the con-
sequence of the modernization process itself) They asserted that devel-
• I would like to thank Forrest Colburn, Jorge Dominguez, Marilee Grindle, Robert Klit-
gaard, Jack Montgomery, Jay Patel, and Dani Roderick for helpful comments on earlier
drafts. The data analysis for this article could not have been completed without the assistance
of Maria Joaquina Larraz de Quant and the help of a grant from the Ford Foundation's
Office for Mexico and Central America.
I Ekkart Zimmermann, Political Violence, Crises and Revolution (Cambridge, MA: Schenk-
man Publishing Company, 1983) provides an extensive review of the literature on causes of
political instability. Four perspectives of particular interest are modernization theory, psy-
chological theories of relative deprivation, perspectives derived from Marxist political econ-
omy, and those from more conventional economics. For an explanation of modernization
theory see Samuel P. Huntington, Political Order in Changing Societies (New Haven: Yale
University Press, 1968). Examples of the psychological approach are Ivo K. Feierabend and
Rosalind L. Feierabend, "Systemic Conditions of Political Aggression: An Application of
Frustration-Aggression Theory," in Ivo K. Feierabend, Rosalind L. Feierabend, and Ted
Robert Gurr, eds., Anger, Violence and Politics (Englewood Cliffs, NJ: Prentice-Hall, 1972),
136-83, and Ted Robert Gurr, Why Men Rebel (Princeton: Princeton University Press, 1970).
Representative presentations of the Marxist perspective can be found in Samir Amin, Accu-
mulation on a World Scale (New York: Monthly Review Press, 1974), Vols. I and II, and
Immanuel Wallerstein, The Modern World System (New York: Academic Press, 1974). For a
more conventional approach see Gunnar Myrdal, Rich Lands and Poor: The Road to World
Prosperity (New York: Harper and Row, 1958), and Albert O. Hirschman, The Strategy of
Economic Development (New Haven: Yale University Press, 1962).
;z See for example, Amin (fn. I) and Wallerstein (fn. I).
3 For an explanation of modernization theory see Huntington (fn. I).
391
398 WORLD POLITICS
opment triggered instability as the population's demands grew more rap-

idly than the capacity of political and economic institutions to meet them.
Latin American scholars provided substantial contributions to this de-
bate. 4 For example, the early works of Baran and Frank established the
foundations of Latin American "dependency theory" with their discus-
sion of "metropolis-satellite" relationships.5 Cardoso and Faletto, as well
as Warren, reformulated the dependency argument in the 1970S to make
it more consistent with a Latin America where domestic investment,
industrial output, and national income actually increased. 6 They argued
that in spite of growth and capital accumulation, the Latin American
nations Were still dependent because they had to import technology and
capital goods and that local political instability was still triggered by con-
tradictions in the international economy which pitted local elites aligned
with foreigners against other elements of the local class structure.
Even though many prominent students of Latin America did not sub-
scribe to dependency theory, they still assigned an important role to in-
ternational economic forces in triggering political instability.? For ex-
ample, O'Donnell argued that the end of the stage of easy import
substitution helped produce economic stagnation, a breakdown of alli-
ances between governments and populist groups, increased social discon-
4 An example of a contribution from a Marxist perspective is Paul A. Baran, The Political
Economy of Growth (New York: Monthly Review Press, 1957). Baran's work was further
developed by Andre Gunder Frank, Latin America: Underdevelopment or Revolution (New
York: Monthly Review Press, 1969). See also Celso Furtado, Economic Development of Latin
America: A Survey from Colonial Times to the Cuban Revolution (London: Cambridge Univer-
sity Press, 1970). One of the most interesting reformulations of dependency theory is Fer-
nando Henrique Cardoso and Enzo Faletto, Dependency and Development in Latin America
(Berkeley: University of California Press, 1979). For non-Marxist perspectives see Guillermo
A. O'Donnell, Modernization and Bureaucratic-Authoritarianism, Politics of Modernization
Series NO.9 (Berkeley: Institute of International Studies, University of California, 1973),291-
93; David Collier, ed., The New Authoritarianism in Latin America (Princeton: Princeton Uni-
versity Press, 1979); and David G. Becker, Jeffry A. Frieden, Sayre P. Schatz, and Richard
L. Sklar, Postimperialism (Boulder, CO: Lynne Rienner Publishers, 1987).
'5 The word dependency is derived from the Spanish word dependencia. Advocates of this
viewpoint see dependencia not as a theory but rather as a world view which asserts that the
economic growth of peripheral economies is conditioned by the fluctuations and growth of
the dominant industrial economies. The historic development of dependencia is discussed in
Ronald H. Chilcote and Joel C. Edelstein, Latin America: Capitalist and Socialist Perspectives
of Development and Underdevelopment (Boulder, CO: Westview Press, 1986), chaps. 3 and 4,
and Juan Eugenio Corradi, "Cultural Dependence and the Sociology of Knowledge: The
Latin American Case," in June Nash, Juan Corradi, and Hobart Spalding, J....., eds., Ideology
and Social Change in Latin America (New York: Gordon and Breach Science Publishers,
1977),7-3°. For specific works see Baran (fn. 4) and Frank (fn. 4)·
6 Cardoso and Faletto (fn. 4). See also Bill Warren, Imperialism, Pioneer of Capitalism (Lon-
don: New Left Books, 1980).

7 See, for example, Guillermo A. O'Donnell, Philippe C. Schmitter, and Laurence White-
head, Transitions from Authoritarian Rule (Baltimore: Johns Hopkins University Press, 1986),
or Alfred C. Stepan, Rethinking Military Politics (Princeton: Princeton University Press,
1988). See also Myrdal (fn. I) and Hirschman (fn. I).
392
ECONOMIC CYCLES & CENTRAL AMERICA 399
tent, and political instability.8 New alliances among the military, tech-
nocrats, and a transnationalized bourgeoisie, created to maintain social
control, resulted in the emergence of the "bureaucratic authoritarian
state." The work of Becker and Sklar on "postimperialism" rejected de-
pendency theory but focused on the vital role of multinational capital in
the formation of Latin American class structure. 9
While grand theories about the role of international economic forces
in the developing world and in Latin America have been intellectually
engaging, attempts to subject them to empirical testing have produced
conflicting results. 1O For example, Sanders analyzed the relationship be-
tween modernization, dependence, and political instability in 107 coun-
tries between 1948 and 1967. He found no statistically significant results
to support dependency theory and weak support for modernization the-
ory.11 Hibbs's classic study of political violence produced similar find-
ings. 12 Furthermore, the Latin American contributions to the theoretical
debate have been primarily based on noncomparative historical studies
of the larger Latin American countries like Brazil, Argentina, and Mex-
ico. Notable exceptions are Midlarsky and Tanter, Needler, Putnam, and
Sanders. 13
Paradoxically, the small Central American nations and Panama, rele-
gated to the footnotes of most theoretical discussions, provide the most
fertile testing ground for such theories. '4 By normal measures these small
8 The concept of bureaucratic authoritarianism was first presented in O'Donnell (fn. 4).
See also two articles by O'Donnell, "Reflections on Patterns of Change in the Bureaucratic-
Authoritarian State," Latin American Research Review 13, No. I (1984),3-38, and "Tensions
in the Bureaucratic-Authoritarian State and the Question of Democracy," in David Collier,
ed., The New Authoritarianism in Latin America (Princeton: Princeton University Press, 1979),
285-318. For a critique see Karen L. Remmer and Gilbert W. Merkx, "Bureaucratic-Au-
thoritarianism Revisited," Latin American Research Review 17, No.2 (1982), 3-40.
9 See Becker et al. (fn. 4).
10 For the most comprehensive review of the empirical studies of political instability see
David Sanders, Patterns of Political Instability (New York: Saint Martin's Press, 1981), chaps.
6-9; Douglas A. Hibbs, Mass Political Violence: A Cross-national Causal Analysis (New York:
Wiley, 1973); and Zimmermann (fn. I).
II Sanders (fn. 10), chaps. 7-9. While Sanders finds no statistically significant relationships
between dependency, modernization, and political instability on a global level, he does find
some evidence for the dependency argument in Latin America at the level of bivariate cor-
relations (pp. 159-61).
12 Hibbs (fn. 10).
13 O'Donnell (fn. 4) and Cardoso and Faletto (fn. 4). For exceptions see Manus I. Midlarsky
and Raymond Tanter, "Toward a Theory of Political Instability in Latin America," Journal
of Peace Research 4 (1967), 12-26; Martin C. Needler, Political Development in Latin America:
Instability, Violence and Evolutionary Change (New York: Random House, 1968); Robert D.
Putnam, "Toward Explaining Military Intervention in Latin American Politics," World Pol-
itics 20 (October 1967), 83-110; and Sanders (fn. 10).
14 O'Donnell (fn. 4), I I. He specifically excludes Central America from his analysis and
then focuses on the larger economies. The closest he comes to discussing regime types in the
smaller Latin American states is to classify them as traditional authoritarian (p. 114). Cardoso
393
400 WORLD POLITICS
countries are among the most dependent in Latin America and the de-
veloping world. They have traditionally relied on a few important export
products and markets. Foreign trade has had a predominant influence
on the national economy. They have been subject to repeated invasions
and interventions by Spain, Br.itain, and the United States. Furthermore,
they are among the more than seventy-five small, developing countries
with no internal market to fall back on during worldwide recessions.
Finally, they form a relatively cogent unit of analysis since their tiny,
highly opened export economies share common products, markets, re-
source endowments, population sizes, and colonial heritage.
Yet there is little empirical work to fill the gap between the excellent
historical studies of individual Central American countries l5 and the
sweeping theoretical treatments of dependency or modernization. 16 This
article provides a detailed analysis of the relationships between world
economic cycles and the political and economic instability that has
plagued the five Central American nations and Panama since the 1930S.
If one cannot find strong relationships between these forces within this
small region, it would be hard to expect to encounter them elsewhere in
Latin America or in developing countries in general.
A BASIC THESIS ABOUT CENTRAL AMERICAN INSTABILITY
By juxtaposing elements from the existing (Marxist and non-Marxist)

literature with empirical analysis, it is possible to develop and test the
and Faletto (fn. 4), 122-24, also provide no more than a brief analysis of how international
economic forces determine class relations in Central America. They argue that the system
continues to be based on dominance by traditional agricultural exporters, enclave foreign
interests, and the military. They make no attempt to trace the dynamics of change in those
relationships. They treat the region as a unit.
·5 There are many interesting studies of the problems of social discontent, violence, and
repression in Central American countries. For Costa Rica, see, for example, John Patrick
Bell, Guerra Civil en Costa Rica (San Jose: EDUCA, 1985); for EI Salvador, Rafael Guidos
Vejar, El Ascenso del Militarismo en El Salvador (San Jose: EDUCA, 1982), Rafael Menjivar,
Formacion y Lucha del Proktariado Industrial Salvadoreno (San Salvador: UCA Editores,
1979), and Thomas R. Anderson, El Salvador: Los Sucesos Politicos de 1932 (San Jose: ED~
UCA, 1976); for Guatemala, Gabriel Edgardo Aguilera Peralta and Jorge Romero Imery,
Dialictica del Terror en Guatemala (San Jose: EDUCA,1981), and Rene Poitevin, El Proceso
de Industrializacion en Guatemala (San Jose: EDUCA, 1977); for Honduras, Mark B. Rosen-
berg and Phillip L. Shepherd, Honduras Confronts Its Future: Contending Perspectives on Crit-
ical Issues (Boulder, CO: Lynne Rienner Publishers, 1986), and Victor Meza, Histon"a del
Movimiento Obrero Hondurdio (Tegucigalpa: Editorial Guaymuras, 1980); for Nicaragua, see
Julio Lopez C., Orlando Nunez S., Carlos Fernando Chamorro Barrios, and Pascual Serres,
La Caida del Somocismo y la Lueha Sandinista en Nicaragua (San Jose: EDUCA, 1979), or
Richard Millet, Guardians ofthe Dynasty (Maryknoll, NY: Orbis Books, 1977).
•6 See for example, Frank (fn. 4) and Furtado (fn. 4). A limited number of recent works
on Central America provide some basis for further empirical treatment of the role of inter-
national forces in Central American political instability. See Daniel Camacho and Rafael
394
thesis that because the Central American economies are so small and
highly opened, a world economic downturn helps to trigger a cycle of
internal destabilizing forces. 17 These internal forces, latent but ever pres-
ent due to continued population growth, high unemployment, and social
inequities, would accelerate during periods of economic crisis. During
such periods the region's levels of living would deteriorate further. Dis-
content would grow. IS Governments would lose the political resources to
maintain control, and political instability would increase. 19 Military gov-
ernments would appear and disappear through coups and countercoups
until a stable military coalition would intervene, usually imposing re-
pressive measures to gain control. 20
In the period since the 1930S one might expect to find this stable mil-
itary coalition emerging during the last phases of the economic crisis and
the beginnings of world and Central American economic recovery. It
would preside over a reordering of the Central American economic strat-
egy and reestablishment of the same dominant social coalitions, although
different individuals would govern. These periods of relatively stable
21
military rule would continue until the next world economic crisis set off
a new spiral of political collapse.
A final factor, not discussed in the existing literature because it is so
recent, merits special mention. The democratic opening of 1986 to 1988
may be the first exception to the cycle of alternating crisis and instability
followed by stable military rule. It is far too soon to tell if it will be a
Menjivar, Movimientos Populares en Centro America (San Jose: EDUCA, 1985); Tom Barry,
Roots of Rebellion: Land and Hunger in Central America (Boston: South End Press, 1987); and
Robert G. Williams, Export Agriculture and the Crisis in Central America (Chapel Hill: Uni-
versity of North Carolina Press, 1986).
17 This part of the thesis most closely parallels the global discussions of economic forces in
Frank (fn. 4) and Cardoso and Faletto (fn. 4), the regional discussions of Camacho and Men-
jivar (fn. 16) and Williams (fn. 16), and the country analysis, for example, of Menjivar (fn.
IS) or Poitevin (fn. IS),
18 External economic crisis can be thought of here as the element which stimulates the
frustration which in turn sets off the dynamics of aggression and social discontent described
by Feierabend and Feierabend (fn. I) and Gurr (fn. I).
19 This argument runs counter to Huntington's modernization theory (fn. I). It fits O'Don-
nell's general idea (fn. 4) that economic stagnation sets off a cycle of discontent which results
in repression. However, in O'Donnell's argument for the large Latin American countries,
stagnation occurs when the easy state of industrial import substitution ends. In small, highly
open export economies like those found in Central America the source is more clearly inter-
national economic instability.
~o This part of the thesis builds upon Cardoso and Faletto's (fn. 4) contention that in Cen-
tral America in the twentieth century there has been no regime change but only leadership
or government change as the coalition of military, traditional agricultural, and enclave forces
reestablish themselves. It supports O'Donnell's (fn. 4) general contention that at least until
the I980s some five of the Central American countries might be classified generally as tra-
ditional authoritarian regimes.
~I Cardoso and Faletto (fn. 4); O'Donnell (fn. 4).
395
402 WORLD POLITICS
brief aberration or a truly unique response to the traditional cycle of

economic collapse and social readjustment. 22
OTHER DETERMINANTS OF POLITICAL INSTABILITY
Although we might expect the classic crisis and military rule cycles to
take place in the way just described, a number of factors might make
political crisis more or less intense. For example, political instability
might be less acute in crisis periods when the Central American economy
was outperforming the world economy, or when there was more prod-
uct, market, or sectorial diversification. Second, the influence of external
political actors might either moderate or accentuate cycles of political
instability. For example, it might be argued that in the post-World War
II period the u.S. administration found the support of loyal military
governments in Central America against Germany and Japan more im-
portant than the authoritarian or democr~tic inclinations of those gov-
ernments. 23 If this were true, it would have been easier for military rulers
in the region to consolidate their power in spite of the economic down-
turns of the late 1930S. Third, Nicaragua, El Salvador,. and Guatemala
have generally experienced more violence and severe political instability
in times of crisis than their neighbors Costa Rica, Honduras, and Pan-
ama. It is possible that the countries with greater population density or
larger ethnic populations might have higher levels of instability in times
of crisis than those countries with less density or ethnicity.2 4 The logic
:l:1 One interesting hypothesis which will have to be explored elsewhere is that the period
from 1986 to 1989 can be viewed as a unique example of regime change from traditional
authoritarian to democratic as opposed to simply the continued unprogrammed rotation of
military leaders and governments. This may be due to the demands of the larger urban
middle and working class which developed as a result of import substitution stimulated
through Central America's common market between 1960 and 1978. Certainly levels of ur-
banization increased from 1965 (37·5%) to 1983 (45%).
:Zj See, for example, Daniel Rapport, "American Foreign Policy in Central America: A
Method of Analysis and Results" (Unpublished paper, John F. Kennedy School of Govern-
ment, Harvard University, June 1988).
:14 For discussions of the impact of population density and ethnicity on political discontent
and repression see Richard Adams and Michael Stone, "Memorandum on Relations between
Native Americans and the State in Central America" (Paper prepared for the International
Commission for Central American Recovery and Development, April 1988). Specific country
examples are Armando Brown, "Los Pueblos Indigenas Ante el Mundo," Revista de la Es-
cue/a Nacional de Antropologia e Historia, Ailo I, 1 (June 1980),2-5, and CIDCA Development
Study Unit, "Ethnic Groups and the Nation State: The Case of the Atlantic Coast in Nica-
ragua" (Department of Anthropology, University of Stockholm, 1987). For more general
sources, see Cepal Fao Oit, Tenencia de la Tierra y Desarrollo Rural en Centroamerica (San
Jose: EDUCA, 1980), and Barry (fn. 16). For excellent treatment of the development of the
class structures in Guatemala and Costa Rica and the different treatment of indigenous
groups, see Severo Martinez Pelaez, La Patria del Criollo: Ensayo de Interpretacion de la Real-
idad Colonial Guatemalteca (San Jose: EDUCA, 1985), and Samuel Z. Stone, La Dinastia de
los Conquistadores: La Crisis del Poder en la Costa Rica Contemporanea (San Jose: EDUCA,
1975)·
396
behind this argument, for example, might be that in countries with
higher population density like EI Salvador and Guatemala, people have
less chance to go back to subsistence agriculture when there is a world
economic downturn. They must rely more heavily on their wages from
coffee, sugar, and exports. With family survival threatened by world eco-
nomic cycles, and without the option of subsistence agriculture, their
discontent levels might be higher than in countries like Honduras where
there is more access to land for subsistence. Another possibility is that
ethnic tensions explode more readily in crisis conditions. 25 I f this were
true, then crisis should be more violent in Guatemala, Panama, and EI
Salvador than, for example, in Costa Rica or Honduras. Fourth, it is
possible that differences in colonial settlement patterns might have led to
greater equity in some countries like Costa Rica as opposed to Guatemala
and EI Salvador as well as to the type of regime (authoritarian versus
democratic) which emerged by 1930. Some students of the region believe
that differences in initial colonial settlement patterns explain more about
differences in levels of political instability than many other factors. 26
Finally, differences in income distribution and landholding patterns
might be important as wel1. 27 One might expect more social discontent
in countries with greater inequality of income distribution or landhold-
ing patterns.
The analysis which follows covers three areas. First, it develops defi-
nitions and describes how data were collected. Second, it reports the find-
ings. Finally, .it draws conclusions about the process of economic and
political change in Central America and the parameters of choice for
small countries within the constraints of the international economic sys-
tem.
DEFINITIONS AND DATA COLLECTION METHODS
In order to understand the dynamics of economic crisis and political

instability in Central America, data were collected on (I) world and Cen-
tral American economic cycles; (2) leadership instability; (3) regime in-
~5 The accentuated effects of economic crisis on countries with dense population and in-
digenous groups whose traditional relationship to the land has been broken is noted by Men-
jivar (fn. IS), and Eduardo Colindres, Fundamentos Economicos de la Burgesia Salvadorena
(San Salvador: UCA Editores, 1977). The opposite effect is noted in less dense Costa Rica in
Reinaldo Carcanholo, Desarrollo del Capitalismo en Costa Rica (San Jose: EDUCA, 1981 ).
~6 See fn. 16.
~7 While these two factors are extremely important, it was difficult to get accurate region-
wide data. The best recent source in this matter is the International Commission for Central
American Reconstruction and Development at Duke University. Background papers com-
piled for the commission are being published by Duke University Press.
397
404 WORLD POLITICS
stability; (4) repression; (5) social discontent; (6) political instability; (7)
population density; (8) ethnic populations; and (9) urbanization.
Central American economic data were collected through construction
of a time series of Central American exports, imports, and total trade
between 1900 and 1985, and use of existing GDP data from 1950 to the
present. 28 Annual GDP growth statistics by year were then grouped in
economic crisis versus growth periods through a two-step process. In step
one, annual GDP growth data were divided into three categories: (I) eco-
nomic contraction (three years of declining growth with two of the three
years having growth of less than 3 percent); (2) recovery (the first two
years of positive GDP growth after a period of economic contraction); and
(3) growth (one or more years of positive GDP growth after a recovery
period). In step two, economic contraction periods and the immediate
recovery periods after the contraction were added together to form eco-
nomic crisis periods. 29 Periods of growth could then be contrasted with
crisis periods.
Leadership instability was defined as "the President's inability to
maintain him- or herself in office for the duration of the preestablished
term."3 It was measured by examining the official records in each coun-
0
try to determine the percentages of non programmed changes of presi-

dents per year (for example, coups d'etat, resignations, assassinations) to
total changes per year, and average number of changes of presidents per
~8 The trade time series at constant prices was constructed from each country's customs
data because no official cop data for Central America between 1900 and 1950 exist. The
portion of the series used in this study extends from 1930 to 1988 and correlates highly with
the CDP projections recently completed by Victor Bulmer Thomas, "World Recession and
Central American Depression: Lessons from the 1930S for the 1980s," in Esperanza Duran,
ed., Latin America and the World Recession (Cambridge: Cambridge University Press, 1985),
130-51. After 1950 GOP growth data come from the time series in the Economist's World
Business Cycles. World cop growth rate data from 1930 to 1985 are the un weighted averages
of U.S. and U.K. growth between 1930 and 1950 as presented in World Business Cycles. These
two countries were selected because they were Central America's primary trading partners
during that period. From 1950 to the present, World Business Cycles computes overall world
cop growth rate data.
~9 Crisis periods included both contraction and recovery because there was a general sense
that an economic crisis was not over until there was a long enough recovery period to dem-
onstrate that a trend reversal had taken place.
3° Leadership instability is distinguished here from government, regime, and political in-
stability. Helpful definitions of terms can be found in Sanders (fn. 10), 49-69; Jean Blondel,
An Introduction to Comparative Government (New York: Weidenfeld and Nicholson, 1968);
and David Easton, The Political System: An Inquiry into the State of Political Science (New
York: Knopf, 1953). Using Sanders's definitions, leadership instability refers.to higher than
normal levels of nonprogrammed changes of the chief executive; government instability to
high levels of non programmed change of the chief executive and cabinet. Regime instability
refers to high levels of nonp.rogrammed changes in goals, norms, and authority structures,
for example, moving from oligarchic rule to democratic participation in elections or deci-
sions. Political instability might be defined as the higher than normal level of peaceful or
violent social discontent which challenges or replaces presidents, governments, or regimes.
398
year. Leadership instability was distinguished from government and re-
gime instability (see footnote 30 for definitions of these terms).
Political repression was defined as "a process in which a government
limits the rights of free expression, association, meetings, and life
through the use of legal as well as extralegal procedures." The two mea-
sures of repression used in this study were the number of days in which
constitutional guarantees were suspended per country per year and an
index of the number of repressive measures per year which appeared in
the government Gazettas. 31
Social discontent was thought of as "the overt manifestation of dis-
agreement by different population sectors with the actions and policies
of the government." Examples of such disagreement might be strikes,
demonstrations, protest marches, written manifestos, skirmishes, combat
incidents, and assassinations.3 2
3' Governments engage in official repression through formal decrees of censorship, suspen-
sion of the right to strike, suspension of constitutional guarantees, denial of rights of assem-
bly, states of emergency, martial law, and war. In addition to studying formal decrees we
could have looked at the number of political prisoners, deaths by torture or arrests, and
injuries in confrontations with government security forces. The latter measures are so diffi-
cult to document that we confined this study to formal measures of government repression-
decrees which appear in the official government records called Gazettas which have been
published since the early 1900s. The index is grouped into five categories: censorship, inter-
ventions and nationalization, militarization, limits on organizational meetings and assembly,
and others. The governments' stated reasons for each repressive measure leave a fascinating
historical picture of the formal justification for their actions and the individuals, groups, and
social classes against which the measures were directed. The data on repression which appear
in this paper are based on a 100 percent review of the Gazettas for all Central American
countries and Panama since 1930.
3 The intensity of such discontent might be measured by the number of people involved,
2
or the frequency or seriousness of their actions. It is equally useful to try to establish the
source of such discontent, which may be rural versus urban, and upper, middle, or lower
class in its origins. It may come as well from the mainstream or from ethnic minorities, from
men or from women. The data on social discontent are among the hardest to amass for
Central America for the study period. There are no accurate records of the number of strikes,
confrontations, combats, deaths, etc., and no systematic evidence about the origins of social
action. In addition to using traditional historical sources this study developed a 28 percent
random sample of Central American newspapers between 1930 and ]986. This sample se-
lected two papers per week per country for every week in the study period and then per-
formed a content analysis to identify numbers of stories, editorials, and opinion articles about
strikes, demonstrations, sabotage, armed confrontations, and combats. Each action was clas-
sified according to its sector of origin (i.e., urban versus rural) and by the kind of group
involved (political party, interest group, paramilitary group, etc.).
The newspaper material on social discontent proved to be the weakest of all the data
sources developed. They required the most time and effort to collect and netted the least
results because of the problems of censorship and changes in the formats of the newspapers
themselves during the more than fifty-year study period. Precisely at the moments when
historical sources indicate that there was the most discontent, evidence of the volume of that
discontent disappears in countries whose newspapers were censored. While data on discon-
tent are more plentiful in crisis periods than in periods of military rule, they appear to un-
derstate the volume and intensity of that discontent. The newspaper data are a better source
for establishing who was protesting or fighting and what their social origin was.
399
406 WORLD POLITICS
Economic periods accompanied by Central American political insta-

bility were defined as those with higher than average levels of social
discontent, repression, and leadership instability. High levels of leader-
ship instability might certainly contribute to overall political instability
due to the lack of policy continuity in a government whose president
might be changed as frequently as once every eleven months)3
This study used data already collected by official sources in each coun-
tryon population density (inhabitants per square kilometer)34 and per-
centages of ethnic populations to total populations in Central America,35
and the percentage of urban to total population)6
THE FINDINGS: ECONOMIC CYCLES AND POLITICAL INSTABILITY
WORLD AND CENTRAL AMERICAN ECONOMIC CYCLES SINCE 1930

Since 1930 there have been nine economic ttend periods in the world
economy. Five of these were crisis periods (193 0- 1934, 1944-1949, 1954-
1961,1974-1977, and 1978-1985), and four were periods of growth (1935-
1943, 195 0- 1953, 1962 - 1973, and 1986-1988) (see Table I).
Although the number of periods is too small for statistical analysis, the
Central American economies move in the same direction as the world
economy in seven of those nine periods. In four periods (1935-1943,1950-
1953, 1962- 1973, and 1986-1988) both the world and Central American
economies grow. In three periods (1930-1934, 1954-1961, and 1978-1985)
both the world and the Central American economies contract. In the
remaining two periods (1944-1949 and 1974-1977) the Central American
economy expands while the world economy contracts)7
H Nonprogrammed presidential turnover is a building block of Sanders's definitions of
government instability and regime instability (fn. 10), chap. 3 and p. 62.
34 One potential problem in using the population density data over a fifty-year period is
that country ranks may change. For example, the population of Honduras could be less dense
than Costa Rica in 1940 but more dense in 1980. An analysis of population data since 1950
shows that rankings for Central American countries did not change. EI Salvador and Gua-
temala retain the highest densities, Costa Rica and Honduras medium, and Nicaragua and
Panama low.
35 Central American ethnic populations are of two types: on the one hand, Indians of
Mayan and other stocks populating northern Guatemala, parts of EI Salvador and Honduras,
and Panama including its islands, and on the other, Negro groups which settled the eastern
coastal areas of Central America.
6
3 See World Bank, World Developmmt Report 1985 (London: Oxford University Press,
1986 ),216.
37 The two periods of discontinuity require special explanation. From 1935 to 1943 the
world economy grew due to the buildup related to World War II, but the Central American
economies lost their European coffee markets due to the war and were subjected to stringent
price controls in their remaining market, the United States. This is reflected in declining
terms of trade, market diversification, and export prices compared with the previous period
400
TABLE 1
WORLD AND CENTRAL AMERICAN ECONOMIC TREND PERIODS,
193 0 - 1988
World Central America
Average Average
Type of Annual Type of Annual Type of
No. of Economic GDP Economic GDP Economic
Yrs. Perioda Growth b Period Growth e Performance
1930-34 5 Crisis (1.74) Crisis (11.65) U nderperformance
1935-43 9 Growth 7.0 Crisis (0.55) U nderperformance
1944-49 6 Crisis (1.9) Growth 8.10 Outperformance
1950-53 4 Growth 4.5 Growth 5.08 Outperformance

d d
1954-61 8 Crisis 4.12 Crisis 4.13 Equal
Performance
1962-73 12 Growth 5.06 Growth 5.97 Outperformance
1974-77 4 Crisis 3.29 Growth 4.80 Outperformance
1978-85 8 Crisis 2.5 Crisis 0.90 U nderperformance
1986-88 3 Growth 3.5 Growth 2.0 U nderperformance
a Three types of economic period were identified: (I) contraction (three years of declining
growth with two of the three years having growth of less than 3%); (2) recovery (the first two
years of positive growth after contraction); (3) growth (one or more years of positive GOP
growth after a recovery period). Because we are interested in how Central America responds
to contractions and recoveries together, we combined them and called them Crisis Periods.
Definitions of economic periods appear in Lindenberg (fn. 37).
b Between 193 0 and 1949, the world GOP growth rate used is the unweighted average of
U.S. and U.K. annual GOP growth based on data from The Economist, World Business Cycles
(London: The Economist, 1986). After 1950, it is world GOP growth from the same source.
The 1986-88 data come from The World Bank, World Development Report (New York: Ox-
ford University Press, 1989).
c Between 1930 and 1949, the surrogate for Central American GOP growth is the average
annual rate of growth of total trade at constant prices which appears in Antonio Colindres
and Rodrigo Valverde, "Economic Trends in Central America and Panama since 1900,"
INCAE Technical Note Data Series, 1986. After 1950, Central American annual GOP growth
is the unweighted average of country GOP data from The Economist, World Business Cycles.
d Although the average annual growth for the period is above 4%, this is due to the
strength of the two-year recovery period.
as shown in Marc Lindenberg, "Central America: Crisis and Economic Strategy 1930-85.
Lessons from History," Journal of Developing Areas 22, NO.2 (1988), 155-78. However, Cen-
tral American data for 1935 to 1943 can really be grouped in two periods: 1935 to 1937, when
prices, growth, and terms of trade begin to recover along with the world economy, and 1938
to 1943 when markets close, prices drop, and growth plummets. In the second countercyclic
period, 1944 to 1949, the world economy contracts during the post-World War II recession,
while the Central American economy grows spectacularly but temporarily, due to a reopen-
ing to European markets and the liberation of price controls. However, by 1948 and 1949 its
decline mirrors that of the world economy.
401
408 WORLD POLITICS
There are four periods in which the region underperforms the world
economy (1930-1934,1935-1943,1978-1985, and 1986-1988), four periods
of outperformance (1944- 1949, 195 0- 1953, 1962 - 1973, and 1974-1977),
and one period of equal performance (1954-1961). When the region has
outperformed the world economy, terms of trade and prices have been
more favorable, products have been more diversified, and the region has
sold a higher percentage of its exports to the Central American market
in addition to other markets. For example, although in the period from
1974 to 1977 the world economy had a weak contraction coinciding with
the oil price shocks, the Central American economy continued to out-
perform the world economy. A combination of spectacular export price
increases and positive terms of trade continued to favor the region. The
full effects of the world crisis did not manifest themselves in a Central
American contraction until 1978.
WORLD ECONOMIC CYCLES AND CENTRAL AMERICAN

LEADERSHIP INSTABILITY
The data support the hypothesis that world economic crisis is more
likely to help set off cycles of leadership instability in Central America
than periods of economic growth (see Table 2). Under normal circum-
stances, with six countries and a scheduled presidential election in each
every four years, one could expect about 1.5 presidential elections per
year within Central America. The average number of changes of presi-
dents per year in the region during the five world economic crisis periods
is 2.61 and for the four periods of world economic growth it is 1.57. The
average percentage of nonprogrammed changes due to coups d'etat and
resignations during world economic crisis periods is 57.3 percent and for
periods of world economic growth it is 36.3 percent. Presidents with a
military background ruled regardless of whether there was an economic
crisis (39 percent) or economic growth (40.91 percent).
Although in the years 1986 to 1988 the region experienced its first
period of democratic opening in the study period, it is useful to separate
the three periods of economic growth with military rule from this period
of democratic rule (see Table 2). While the average number of changes
of presidents per year differs little between periods of democratic rule
(1.3) and military rule (1.6), there are substantial differences in the per-
centage of nonprogrammed changes during democratic rule (25 percent)
and military rule (37.5 percent). Finally, although military officers could
have run for president in the period from 1986 to 1988, as they have in
other periods with elections, they did not do so and as a result the per-
402
TABLE 2
WORLD ECONOMIC PERIODS
AND CENTRAL AMERICAN POLITICAL INSTABILITY, 1930-1988
% Non-
Average programmed
Status No. of Changes of % Military
No. of of Changes of Presidents Presidents
Yrs. in World Presidents to Total to Total
Period Economy per Year 3 Changes b Presidents C
Economic Crisis Periods d

1930-34 5 Crisis 3.2 31.3 43.7
1944-49 6 Crisis 3.0 72.2 33.3
1954-61 8 Crisis 2.6 66.7 42.9
1974-77 4 Crisis 1.5 33.3 83.3
1978-85 _8_ Crisis 2.8 63.6 27.3
Subtotal 6.7 2.61 57.3 39.0
Periods of Economic Growth with Military Rule
1935-43 9 Growth 1.3 41.7 33.3
1950-53 4 Growth 1.5 16.7 66.7
1962-73 !.L Growth .L.L 40.9 45.5
Subtotal 8.3 1.6 37.5 45.0
Periods of Economic Growth with Democratic Rule
1986-88 3 Growth 1.3 25.0 0
Total Periods of W orId Economic Growth
(Military and Democratic Rule)
7 Growth 1.57 36.3 40.9
a Derived by analysis of the official country records of the length of term of each Central
American president between 1930 and 1988 and the changes of presidents during each eco-
nomic period.
b Nonprogrammed changes were those changes which took place for reasons other than a
scheduled election, for example, coups d'etat.

c Based on the official listing of the professional background of each president.
d Economic periods are defined based on Lindenberg (fn. 37).
centage of military presidents during the brief period of democratic rule

is zero while it is 45 percent during periods of military rule.
There are even greater differences when we make three divisions in
the data: economic crisis, economic growth with military rule, and eco-
nomic growth with democratic rule. Crisis periods have the most
changes in presidents per year (2.61), and the highest percentage of non-
programmed changes (57.3 percent), but they have an intermediate num-
ber of military presidents (39 percent). Growth periods with military rule
have an intermediate percentage of changes of presidents per year (1.6)
403
410 WORLD POLITICS
and nonprogrammed changes (37.5 percent) but they have the highest
percentage of military presidents (45 percent). The democratic period has
the smallest number of changes of president per year (1.5), only 25 per-
cent non programmed changes, and no military presidents.
CENTRAL AMERICAN ECONOMIC CYCLES AND LEADERSHIP INSTABILITY
The data about Central American economic cycles also support the
thesis that once economic crisis periods begin within the region they are
accompanied by higher levels of leadership instability than are periods of
economic growth (see Table 3). In the four periods of local economic
crisis the average number of changes of presidents in the region per year
is 2.36, the percentage of nonprogrammed changes is 53.5 percent, and
the percentage of military presidents is 36 percent. In contrast, in the five
periods of Central American economic growth the average number of
changes of presidents in the region per year is 1.89, the percentage of
non programmed changes is 45.4 percent, and the percentage of military
presidents is 43.6 percent.
The differences between Central American economic growth periods,
either with military rule or with democratic rule, and economic crisis
periods are substantial. The average number of changes of presidents per
year for periods of growth with democratic rule is 1.3, with military rule,
2.0, and with crisis periods, 2.36. The percentage of nonprogrammed
changes of presidents in growth periods with democratic rule is 25 per-
cent, military rule, 48. I percent, and in crisis periods, 53.5 percent. The
percentage of military presidents in growth periods with democratic rule
is zero; with military rule, it is 48.1 percent; and in crisis periods, it is
36.0 percent.3 8
3 Rapport (fn. 23) generates some interesting hypotheses about why Central American
8
economic cycles appeared to be more weakly related to political instability (see Table 3) than
world economic cycles (Table 2). Rapport's content analysis of Central American cable traffic,
which appears in U.S. Department of State, Foreign Relations ofthe United States, 1939-1940,
Vols. 1 and 2 (Washington, DC: U.S. Department of State, 1980), indicates that shifts in U.S.
policy toward Central American governments might have been sufficient either to override
the political instability which normally accompanied economic crisis (1934-1943) or to exac-
erbate political instability in spite of economic growth (1944-1949). For example, between
1934 and 1943, a period of economic collapse in Central America, U.S. diplomatic recognition
of Central American military governments was more ready than in the previous or subse-
quent periods. In fact it recognized all new governments without hesitation, while from 1930
to 1934 it recognized only 18% without hesitation and from 1944 to 1949, 50%. The United
States might have been more concerned with reliable Central American allies against the
Axis powers in World War II than with their tendencies toward dictatorship. In late 1944
the United States altered its criteria for recognition of new governments in Latin America.
Cable traffic reflected active support for democratic openings and elections, a new sympathy
in U.S. policy circles for the end of colonialism, and the enunciation of a new policy of u.S.
recognition of newly independent, democratic governments.
404
ECONOMIC CYCLES & CEl\1TRAL AMERICA 411
TABLE 3
CENTRAL AMERICAN ECONOMIC PERIODS AND
POLITICAL INSTABILITY, 1930-1988
% Non-
Average programmed
No. of Changes of % Military
No. of Status Changes of Presidents Presidents
Yrs. in of Presidents to Total to Total
Period Economy per Year a Changes b Presidents C
Economic Crisis Periodsd

1930-34 5 Crisis 3.2 31.3 43.7
1935-43 9 Crisis 1.3 41.7 33.3
1954-61 8 Crisis 2.6 66.7 42.9
1978-85 8 Crisis 2.8 63.6 27.3
Subtotal 7.5 2.36 53.5 36.0
Periods of Economic Growth with Military Rule
1944-49 6 Growth 3.0 72.2 33.3
1950-53 4 Growth 1.5 16.7 66.7
1962-73 12 Growth 1.8 40.9 45.5
1974-77 4 Growth !:.L 33.3 83.3
Subtotal 6.5 2.0 48.1 48.1
Periods of Economic Growth with Democratic Rule
1986-88 3 1.3 25.0 0
Total Periods of Central American Economic Growth
(Military and Democratic Rule)
5.8 1.89 45.4 43.6
a Derived by analysis of the official country records of the length of term of each Central
American president between 1930 and 1988 and the changes of presidents during each eco-
nomic period.
b Non programmed changes were those changes which took place for reasons other than a
scheduled election, for example, coup d'etat.

c Based on the official listing of the professional background of each president.
d Definitions of economic periods appear in Lindenberg (fn. 37).
SOCIAL DISCONTENT
Although the number of periods is too small for accurate statistical

testing, economic crisis periods appear to be accompanied by more vio-
lent expressions of social discontent than noncrisis periods (see Table 4).3 9
The average number of violent expressions of discontent to total reported
incidents of social discontent was 35.2 percent in crisis periods and 25.7
39 While it would have been useful to look at accurate data on the volume of overt expres-
sions of social discontent in the 28% sample of Central American newspapers, the data
proved to be unreliable because of changes in newspaper format and reporting style (see fn.
3 2 ).
405
412 WORLD POLITICS
TABLE 4
CENTRAL AMERICAN ECONOMIC PERIODS, SOCIAL DISCONTENT,
AND REPRESSION, 1930-1986
Violent Rural
Incidents Incidents Days of Number of
as % as %of Suspended Repressive
of Total Total Guarantees Measures
Reported Reported per Year per Year
Incidents a Incidents b per Country' per Countryd
Economic Crisis Periodsc:
1930-34 29 40.6 114 .9
1935-43 18 39.3 88 .6
1954-61 29 32.7 49 .8
1978-85 ~ 51.9 l1L .L2-
Average 35.2 41.2 93.7 .95
Economic Growth Periods with Military Rule
1944-49 23 34.0 130 1.3
1950-53 15 34.3 3 .6
1962-73 32 35.1 12 .4
1974-77 lL- 35.9 ~ ---.&..-
Average 25.7 34.8 50.5 .72
Sources: Data on types and origins of incidents of social discontent come from a 28% sample
of Central American newspapers from 1930 to 1986 by the author and Maria Joaquina Larraz
de Quant. The newspapers are: El Cronista, La Epoca, Diario Comercial, El Dia, El Pueblo,
and La Prensa in Honduras; El Dia, La Prensa Grafica, and El Diario de Hoy in El Salvador;
El Imparcial and La Prensa Libre in Guatemala; El Diario and La Nacion in Costa Rica; El
Centroamericano, La Prensa, La Noticia, and El Nuevo Diario in Nicaragua.
a Violent reported incidents were acts of terrorism or armed confrontation. Nonviolent
incidents were strikes and demonstrations.
b The origins of incidents were classified as rural, urban, and national.
C Days of suspended civil guarantees were computed through analysis of each country's
official government gazette from 1930 to 1985 by finding the date of the initiation of legis-
lation to begin as well as end a period of suspension of guarantees..
d Examples of repressive measures were censorship, laws outlawing groups, confiscations,
jailings, etc.
f: Economic periods were defined using Lindenberg (fn. 37).
percent in noncrisis periods. Rural violence tended to rise in crisis periods

as well. I t averaged 41.2 percent of reported incidents in crisis periods as
opposed to 34.8 percent in noncrisis periods. Rural violence usually had
its origins in conflicts in the banana plantations, disputes over land, or
armed confrontations between the governments and guerrillas.
REPRESSION
Central American governments have resorted to repressive measures

more frequently during economic crisis periods than during periods of
406
economic growth and expansion. Table 4 also shows that the average
number of days in which civil guarantees were suspended per country
per year during crisis periods was almost double (93.7 days) that of pe-
riods of economic expansion (50.5 days). One possible explanation is that
once a new military regime consolidated itself and new economic expan-
sion took place, social discontent was reduced, making repression less
necessary for regime maintenance. In contrast, during times of economic
collapse, social discontent and political instability might have intensified
until some new faction of the military stepped in and began a process of
restoration of order which included suspension of guarantees and re-
pression.
CYCLES OF ECONOMIC CRISIS, DISCONTENT, AND REPRESSION
Table 5 sheds interesting light on the way cycles of economic crisis,

social discontent, and repression function. I t appears that even though
there was generally less violent discontent and repression in periods of
economic growth than in crisis periods, both violent social discontent and
repressive measures were present in growth periods but were more fre-
quent in the second half of those periods. One explanation is that toward
the end of a cycle of stable economic growth, violent expressions of social
discontent began to build, forcing the government to resort to repression
to maintain itself until in fact it was toppled.
At the beginning of the crisis periods instability became even greater,
as manifested by continued high levels of violent social discontent (see
Table 5). While repressive measures were used widely in these periods,
they were in fact used less vigorously in the first half of crisis periods
than in the second half. A possible explanation might be that in the first
part of the crisis period high levels of leadership rotation did not leave
governments in power long enough to implement their control measures
successfull y.
Violent expressions of discontent appeared to drop in the second half
of crisis periods, while repressive measures appeared to rise (see Table
5). This increase in repression appears to coincide with government con-
solidation, which helps set the base for the new economic growth cycle
by means of a new strategy, a more stable coalition, and consequently
less need for repression, at least during the first half of the next growth
cycle.
A DETAILED EXAMPLE OF How CYCLES WORKED
In order to get a clearer picture of how the cycles of discontent and

repression worked, let us look at three of the nine economic periods iden-
407
414 WORLD POLITICS
TABLE 5
CENTRAL AMERICAN ECONOMIC CYCLES, POLITICAL INSTABILITY,
SOCIAL DISCONTENT, AND REPRESSION, 1930-1986
Discontent C Repression d
Avg. % Non- First Second First Second
Changes of programmed Half Half Half Half
Presidents to Total of of of of
per Yr. a Changes b Period Period Period Period
Economic Crisis Periods e
1930-34 3.2 31.3 High Low Low High
1954-61 2.6 66.7 High Low High Low
- - -
Average 2.4 53.5
Economic Growth Periods with Military Rule
1944-49 3.0 72.2 Low High Equal Equal
1950-53 1.5 16.7 Low High Low High
1962-73 1.8 40.9 Low High Equal Equal
1974-77 1.5 33.3 Low High Low High
- --
Average 2.0 48.1
Sources: See Table 4.
a Derived from official country records of the length of term of each Central American
president between 1930 and 1985 and the changes of presidents during each economic period.
b Nonprogrammed changes were those which took place for reasons other than a sched-
uled election, for example, coup d'etat, death in office, or resignation.
C Each period was divided into two subperiods of equal length, and the number of reported
violent incidents from the 28% content analysis survey of Central American newspapers was
regrouped by the subperiods. The subperiod with more incidents was marked high and the
other low. In some cases the number was equal.
d Each period was divided into two subperiods of equal length, and the number of days of
suspended guarantees from the review of official government gazettes between 1930 and 1985
was regrouped by the subperiods. The subperiod with more incidents was marked high and
the other low. In some cases the number was equal.
~ Economic periods were defined using Lindenberg (fn. 37).
tified: 1950-1953 (world and Central American economic growth); 1954-

1961 (world and Central American economic crisis); and 1962-1973
(world and Central American economic growth). Their dynamics are
quite similar to those of the other six periods studied.4 0
The period from 1950 to 1953 was one of world and Central American
economic growth and quiet by Central American political standards.
The four military leaders and two civilians who emerged from the pre-
4° Space limitations prohibit the presentation of the data for the other six periods.
408
ECONOMIC CYCLES & CENTRAL AMERICA 41S
vious crisis period attempted to consolidate their governments. 41 Violent

expressions of social discontent were at an all-time low for the region (15
percent). Only one president, Anulfo Arias of Panama, was removed
through a coup d'etat. The only country which (briefly) experienced a
state of siege was EI Salvador. However, toward the end of the period
discontent and repressive measures began to rise (see Tables 4 and 6).
For example, in Guatemala both landowners and the U.S.-based United
Fruit Company became increasingly preoccupied by what they perceived
to be the "socialist" policies of President Jacobo Arbenz.
The period which followed, from 1954 to 1961, was one of both world
and Central American economic crisis and high levels of Central Amer-
ican political instability. Incidents of violent discontent rose from 15 per-
cent in the previous period to 29 percent. The region averaged 2.6 pres-
idential changes per year and 66 percent were by coup d'etat. Central
American economic strategy collapsed with the depressed banana and
coffee industries, and by 1961 a new strategy based on product and mar-
ket diversification and a regional common market was under discussion.
The Cuban Revolution took place. It had a profound impact on the re-
gion and on U.S. foreign policy. The Alliance for Progress was initiated
in an effort to get Latin American economies moving and to provide a
non-Marxist option. In Central America new military governments were
installed. ·The most prominent reversal took place in Guatemala where
a CIA-supported coup forced President Jacobo Arbenz from power. But
at the same time leadership changed hands though coups almost every
other year in Honduras and EI Salvador. Costa Rica repelled an invasion
by the supporters of an unsuccessful presidential candidate launched
from Nicaragua. Worker discontent in the Costa Rican, Honduran, and
Guatemalan banana plantations was high, and urban discontent grew as
well. The country with most days during which its civil guarantees were
suspended was Honduras. Typical legislation included outlawing the
Communist Party,4 2 strengthening the military,43 and controlling strikers
in the banana plantations. 44 In Guatemala the new military government
4 Two new military rulers who emerged through coups in the late 1940S in EI Salvador
1
(Osorio) and Honduras (Galvez) joined Nicaragua's General Anastacio Somoza Garcia, who
had survived the instability of the previous period. Another military leader, General Jacobo
Arbenz of Guatemala (elected in the previous period), was joined by civilians Anulfo Arias
of Panama (installed after the incumbent president died in office) and Utillio Ulate of Costa
Rica (elected after the revolutionary junta sponsored a return to civilian rule after the revo-
lution of 1948).
4 Honduras, Gazetta Oficial, February 3, 1956.
2
43 Honduras, Gazetta Oficial, January S' 1960. In EI Salvador the military school was
founded (Gazetta Oficial, June 24, 19S5).

44 Costa Rica, Gazetta Oficial, January 6, 1960.
409
416 WORLD POLITICS
reversed the slide to the left of the Arbenz period. 45 For example, legis-
lation abolished workers' and farmers' organizations,46 returned land to
those who had lost it during land reform,47 closed progressive newspa-
pers,4 8 and prohibited trade with socialist countries. 49 The period culmi-
nated in a nascent world and Central American economic recovery and
the consolidation of largely new military leaders.
The years 1962 to 1973 were characterized by the most rapid economic
growth and political stability of the sixty-year period of this study. The
world economy boomed. The Central American regional common mar-
ket flourished, and the region's economies reached their peak in product
and market diversification. Although military leaders predominated,
presidents in each country changed on the average of every three to four
years and through electoral process rather than coup d'etat. 50 The region
averaged very low levels of suspension of civil guarantees and repressive
measures (see Tables 4 and 5). Where such measures were used they
included censorship of Marxist magazines,s. deregistration of political
parties with "Marxist leanings,"5 2 and closing and restructuring univer-
sities. 53 Social discontent did not begin to pick up until the end of the
period (see Table 5).
THE FINDINGS: OTHER FACTORS AND POLITICAL INSTABILITY
Global and regional economic instability were far more important de-
terminants of political instability in Central America than any of the
other factors considered with the exception of one-a country's regime
type (democratic versus authoritarian) at the beginning of the study pe-
riod.54 The role of initial regime type leads to an extremely important
finding. The impact of international and Central American economic
45 Guatemala, Gazetta Oficia/, all of 1954-1955.

4
6
Guatemala, Gazetta Oficia/, July 16, 1954.
47 Guatemala, Gazetta Oficia/, August 20, 1954.
8
4 Guatemala, Gazetta Oficial, September II and 30, 1954.
49 Guatemala, Gazetta Oficia/, June 6, 1955.
5° The only notable exception is the coup by Omar Torrijos in Panama in 1968, which
established his rule for fifteen years.
51 Costa Rica, Gazetta Oficia/, October 29, 1962.
51 Costa Rica, Gazetta Oficia/, October 26, 1962.
53 Guatemala, Gazetta Oficia/, November 1963.

54 Rank order correlations between % indigenous population, population density, % urban
population and political instability, repression, and social discontent were all statistically in-
significant with one exception. There was a positive (.80) rank order correlation between %
indigenous population and social discontent during economic crisis. The lack of consistent
income and land distribution data prohibited their inclusion in the analysis.
410
crisIs was a necessary but not a sufficient force to instigate cycles of

higher leadershi p turnover and political instability in all countries.
INITIAL REGIME TYPE
Although all of the countries in the region had higher levels of social
discontent during economic crisis periods than during periods of eco-
nomic growth, Costa Rica's levels of leadership instability, repression,
and political instability were much lower than the other countries' (see
Table 6). Indeed, since 1930, Costa Rica has managed its social discontent
with less repression and unprogrammed leadership turnover than any of
the other countries.
Costa Rica's experience suggests that once peaceful and routine pro-
cedures for the transfer of political power were established, they were
sufficient to help one of the six countries weather economic chaos in a
manner quite different from the five authoritarian regimes.
The origins of these differences and their relationship to class struc-
ture and values are clearly the topic of another article. However, some
TABLE 6
CENTRAL AMERICAN COUNTRY DIFFERENCES IN LEVELS
OF POLITICAL INSTABILITY, 193°-1985
Total
Years of
Average % Non- %
Suspended
Length of programmed Violent
Guarantees a
Presidential Change of Social
Years % Term b Presidents b Discontent'
Panama n.a. n.a. 2.11 64 n.a.
El Salvador 20.1 36 2.57 57 48
Nicaragua 16.8 30 3.11 53 31
Guatemala 7.7 14 2.81 57 39
Honduras 7.6 13 3.11 47 27
Costa Rica 1.5 3 3.69 6 16
Central
American
Average 10.7 19 2.81 50 33
a Days of suspended guarantees were computed through analysis of each country's official
government gazettes from 1930 to 1985 by finding the date of the initiation of legislation to
begin as well as end the period.
b Length of presidential terms and programmed and unprogrammed changes come from
official country records.
C Percentage of violent social discontent data come from a 28% sample of the region's
newspapers, 1930 to 1985. See sources, Table 4.
411
418 WORLD POLITICS
preliminary comments are in order. Some students of the region feel that
original settlement patterns set the foundation for a more egalitarian and
democratic Costa Rica. They argue that since that country had few In-
dians and resources to exploit, it was a colonial backwater. According to
this line of analysis, colonists who went there had to work the land on a
more egalitarian basis than in Guatemala and El Salvador, where a
highly stratified social structure emerged. The absence of a rigid social
structure, together with later settlement by European immigrants, per-
mitted the revolution in coffee production to begin in Costa Rica and
allowed democratic institutions to emerge. 55
This argument is convincing since all of the other countries had more
intense settlement by the Spaniards and markedly more stratified social
structures. Furthermore, there is no evidence that democratic institutions
took root more easily in Central American countries such as Nicaragua
where external actors made repeated attempts to impose them. In fact,
the democratic process in Costa Rica seems to have emerged internally
and was protected by the tenacity of its own citizens and leaders during
the revolution of 1948. This process had the support of the international
community in general and, at key times, of the United States. The de-
velopment of frameworks for the routine, peaceful transfer of power in
Costa Rica was accompanied by explicit decisions not to invest in military
expenditures after 1950 and to abolish its armed forces entirely. Consis-
tently larger investments in social services, particularly in education,
were made. These investments influenced Costa Rica's larger gains in
the Overseas Development Council's Physical Quality of Life Index
(PQLI) between 1950 and 1980 compared to the other Central American
countries and account for its largest absolute score, in 1980.56 Costa Rica
also made more consistent investments in training political party leaders
and developed ties to global political organizations such as the Interna-
tional Socialist Movement before its neighbors. While these associated
.factors are hardly determinants of the democratic process, they might
provide some suggestions for experiments in other countries.
CONCLUSIONS
ECONOMIC CYCLES AND POLITICAL INSTABILITY
In the last five decades, the Central American region has been highly
sensitive to external economic shocks. General evidence supports the the-
See the sources cited in fns. 15 and 16 for more detail.
55
Costa Rica's PQLI score gained 21 points between 1950 (67) and 1980 (88). This was the
56
largest gain of any Central American c?untry for the period.
412
sis that world economic crises have helped set off cycles of Central Amer-
ican economic crisis and political instability. These shocks have been a
more important determinant of political instability than any other factor,
such as density of population or ethnic composition, with the exception
of initial regime type.
The region's periods of instability triggered by economic shocks have
been accompanied by high levels of leadership rotation in five of the six
countries, and by social discontent and repression, which together have
added up to political instability. Usually these periods have ended after
a new set of military rulers has taken control of the government. In the
periods of military rule which have followed, new economic strategies
have been adopted which have generally helped adapt the region to the
new cycle of world economic growth and have resulted in Central Amer-
ican economic growth. This growth, howev.er, in virtually all countries
but Costa Rica, has not been accompanied by conscious attempts to im-
prove income distribution or to develop mechanisms for peaceful trans-
fer of power from one group of rulers to another. Thus, the seeds of
discontent for the next crisis cycle have been planted during the period
of stable military rule without concurrent mechanisms for channeling
this discontent into peaceful regime change.
During the periods of economic growth with military rule, external
manifestations of social discontent have diminished or been otherwise
controlled. Eventually repressive measures have been lifted. These peri-
ods have usually lasted until the next world economic collapse helps to set
off a new cycle of Central American economic and political instability.
How might such cycles be broken? First, if periods of economic
growth in the region have coincided with less political instability, social
discontent, and repression than periods of economic crisis, then devising
how to make the Central American economies less sensitive to external
shocks may be a useful first step. The region was more economically
independent, and at times actually outperformed the world economy,
when its markets and products were more diversified. It also outper-
formed the world economy when the prices offered for its products were
high and when terms of trade for the region were improving. One im-
plication for a policy is that the region's sensitivity to external shocks can
be reduced by diversifying its sources of inputs as well as the mix of its
products and markets. It would benefit as well from worldwide agree-
ments to stabilize the prices of key products, the reactivation of its com-
mon market, and an outward orientation to a variety of world markets.
Concentration on both traditional and nontraditional exports should also
be part of this process.
413
420 WORLD POLITICS
Economic performance alone, however, has not been enough to guar-

antee lower levels of social discontent and the absence of political insta-
bility. Levels of violence and of repression and the number of coups
stayed high even' in periods of economic growth. They· simply became
even higher in crisis periods.
THE SPECIAL CASE OF COSTA RICA
While this study supports the thesis that world economic crisis helps
trigger cycles of discontent and instability, it clearly does not lead to the
deterministic conclusion that leadership turnover and military rule are
the only possible outcomes in Central America. Although social discon-
tent increased everywhere in the region during economic crisis periods
between 1930 and 1986, Costa Rica adjusted to these shocks with sub-
stantially less repression, leadership turnover, and political instability
than its neighbors. While the other nations seemed caught in continued
cycles of repression and military rule, Costa Rica responded to the same
pressures by building upon its existing democratic institutions, investing
in social services, and improving income distribution. The implication is
that while small countries like Costa Rica are subject to constraints due
to external economic shocks, they are hardly prisoners of this process.
The essence of the democratic process has been the ability to develop
and maintain mechanisms for the peaceful, routine, and periodic transfer
of power from one group to another even when there has been disagree-
ment between these groups about the political, economic, and social fu-
ture of the nation. Costa Rica is an example of a country which has car-
ried out a process of democratic transformation without external
pressure. This leads to optimism that other countries in the region can
mobilize such a process without external pressure to consolidate the
weak democratic openings which have emerged since 1985.
While the success of internally generated democratic change in Costa
Rica is grounds for optimism, other approaches to breaking cycles of
political instability must be treated with more caution. Data for 1935 to
1944 show that external pressure has at times helped the region to defy
the political instability and repression which normally come with world
economic shocks. Yet external pressure has also helped fuel regime insta-
bility even when economic growth was taking place, as in the years 1944
to 1949. Rather than concluding that external intervention is a key re-
quirement to insure a democratic process, it is equally interesting to spec-
ulate that multicountry support of internally generated initiatives for
democratic openings or conflict resolution, such as the Central American
Peace Plan of 1987, may help to reduce the cycles of economic collapse,
414
political repression, instability, and military rule. Thinking about how

the Costa Rican democratic process was s.trengthened over a period of
thirty years after 1948, multilateral actors might consider how to support
the development of political institutions in other countries by increasing
the talent base in political parties, legislatures, and judicial systems, by
investing in education and human resource development, and by sup-
porting both regional and national guarantees of basic human rights and
consistent, explicit rules of conduct. At the same time, multilateral sup-
port to help Central Americans declare their region a neutral zone with
limited military expenditures might permit the region to invest new re-
sources in the process of social and economic development.
415
Preempting Robert A. Pastor
Revolutions
The Boundaries of U.S. Influence
One of the most frus-

trating and difficult challenges faced by the United States in the postwar
period has been coping with revolutionary regimes in Cuba, Iran, and Nic-
aragua that replaced others that were friendly to the United States. Critics
have asked: "Who lost these countries?" and "Could U.S. policy-makers have
anticipated and preempted the revolutions?"
Protracted dictatorships have not always given way to hostile revolutionary
regimes: the assassination of Dominican dictator Rafael Trujillo in 1961 led
to a period of instability but eventually to democracy; the threat of Marxist
revolution in the Philippines was reduced and democracy's prospects en-
hanced after the flight of Ferdinand Marcos in 1986; and the military filled
the vacuum left by the departure of Haitian leader Jean-Claude Duvalier in
February 1986. But why were some dictators replaced by belligerent revolu-
tionary regimes while others were not? Did U.S. foreign policy make the
difference?
The focus of this article is on succession crises, in which a declining
dictator, who had been friendly to the United States but ruthless to his own
people, faces or could soon face a broadly-based national movement to unseat
him. The element that transforms this issue into a national security problem
for the United States is the existence or the possible emergence of a revolu-
tionary group that views the United States as its enemy. The essence of the
challenge for the United States, however, is not how to deal with the revo-
lutionaries, but rather how to persuade or coerce the declining dictator to
yield power in such a way that the successor is least likely to be anti-American
and most likely to be democratic.
This article will begin by distinguishing succession crises from other U.S.
foreign policy challenges such as revolutions. It then analyzes eight cases
Robert A. Pastor is Professor of Political Science at Emory University and Director of the Latin American
and Caribbean Program at Emory's Carter Center. Dr. Pastor is the author of Condemned to Repetition:
The United States and Nicaragua (Princeton University Press, 1988) and co-author of Limits to
Friendship: The United States and Mexico (Vintage Press, 1989). He was Director of Latin American
al1d Caribbean Affairs on the National Security Council from 1977-81.
I would like to express my gratitude to Joseph S. Nye, Jr., Robert Lieber, and Thomas Remington
for their comments on earlier drafts. The article is the better for their efforts.
International Security, Spring 1991 (Vol. 15, No.4)

© 1991 by the President and Fellows of Harvard College and of the Massachusetts Institute of Technology.
416
Preempting Revolutions 55 I
with different outcomes, and seeks explanations for why a revolution occurs
or is preempted, why U.S. policies have tended to look similar in apparently
different circumstances, and what lessons can be drawn for dealing with
similar crises in the future.
In analyzing the seven succession crises, a surprising aspect is the similarity
of U.S. policies over a span of thirty years. Presidents as different as Eisen-
hower and Carter, Kennedy and Reagan expended considerable time and
political capital to cope with these crises, but the responses of each did not
differ greatly from those of the others. An effective formula eluded all of
them. George Shultz, Reagan's secretary of state, wondered, "how do you
go about the move from an authoritarian governmental structure to one that
is more open and democratic? The more you study that, the more you see
that it is hard."l
If U.S. policy is similar in each of these cases, then what accounts for the
different outcomes? A few theoretical studies have addressed issues related
to declining dictators, and there have been many excellent case studies, but
there has not been a systematic comparative analysis of the process by which
long-standing dictators have fallen. 2 The case studies have tended to ap-
proach their subject from one of two directions. One group finds the answer
to the question of why revolutionaries overthrow dictators in U.S. policy,
but these answers sometimes differ. For example, on the Nicaraguan case,
Jeane Kirkpatrick argued that Jimmy Carter "brought down the Somoza
regime" and helped the Sandinistas take power. 3 William LeoGrande also
1. Cited in Elaine Sciolino, "Panama's Chief Defies U.S. Powers of Persuasion," Nw York Times,
January 17, 1988, p. E3.
2. Three important studies address the problem of declining dicta tors. Richard K. Betts and
Samuel P. Huntington do a systematic analysis of 22 countries to assess the implications for
instability when long-standing dictators die; "Dead Dictators and Rioting Mobs: Does the Demise
of Authoritarian Rulers Lead to Political Instability?" International Security, Vol. 10, No.3 (Winter
1985/86), p. 130. In contrast, this article focuses on the patterns and the process by which power
is transferred from the dictator. A second set of cases studies edited by Adam Garfinkle and
Daniel Pipes probes the issue of how the United States dealt with "friendly tyrants." See
"Friendly Tyrants: An American Policy Dilemma," Orbis, Vol. 32, No. 4 (Fall 1988), pp. 567-
568, and the subsequent two essays in the same issue by Theodore Friend, "Marcos and the
Philippines," pp. 569-586; and by George Fauriol, "The Duvaliers and Haiti," pp. 587-607. Not
all friendly tyrants fall victim to succession crises, however, and dealing with these tyrants on
a routine basis is different from the security challenges that U.S. foreign policy-makers face
during a genuine succession crisis, which is the subject of this article. A third study by Gregory
Raymond and Charles W. Kegley, Jr., examines the relationship between the internationalization
of civil wars (including some in countries undergoing succession crises) and the character of the
international system. See "Long Cycles and Internationalized Civil War," Journal of Politics, Vol.
49, No.2 (May 1987), pp. 481-499.
3. Jeane Kirkpatrick, "U.S. Security and Latin America," Commentary, January 1981, p. 36.
417
International Security 15:4 156
blames Carter's policy, but for the opposite reason: he thinks Carter failed
because he did not try to overthrow Somoza. 4
A second group locates explanations inside the country undergoing the
crisis, although again, there are differences in the emphasis on social, eco-
nomic, or political factors. If the first group of analysts fails to take into
account local actors, the problem with this second approach is the opposite:
it fails to take into account the effect of powerful international actors on
smaller, more vulnerable states. Obviously, the external and internal ap-
proaches are not incompatible, but most scholars have stressed one or the
other, and few have tried to integrate these two approaches. This article will
argue that internal factors were more important in explaining the evolution
and outcome of these succession crises, but a complete explanation requires
an Uinteractive perspective," one that seeks· to understand how local and
external actors interact to produce a particular outcome. 5
Defining the Problem
A recurring problem that the United States has confronted in the third world
is how to preclude the emergence of hostile regimes that would invite pow-
erful rivals to defend them or would otherwise advance their interests at the
expense of those of the United States. That problem is frequently defined by
asking whether the United States can live with revolutions. Echos of this
kind of question-"who lost Cuba?"-can be heard throughout the literature
of U.S. relations with the Third World. 6 The answer has proven elusive partly
because the question blurs two distinct challenges for U.S. policy-makers: (a)
affecting the succession crisis of a declining dictator; and (b) dealing with a
revolutionary regime. This article is concerned with the first challenge, which
is serious precisely because revolutionary regimes have proven so problem-
4. William LeoGrande, "The Revolution in Nicaragua: Another Cuba?" Foreign Affairs, Vol. 58,
No.1 (Fall 1979), p. 28. Several others, including Tom Farer, Shirley Christian, and John Booth,
have made similar arguments about U.S. policy toward Nicaragua.
5. For a critique of those who rely solely on either the international or the internal perspective,
and a discussion of the "interactive perspective," see Robert Pastor, "Explaining U.S. Policy
Toward the Caribbean Basin: Fixed and Emerging Images," World Politics, Vol. 38, No.3 (April
1986), pp. 483-515.
6. See, for example, "Forum: Why Are We In Central America? Can the U.S. Live with Latin
Revolution?" Harper's, June 1984, pp. 35-48; and Morris J. Blachman, William M. LeoGrande,
and Kenneth Sharpe, Confronting Revolution: Security Through Diplomacy in Central America (New
York: Pantheon, 1986).
418
I
Preempting Revolutions 57
atic for the United States. U.S. policy-makers have therefore believed that
U.S. influence is greater, and the risks to world peace fewer, if the United
States acts to avert a hostile group from taking power than if it tries to
prevent an anti-U.S. government from asking help from the Soviet Union or
Cuba.
All three great Latin American revolutions-in Mexico, Cuba, and Nica-
ragua-began as crises of political succession. When there are no legitimate
procedures for transferring power in a country, political violence is the only
option. Most often, the violent change is quick-a coup d'etat in which one
ruling faction ousts another. But a succession crisis occurs when the transition
is prolonged or uncertain. There are many varieties, but each involves the
awkward period before and after the exit of long-standing dictators. This
article will examine a sample of those succession crises which (a) exhibit
similar patterns; (b) involve a substantial American role; and (c) have different
outcomes. My purpose is to identify the key variables that explain the dif-
ferent outcomes. The article will review seven cases: Cuba (1958-59), the
Dominican Republic (1960-61), Haiti (two phases: 1961-63, and 1985-86),
Iran (1978-79), Nicaragua (1978-79), the Philippines (1983-86), and Chile
(1988-89).
Each crisis began with a key event that shook the dictator, and each ended
with his death or departure. A shared characteristic of these succession crises
is the contemporary and historical involvement of the United States in the
internal affairs of each of these seven countries. Only Chile had not at some
time been occupied by U.S. troops. Indeed, the constitutions of Cuba, Nic-
aragua, the Dominican Republic, and Haiti had each once included clauses
that granted rights to the United States to intervene in their internal affairs.
Even after the United States repudiated these rights and withdrew its troops,
the psychological residue of this period of U.S. control continued to affect
local politics.
When dictators took power in each of these countries, they generally
supported U.S. foreign policies and tried to make it appear as if the United
States supported them. Their purpose was to try to isolate their opposition.
The United States sometimes rejected this identification; other times, it ac-
quiesced; and sometimes, it embraced the dictator. Unfortunately, most of
the people in these countries tended to recall-even exaggerate-only the
last relationship of identification. One of the consequences was that the
dictator's enemies viewed the United States as their enemy as well. Thus,
419
International Security 15:4 I 58
the United States sometimes found itself entangled in succession crises that
became violent struggles between illegitimate dictators and anti-American
revolu tionaries.
U.S. objectives in each of these crises exhibited a similar pattern. They
were crisply defined by President John F. Kennedy as he surveyed the
Dominican Republic after the assassination of Rafael Trujillo in 1961: "There
are three possibilities in descending order of preference: a decent democratic
regime, a continuation of the Trujillo regime, or a 'Castro' regime. We ought
to aim at the first, but we really can't renounce the second until we are sure
that we can avoid the third."7 From the U.S. perspective, the worst outcom.es
occurred in Cuba, Iran, and Nicaragua, where anti-American revolutionary
regimes took power. 8 The best outcomes were where democratic transitions
occurred in the Philippines and Chile. Ambiguous outcomes occurred in the
Dominican Republic because democracy eventually took hold, but only after
years of instability and a major U.S. intervention, and in Haiti, where military
officers retained effective power.
Each of these succession crises passed through four stages that are defined
by the changes in the relations among the various actors. These stages will
serve as signposts for narrating the cases. The first stage was the identification
of the dictator with the United States in the country's collective mind. Some-
times that has been an accurate reflection of U.S. policy, and sometimes it
has been due to misperception.
As middle-class disenchantment and rebel violence against the dictator
increases, or a traumatic event causes local and international actors to fear a
revolu tionary ou tcome, U. S. policy moves to the second stage, of distance
and dissociation from the dictator.
The third stage occurs as the dictator's position weakens and the possibility
of a successful insurgency increases; at this time, moderate groups seeking
a peaceful, political change either ally with and legitimize the left or they remain
independent. Moderate neighboring governments often exert important in-
fluences on the decisions of these groups. If such an alliance is forged, then
the United States moves rapidly toward the fourth stage: encouraging the
military to reject the dictator and support a "third force," that is, a moderate
7. Cited by Arthur M. Schlesinger, Jr., A Thousand Days: John F. Kennedy in the White House
(Boston: Houghton Mifflin, 1965), p. 769.
8. These regimes are quite different and not equally hostile to the United States, but common
to all three is deeply-ingrained anti-Americanism.
420
I
Preempting Revolutions 59
alternative to the insurgents and the dictator. The emergence of a third force
or the defection of important military figures from the dictator's camp can
preempt the revolution. But if this fails, then the United States must decide
whether to intervene or to allow the insurgents to take power.
U.S. policy was strikingly similar in each of the cases examined below: the
United States first identified with the dictator, then distanced and dissociated
from him, and when the moderates legitimized the left, it tried to locate and
support a moderate third force.
The following variables were crucial in explaining why some revolutions
were preempted and some were not: (a) the existence of a guerrilla insur-
gency; (b) whether the middle sectors allied with the left or with some part
of the military; (c) the nature of the military response; and (d) the conduct
of genuinely free elections. (See Table 1.)
The pattern of outcomes suggests the following hypotheses:
(1) If the moderate sectors ally with friendly regional governments and
with the guerrilla insurgency, and if the military remain united until the
dictator flees, and if elections are openly fraudulent or not held, then the
prospects for anti-U.S. revolution are the highest.
(2) If there is no guerrilla movement, and if the military divides and some
or all defect from the dictator, then a military takeover is most likely.
(3) If there is a guerrilla insurgency, if the middle sector supports elections,
and if the military divides but does not collapse, then the prospects are best
for democracy.
The Cases
CUBA, 1958-59
Most of the time from August 1933 until he fled the country on New Year's
Day 1959, Fulgencio Batista ruled Cuba either directly or through surrogates.
In 1952, he ran for president. When the polls showed he might lose, he
seized power. This led to widespread protests, some violent, including an
attack against one of his barracks led by young Fidel Castro on July 26, 1953.
The opposition did not prevent Batista from consolidating policy, nor did it
inhibit the praise he received from U.S. Ambassador Arthur Gardner (1953-
57). This was the period of "identification, and Vice President Richard
/I
Nixon's visit at this time reinforced the view that the United States stood
firmly behind the dictator because he shared its views of the Communist
threat.
421
Table 1. Pre-empting Revolutions: Factors and Outcomes.
Role of Military
Does U.S. middle sector defection
Countries policy Was there a and from
and follow guerrilla regional dictator/ Characteristics
revolutions Dictatorship Outcome pattern?' movement? actors collapse? of elections
1. Cuba Batista, 26 years Anti-U.S. Yes Yes Allied with NoNes Fraud/
(1958-59) (direct and indirect revolution guerrillas Abstention
rule) (1933-59) (1958)
2. Nicaragua Somoza family, Anti-U.S. Yes Yes Allied with NoNes Fraud/
(1978-79) 43 years revolution guerrillas Abstention
(1936-79) (1972); None ~
in 1979 a
~
--t
3. Iran Shah, Anti-U.S. Ambiguous Yes Alienation NoNes None ~
~
(1978-79) 37 years revolution
(1941-79) 6'
~
~ ~
N 4. Dominican Trujillo, 31 years Military Yes No Disassoci- Yes/No None
N (J)
-
Republic (1930-61 ) takeover ation from ~
r')
(1960-61 ) dictator ~
~.
5. Haiti Duvalier family, No change Yes No Disassoci- No/No; None ~
a. (1961-63); 29 years (1963); Yes No ation from Yes/No ~
Ul
b. (1985-86) (1957-86) Military dictator
~
takeover -
(1986) 0'\
a
6. Philippines Ferdinand Marcos, Democracy Yes Yes Autonomous Yes/No Free, but
(1983-86) 21 years opposition attempted
(1965-86) theft
7. Chile Augusto Pinochet, Democracy Yes Yes, Support for Yes/No Free
(1988-89) 17 years but weak election
(1973-90)
NOTES: 1. "Yes" indicates that in this case, U.S. policy followed the pattern of (1) identification, followed by (2) distance/dissociation,
and then, in reaction to moderates' alliance with and legitimation of the left, by (3) encouraging the military to reject the dictator,
and (4) seeking a moderate "third force" to support.
Preempting Revolutions I 61
By 1957, however, the protests against Batista had become increasingly

violent, and the moderate sectors began to lend their support to the young
rebels. Castro, who had been exiled, sailed to Cuba from Mexico with a small
cadre in December 1956. He sought to place himself at the center of the
opposition by issuing moderate, idealistic manifestos calling for free elec-
tions, a constitutional government, and agrarian reform.
On March 1,1958, Cuban bishops called for an investigation of the regime's
brutality and asked Batista to step down in favor of a government of national
unity. The new U.S. ambassador, Earl Smith, also began to criticize the
repression, but the clearest sign of a new policy of distancing and dissociation
from the regime was the U.S. arms embargo against Batista announced by
Secretary of State John Foster Dulles on April 8, 1958.
The next day, Castro called a general strike, and on July 20, 1958, repre-
sentatives of all the opposition groups met in Caracas to sign a pact that
named an opposition government led by a moderate judge as president and
Castro as commander-in-chief. This legitimization of the leftist guerrillas
represented the third stage of the succession crisis. The Venezuelan site was
important symbolically because it heralded a new alignment of Latin Amer-
ican democratic forces behind Castro. Costa Rican President Jose Figueres
was already giving Castro covert military support, having sent a planeload
of arms on March 30, 1958, and Carlos Andres Perez, a leader of the Vene-
zuelan Social Democratic party, also sent arms to Castro. Figueres later
explained that he "helped Fidel Castro as much as I could because ... we
were completely willing to help overthrow all military dictatorships. We
didn't know, and I think nobody knows, what were Fidel Castro's ideas
regarding Communism at the time."9
The fourth stage-the desperate United States search for a third force-
occurred after the opposition decided not to participate in what turned out
to be a fraudulent election in November 1958. Senior officials in the Eisen-
hower administration asked William Pawley, an American businessman with
experience in Latin America, to undertake a secret mission. As Pawley later
described his goal, it was to "get Batista to capitulate to a caretaker govern-
ment, unfriendly to him but satisfactory to us, whom we would immediately
9. Figueres's involvement is documented in a hearing of the U.S. Senate, Committee on the

Judiciary, Communist Threat to the U.S. Through the Caribbean: Hearings before the Subcommittee to
Investigate the Administration of the Internal Security Act and Other Internal Security Laws, Part 8,
January 22-23, 1960, pp. 447-454. Perez acknowledged his help in an interview with WGBH
Public Television (Boston), in New York, May 2, 1984.
423
International Security 15:4 62 I
recognize and give military assistance to in order that Fidel Castro should
not come to power."10 Pawley proposed to Batista that he transfer power to
Colonel Ramon Barquin, who had tried unsuccessfully to overthrow Batista
in 1956. Without authority, Pawley offered Batista the chance to live in
Florida. Batista refused the proposal and the offer. 11
In December, the Eisenhower administration desperately sought to locate
and support a third force. The Central Intelligence Agency (CIA) tried to get
Barquin released from prison and to have him ally with Justo Carillo and
other moderate civilians. Castro was wary of these plots, concerned that if
Batista were replaced by someone credible and independent like Barquin,
the revolution could come to a premature halt. But Batista unwittingly saved
Castro when he transferred power to one of his staff, General Cantillo, and
then flew to Miami.
Cantillo, however decided it was futile to try to hold the army together,
and he handed power to Barqufn, who was released from prison. Barquin
then surprised everyone by telephoning Castro and surrendering the army,
giving up, according to historian Hugh Thomas, "what chance there was of
a government of the center. "12 The Cuban military disintegrated in a matter
of days, and Castro's lieutenants took control of the remaining army units
while Castro gathered political support on his journey to Havana.
DOMINICAN REPUBLIC, 1960-61

Both the Eisenhower and the Kennedy administrations drew the conclusion
that "Castro's road to power was paved by the excesses of Batista," and that
similar conditions existed in the Dominican Republic under a brutal dictator,
General Rafael Trujillo, who had ruled since 1930. 13 Even before Castro took
power, the United States had begun to distance itself from Trujillo because
of his notorious repression. Ambassador Joseph Farland adopted a cool
approach to the dictator and opened the U.S. embassy to Dominican dissi-
dents. 14
10. Cited in Hugh Thomas, Cuba: The Pursuit of Freedom (New York: Harper and Row, 1971),
pp. 1015-1016.
11. Thomas, Culm, p. 1018.
12. Thomas, Cuba, p. 1028.
13. The quotation and conclusion are from Secretary of State Dean Rusk, testimony before the
U.S. Senate, Alleged Assassination Plots Involving Foreign Leaders, an interim report of the Select
Committee to Study Governmental Operations with respect to Intelligence Activities, November
20, 1975, pp. 191-192; hereafter cited as Senate Report on Assassinations.(1975).
14. Bernard Diederich, Trujillo: The Death of the Goat (Boston: Little, Brown, 1978), p. 41.
424
Such efforts were accelerated after Castro's victory. In April 1960, President
Eisenhower approved a contingency plan which provided that if the situation
deteriorated, "the United States would immediately take political action to
remove Trujillo from the Dominican Republic as soon as suitable successor
regime can be induced to take over with the assurance of U.S. political,
economic, and-if necessary-military support."IS He then sent Pawley to
talk to Trujillo, who said prophetically: "I'll never go out of here unless I go
on a stretcher." 16
While the April 1960 plan to remove Trujillo was not implemented, the
Kennedy administration continued Eisenhower's policy of encouraging the
overthrow of Trujillo by Dominican dissidents. But after the embarrassment
caused by the failure of the Bay of Pigs invasion on April 17, 1961, Kennedy
did not want to make another mistake in the Dominican Republic. He was
worried that the assassination of Trujillo would create a power vacuum that
could be exploited by Castroite radicals. Kennedy administration officials
instructed the CIA to tell its station to "turn off" the coup. The rebels replied
that the coup was their affair. 17
At a National Security Council meeting on May 5, 1961, President Kennedy
decided "that the United States should not initiate the overthrow of Trujillo
before we knew what government would succeed him, and that any action
against Trujillo should be multilateral. "18 Upon learning of this decision,
Henry Dearborn, the U.S. embassy contact with the dissidents, reminded
the State Department that the embassy had been supporting efforts to over-
throw Trujillo for a year. Dearborn cabled that it was simply "too late to
consider whether United States will initiate overthrow of Trujillo. "19
As the rebels were about to strike, Kennedy was apparently torn by con-
trary concerns. He feared being too directly linked to a coup that might fail.
If the coup resulted in serious instability in the Dominican Republic, he
would be blamed. 20 On the other hand, it would be desirable to be identified
15. The citation is from a memorandum from Secretary of State Christian Herter to the president,
April 14, 1960. Presidential approval was indicated in a letter from Herter to the secretary of
defense, April 21, 1960. Senate Report on Assassinations (1975), p. 192.
16. Cited in Stephen G. Rabe, Eisenhower and Latin America: The Foreign Policy of Anticommunism
(Chapel Hill: University of North Carolina Press, 1988), p. 156.
17. Senate Report on Assassinations (1975), pp. 197-205, 257.
18. Senate Report on Assassinations (1975), p. 209. Record of Actions by National Security Council,
May 5, 1961; approved by the president, May 16, 1961. Emphasis added.
19. Senate Report on Assassinations (1975), p. 212.
20. Theodore Sorensen noted that the assassination of Trujillo "introduced an atmosphere of
revolt and unrest into the Dominican Republic that is continuing as of this writing. Sorensen,
11
425
with the rebels if they succeeded. The White House therefore sent a cable,
approved by President Kennedy, to Dearborn on May.29, 1961, affirming
that U.S. policy was "not [to] run [the] risk of U.S. association with political
assassination, since [the] U.S. as matter of general policy cannot condone
assassination." At the same time, the cable communicated the approval of
the administration should the dissidents succeed. In short, U.S. objectives
were deliberately contradictory: to encourage the rebels to think they had
U.S. support if they succeeded, but to dissociate from them if they failed.
The next day, May 30, 1961, Trujillo was shot. 21
The new problem was how to maintain order, facilitate a transition to
constitutional democracy, and keep Trujillo's sons from power. Kennedy
sent a flotilla of nearly forty ships to the Dominican coast as a warning to
the Trujillo family, but he was also very concerned with the immaturity and
divisiveness of the Dominican opposition. "The key in all these countries,"
said Kennedy, "is the emergence of a leader. ... The great danger ... is a
take-over by the army, which could lead straight to [another] Castro."22
In December 1962, Juan Bosch, a Social Democrat, was elected president
in a fair election. Although he enjoyed Washington's support, the military
overthrew him within a year. When one part of the military tried to restore
Bosch to power in 1965, the country fell into civil war, and President Johnson
dispatched 22,000 Marines to restore order and prevent any radicals from
taking power. Presidential elections were held within a year and have been
repeated at four-year intervals since then. In 1978, the first peaceful transfer
of power from one political party to another occurred; the second occurred
in 1986.
HAITI, TWO PHASES

The same concern that led the United States to take preemptive action in the
Dominican Republic led it to focus on Haiti, where another brutal dictator,
Fran\ois "Papa Doc" Duvalier, had ruled since 1957. However, the experience
Kennedy (New York: Bantam Books, 1966) p. 328. Kennedy escaped blame because his role was
not disclosed ior more than a decade.
21. In its analysis of this final cable, the Senate Committee addressed the question whether it
was "designed to avoid a charge that the United States shared responsibility for the assassina-
tion." The Committee concluded that the cable's "ambiguity illustrates the difficulty of seeking
objectives which can only be accomplished by force-indeed, perhaps only by the assassination
of a leader-and yet not wishing to take specific actions which seem abhorrent." Senate Report
on Assassinations (1975), pp. 212-213, 263.
22. Cited by Schlesinger, A Thousand Days, pp. 770-771.
426
Preenlpting Revolutions I 65
in the Dominican Republic made the Kennedy administration even more

cautious in its approach to Haiti.
Initially, the State Department considered a plan proposed by Under-
secretary of State Chester Bowles to assemble a donors' consortium and offer
Duvalier substantial aid if he accepted democratic and financial reforms. If
Duvalier rejected the plan, the United States would impose an embargo
against Haiti. According to Edwin Martin, who was assistant secretary of
state for inter-American affairs at the time, the plan was not approved be-
cause of the administration's "reluctance to offer so much as Bowles proposed
to such a government and the conviction of Haitian experts that Duvalier
would accept neither proposal. "23
After the Cuban missile crisis, President Kennedy personally initiated a
review of policy toward Haiti. At the conclusion of that review, in January
1963, Kennedy decided that the "replacement of Duvalier was a prerequisite
to the achievement of U.S. interests in Haiti." However, Kennedy insisted
on three conditions before he would approve a plan to implement that
objective: (1) the plan would have to have a high probability of success; (2)
assurances were necessary that the new regime would be better than the
existing one; and (3) the plan would have to be implemented by Haitians or
by a third country. These conditions proved too stringent to permit action. 24
The Kennedy administration's sense of urgency was based on fear that the
longer Duvalier stayed in power, the more likely it was that he would be
replaced by a Castroite revolution. The premise proved to be flawed; "Papa
Doc" and his son, Jean-Claude "Baby Doc" Duvalier, who inherited the
presidency after his father's death in 1971, continued to rule for twenty-three
years after Kennedy's death.
1985-86. During the younger Duvalier's tenure, U.S. policy remained rela-
tively consistent in a broad sense. The United States did not cultivate a warm
relationship; it either ignored Haiti, or used a mix of carrots and sticks-
promises of aid and threats of withdrawal-to encourage Duvalier to respect
human rights, open the political system, end corruption, and cooperate on
controlling illegal emigration (which went mostly to the United States).
Within these broad parameters, the Carter administration tended to make
23. Edwin Martin, "Haiti: A Case Study in Futility," SAIS Review, Vol. 1, No.2 (Summer 1981),
p. 66. A similar plan with a similar result was formulated regarding Haiti during the Carter
administration.
24. Edwin Martin, "Haiti," p. 63.
427
more human rights demands on the Haitian government and give less aid,
whereas the Reagan administration tended to make fewer demands and
deliver more aid. During Reagan's terms, Congress added stiff human rights
conditions to the aid, which nonetheless grew from about $30 million in 1981
to about $50 million in 1984. Other donors and international development
banks also increased their aid commitments as Duvalier pledged to improve
administration of the aid program and to open the political system.
Duvalier permitted elections for a legislative assembly in 1984, although
he then manipulated them to ensure victory for his candidates. When aid
donors expressed disappointment, Duvalier announced anti-corruption and
judicial reforms, and relaxed press censorship. He then held a referendum
in July 1985, and he was confirmed as president-for-life with more than 99
percent of the vote. Soon after, violence erupted in numerous towns, cul-
minating in November with riots in Gonaives, which many date as the
beginning of the end of the regime. 25
On January 29, 1986, after riots spread over the island and Duvalier in-
voked martial law, the middle class distanced itself from Duvalier, as did
Secretary of State George Shultz in announcing that new aid commitments
to Haiti would be delayed. The pressure on Duvalier to resign increased
from all sectors, including the military, and on February 6, 1986, Duvalier
asked the U.S. embassy to provide a plane for him to depart.
When he was asked about the role of the United States in the last week of
the regime and whether the U.S. ambassador gave Duvalier "any strong
advice to leave," President Ronald Reagan responded that the United States
never gave any such advice and Duvalier had "never asked us for any." The
only role played by the United States, according to President Reagan, was
"providing an airplane to fly him to France. "26
A military-civilian junta led by General Henri Namphy took power, and
the United States restored aid after Namphy promised free elections. On
election day, November 29, 1987, gunmen who were either allied with or
directed by the military killed 34 voters and confiscated ballots. Namphy
25. Georges Fauriol, "The Duvaliers and Haiti," Orbis, Vol. 32, No.4 (Fall 1988), p. 601.
26. President Reagan's press conference of February 11, 1986, reprinted the next day in The New
York Times, p. 10. Others, including Georges Fauriol, "The Duvaliers and Haiti," and Elizabeth
Abbott, Haiti: Tire Duvaliers and Their Legacy (New York: McGraw-Hili, 1988), have written that
the U.S. embassy played a much larger role in Duvalier's departure; if true, this would mean
that President Reagan was either misleading the American people in his answer or did not
know what his administration had done in Haiti.
428
then called off the election and dissolved the electoral commIssIon. After
Washington suspended aid, Namphy called another election in January 1988,
but almost all of the candidates and the vast majority of eligible voters refused
to participate. Leslie Manigat, a scholar who had been in exile for most of
the Duvalier regime, was elected, but when he tried to exercise some inde-
pendence five months later, he was toppled by the military. The army con-
tinued to govern either directly or through a provisional government, but
free elections were finally permitted on December 16, 1990, in the presence
of large numbers of observers from the United Nations, the Organization of
American States, and the Council of Freely-Elected Heads of Government
chaired by former U.S. President Jimmy Carter. A democratic government
took power on the fifth anniversary of Duvalier's departure, but in an un-
certain climate, shadowed by a strong and wary military.
NICARAGUA, 1978-79
In the Nicaraguan drama, virtually all of the key actors in the United States,
Nicaragua, and neighboring countries were determined to avoid the Cuban
scenario and outcome, but all repeated the same actions in Nicaragua that
they or their counterparts had taken in Cuba.
Anastasio Somoza Garcia was appointed commander of the National Guard
in 1933 by his uncle, Juan Sacasa, whom he deposed as president three years
later. Somoza followed by his two sons ruled Nicaragua as their personal
fiefdom until the Sandinistas overthrew his youngest son, Anastasio Somoza
Debayle, on July 17, 1979. The Somoza dynasty cultivated a public image of
partnership with the United States, although the United States had tried to
persuade one Somoza or another to step down or not seek re-election on
four different occasions (1945, 1947-49, 1963, 1975-79).27 Nonetheless, the
perception of identification, partly the result of two obsequious U.S. ambas-
sadors, remained more influential than the reality of a complicated relation-
ship.28
27. This entire section borrows from my book Condemned to Repetition: The United States and
Nicaragua (Princeton, N.J.: Princeton University Press, 1987).
28. The two ambassadors were Joseph Whelan (1951-61) and Turner Shelton (1969-75). The
U.S. ambassadors to the Dominican Republic had a similarly important influence on Dominican
perceptions of whether the relationship with the United States was warm or cool. See O. Hardy,
"Rafael Leonidas Trujillo: The United States Postwar Attitude Toward the Dictatorship," The
Pacific Historical Review, Vol. IS, No.4 (1946), pp. 409-416.
429
In 1975, the Ford administration distanced itself from Somoza because of

increasing concern with his corruption and repression, and it opened contacts
with the opposition. This trend was accelerated when Carter took office in
1977. The decisive event triggering the Nicaraguan insurrection occurred in
January 1978 with the assassination of Pedro Joaquin Chamorro, the editor
of La Prensa and leader of the moderate opposition. This transformed the
moderate sectors from passive opponents to new militants who were pre-
pared to consider alliances with their former enemies to get rid of Somoza.
The Sandinista National Liberation Front (FSLN), which had been founded
in 1961 as a Marxist, Castro-oriented guerrilla group, had decided in the mid-
1970s to broaden its membership, expand its relationships within Nicaragua
and internationally, and moderate its Marxist rhetoric. Its initial success was
apparent in the popular enthusiasm that greeted the Sandinista raid on the
National Palace in August 1978.
That event and the arrest by Somoza .of hundreds of moderate leaders
during a September insurrection mobilized the U.S. government to take the
lead in forming a multilateral mediation process under the auspices of the
Organization of American States (OAS) to facilitate a democratic transition.
The Carter administration warned Somoza that if he did not accept reasonable
standards for a fair plebiscite, then the United States would impose economic
and diplomatic sanctions. In February 1979, after Somoza rejected the terms,
the United States imposed sanctions.
Between February and June 1979, the moderate opposition and the dem-
ocratic Latin American governments gradually moved toward an alliance
with the Sandinistas. Alfonso Robelo, a Nicaraguan businessman, later said
that he joined the Sandinista coalition at that time "because the support of
[Panama's General] Torrijos, [Venezuelan President] Carlos Andres Perez,
and [Costa Rican President] Rodrigo Carazo gave me confidence that it was
the right thing to do."29 The Costa Rican and Venezuelan governments
provided open political support and covert military aid to the Sandinistas,
as they had to Castro. These governments and Panama also helped cover
Cuban aid and advice to the FSLN. Until the Sandinistas launched their
"final offensive" in mid-June 1979, the U.S. government was unaware of the
nature and depth of their strength. Then, the United States desperately
sought to fashion an "Executive Committee," a non-Somocista third force,
29. Author's interview with Alfonso Robelo, July 29-30, 1983, San Jose, Costa Rica.
430
to negotiate with the Sandinista-led junta. Unfortunately, most of the mod-

erate leadership had already associated with the Sandinistas, and the few
who considered becoming the third force wanted unequivocal assurances
from the United States that were not forthcoming.
The U.S. government also tried to locate post-Somoza leadership for the
National Guard, but these efforts failed because Somoza effectively shielded
the Guard from any ou tside contacts, lest some ambitious officer decide to
remove him. Therefore, he blocked the appointment of General Gutierrez,
favored by the United States, as commander (just as Batista had blocked
Colonel Barqufn). Carter was unwilling to offer assurances of aid to new
Guard leaders without support from Latin American democratic leaders. In
the end, a transitional agreement involving Somoza's successor Francisco
Urcuyo, the Guard, and the Sandinistas was disregarded by both the San-
dinistas and Somoza after Somoza's flight on July 17,1989. 30 Two days later,
the Sandinistas marched into Managua.
IRAN, 1978-79
The period of the Nicaraguan succession crisis overlapped with that of Iran,
and the parallels were so numerous that U.S. policy-makers kept track of
some of the actors in one country by referring to their counterparts in the
other. 31 However, Carter and his senior advisers were much more directly
engaged in the succession crisis in Iran than in Nicaragua because of the
direct impact that events in Iran could-and did-have on the U.S. economy
(doubling of oil prices, inflation) and on U.S.-Soviet strategic relations. Carter
judged that "our nation would not be threatened by the Sandinistas as it
would be by the fall of the Shah."32 In his memoirs, Zbigniew Brzezinski
merely mentions Nicaragua in a sentence, while devoting more than a chap-
30. On the tenth anniversary of the revolution, the Sandinistas published the transcripts of the
exchange in which Humberto Ortega, then head of the Sandinista army, demanded the surren-
der of Federico Mejia, the Guard commander, making clear his intention to capture Managua
regardless of the previous agreement. "Las Ultimas Horas de la Guardia Somocista: EI Frente
Jamas Detuvo Avance Hacia Managua," Barricada (Managua), July 19, 1989, pp. 6-7.
31. During a National Security Council (NSC) discussion of General Julio Gutierrez as a possible
head of Nicaragua's Guard after Somoza's departure, Defense Secretary Harold Brown and
Deputy NSC Adviser David Aaron reminded each other that he was the Nicaraguan equivalent
of General Fereidoun Jam, who had been considered to head the Iranian armed forces after the
Shah left. See Pastor, Condemned to Repetition, p. 117.
32. Author's interview with former President Jimmy Carter, November 12, 1987, Atlanta,
Georgia.
431
ter to the Shah's fall, calling the latter episode the"administration's greatest
setback" and "disastrous strategically. "33
The Shah of Iran had been on the Peacock Throne since 1941, and because
of his anti-communism and his nation's long border with the Soviet Union,
he forged a particularly close relationship with the United States. In 1953,
the CIA orchestrated a series of events in Teheran that helped him secure
the resignation of Mohammed Mossadegh, who was then Prime Minister.
That event reinforced the myth of the Shah as "a pliant creature of the United
States." That perception remained "a vivid political reality" in Iran twenty-
five years later, although by then the U.S. government viewed the uncoop-
erative Shah more as a "testy and imperious monarch."34
The Shah pursued economic without political modernization, and in doing
so he alienated both the religious fundamentalists and the modernist intel-
lectuals. Despite this, the U.S. relationship became even closer in 1972 when
President Richard Nixon decided to make the Shah the principal guardian of
western interests in the Persian Gulf in exchange for providing whatever
military equipment and technology the Shah wanted. This unprecedented
agreement contributed to a role reversal, with the Shah dictating the terms
of the relationship.35 Carter accepted the bi-national agreement, although he
tried to persuade the Shah to scale down his military purchases and curb his
secret police. Despite his advice, Carter admitted in his memoirs that "it
soon became obvious that my expression of concern would not change the
policies of the Shah in meeting a threat which, I am sure, seemed very real
to him. "36
The political situation worsened until, on January 9, 1978, the Shah's police
opened fire on a religious demonstration. The Iranian revolution had begun. 37
The response by President Carter to the succession crisis in Iran was different
33. Zbigniew Brzezinski, Power and Principle: Memoirs of the National Security Advisor, 1977-1981
(New York: Farrar, Straus, Giroux, 1983), p. 354.
34. For Iranian perceptions, see Gary Sick, All Fall Down: America's Tragic Encounter with Iran
(New York: Random House, 1985), p. 7. A similar perception of Somoza's relations with the
United States stemmed from a comment allegedly made by Franklin Roosevelt about Somoza:
"He's a son of a bitch, but he's our son of a bitch." Roosevelt never made such a comment;
Somoza probably fabricated it. Pastor, Condemned to Repetition, pp. 3-4.
35. In 1976, the Inspector General of the Foreign Service concluded in a confidential report:
"The government of Iran exerts the determining influence" in the relationship with the United
States. Sick, All Fall Down, p. 20.
36. Jimmy Carter, Keeping Faith: Memoirs of a President (New York: Bantam, 1982), p. 437.
37. Sick, All Fall Down, p. 34.
432
from his response to the crisis in Nicaragua. Whereas he urged Somoza to

accept a vote on his tenure, Carter's message to the Shah was:
that whatever action he took, including setting up a military government, I
would support him. We did not want him to abdicate. [The Shah was] a
staunch and dependable ally ... [who] remained the leader around whom
we hoped to see a stable and reformed government. ... We knew little about
the forces contending against him, but their anti-American slogans and state-
ments were enough in themselves to strengthen our resolve to support the
Shah. 38
By November 1978 however, the State Department and particularly the

U.S. ambassador to Teheran, William Sullivan, wanted to encourage the Shah
to abdicate, and had begun to work closely with the Ayatollah Khomeini in
the hopes of moderating his anti-Americanism. Similarly, and for the same
reasons, seven months later the State Department recommended a more
positive approach to the Sandinistas. In the case of Nicaragua, Carter grad-
ually accepted the State Department position, but with regard to Iran, he
reprimanded State and reaffirmed support for the Shah.
At the end of December 1978, the Shah tried to regain control of events
by appointing Shahpour Bakhtiar as his prime minister. Bakhtiar, however,
decided to establish his independence by calling for the secret police to be
disbanded and the Shah to leave Iran. Carter did not waver from his uncon-
ditional support for the Shah even though Carter recognized that "the Shah
would have to leave the country before order could be restored."39 After the
Shah's departure on January 16, 1979, Bakhtiar was soon overwhelmed by a
religious movement deeper and more powerful than anything the West had
seen since the Crusades. On February 1, the Ayatollah Khomeini flew to
Teheran from France and was met by hundreds of thousands of devoted
followers. Khomeini quickly took control of the government, and by February
11, the military surrendered to his followers.
THE PHILIPPINES, 1983-86

Having been colonized by both Spain and the United States, the Philippines
shares a number of characteristics with the nations of the Caribbean Basin.
Unlike the Caribbean, however, the Philippines had maintained a democratic
tradition from independence in 1946 until Ferdinand Marcos declared martial
38. Carter, Keeping Faith, p. 440.

39. Carter, Keeping Faith, pp. 442-443.
433
law in 1972 to suppress a Communist guerrilla insurgency. Marcos had been

a popular leader who won election as president in 1965 and 1969, but during
the 1970s, he grew increasingly corrupt and repressive.
The Catholic Church, led by Jaime Cardinal Sin, played an important role
supporting and legitimizing the protest against the dictator. When Benigno
Aquino, Jr., the principal opposition leader, was assassinated in August 1983,
the nation mourned, and the population became mobilized. The guerrillas
profited from the polarization. Marcos became the target of the guerrillas'
wrath as well as the cause of their successful recruitment. The communist
New People's Army, which numbered in the hundreds when Marcos de-
clared martial law in 1972, would increase to over 20,000 armed men by the
time Marcos quit power. 40
Marcos tried to use the American media to warn of "a second Nicaragua."41
When asked by Newsweek reporters how he would respond if the United
States asked him to resign, Marcos boasted: "I think your leaders are wiser
than that. I don't think they would dare. . . . They know how I would
react .... I would immediately tell the whole world about it."42
Reagan initially broke from Carter's human rights-oriented policy and
identified with Marcos. Vice President George Bush was sent to the Philip-
pines in July 1981 where he complimented Marcos, saying "we love your
adherence to democratic principles and democratic processes. "43 The next
year Reagan warmly welcomed Marcos on a state visit to Washington.
The killing of Benigno Aquino and the growing power of the insurgents
finally impelled the Reagan administration to distance itself from Marcos and
press him for reforms. President Reagan's planned state visit to the Philip-
pines in November 1983 was canceled. A State Department policy paper
written in November 1984, and leaked to the press five months later, warned:
IIAn overriding consideration should be to avoid getting ourselves caught
between the slow erosion of Marcos's authoritarian control and the still fragile
revitalization of democratic institutions." It recommended economic aid and
diplomatic pressure to persuade Marcos to accept a democratic political
succession. oW Marcos accepted some of the minor U.S. demands, but blasted
40. Theodore Friend, "Marcos and the Philippines," Orbis, Vol. 32, No.4 (Fall 1988)/ p. 572.
41. "Marcos Warns of Philippines Becoming a Second Nicaragua," Mexico City News, December
21, 1985, p. 2.
42. "Interview with Ferdinand Marcos," Newsweek, January 30, 1984, p. 36.
43. "In Toast to Marcos, Bush Lauds Manila Democracy," Washington Post, July 1/ 1981/ p. A20.
44. Don Oberdorfer, "U.S. Pressing for Democratic Succession in Philippines," Washington Post,
March 12, 1985, p. All.
434
the United States for interfering in Philippine politics. 45 American conserva-

tives grew uneasy about the insurgency, while liberals demanded that Reagan
"repudiate any notion of propping up Ferdinand Marcos."46
The Reagan administration was divided on what to do. The president
viewed Marcos as a friend; having criticized Carter for abandoning America's
friends, he was loath to do the same thing. The Defense Department was
"impressed with Marcos's grit" and anxious about its largest military complex
outside U.S. territory. The CIA and the State Department were convinced
that Marcos's continuance in power would lead to another Nicaragua. 47
The administration resolved its bureaucratic conflict by encouraging Mar-
cos to hold a free election before 1987. First CIA Director William Casey and
then Senator Paul Laxalt, a close friend of President Reagan, flew to the
Philippines to deliver messages from Reagan and to talk about elections. 48
Apparently believing he would win the election either freely, or by manip-
ulation as he was believed to have done with the numerous referenda and
elections since the imposition of martial law, Marcos announced on U.S.
television that he would schedule a new election. Unlike in Nicaragua, the
Philippine opposition never seriously considered supporting the guerrillas
against Marcos. Though initially divided, it eventually united behind the
candidacy of Corazon Aquino, the widow of the slain leader. The Philippines
had experience with free elections, and the National Citizens Movement for
Free Elections (NAMFREL), an independent pollwatching organization, had
the capability of finding fraud and the courage to publicize it.
The elections were held on February 7, 1986. Marcos manipulated the
results, but he was caught and denounced by NAMFREL, the international
press, and a U.S. delegation led by Senator Richard Lugar. Corazon Aquino
then launched a non-violent protest to be recognized as president. Marcos,
having lost the support of the Church, independent businessmen, and the
united political opposition, finally lost the loyalty of key elements of the
army. On February 22, Defense Minister Juan Ponce Enrile and Vice Chief
45. "Marcos Faults U.S. Role in Philippine Politics," New York Times, March 19, 1984, p. A7.
46. Stephen J. Solarz, "Last Chance for the Philippines," The New Republic, April 8, 1985, pp. 12-
17.
47. This summary of the bureaucratic divisions is from various newspaper accounts, but espe-
cially useful was an article by Fred Barnes, "White House Watch: Civil War," The New Republic,
March 10, 1986, pp. 8-9.
48. Paul Laxalt, "My Conversations with Ferdinand Marcos: A Lesson in Personal Diplomacy,"
Policy Review, Summer 1986, pp. 2-5.
435
of Staff General Fidel Ramos announced their support of Aquino and called
on Marcos to resign.
Did the United States encourage the military to rebel? Available sources
do not offer a clear answer. Given President Reagan's affinity to Marcos, he
is unlikely to have approved such contacts. On February II, Reagan still
equivocated, blaming "both sides" for ~lectoral fraud, to the embarrassment
of the u.s. ambassador and Aquino, both of whom knew that Marcos alone
was responsible. 49 Nonetheless, by the time of the military defection on
February 22, Reagan apparently was convinced to withdraw support from
Marcos. U.S. officials contacted by the military coup-plotters had reportedly
told them that they would not condone a military coup, but they also did
not discourage it. 50
On February 24, 1986, army rebels, surrounded by the civilian opposition
and a group of nuns, approached the presidential palace. Marcos faced the
choice of whether to order his soldiers to fire into the crowd or resign. The
White House issued a statement urging Marcos not to attack the rebel forces:
"A solution to this crisis can only be achieved through a peaceful transition
to a new government." Marcos then phoned Paul Laxalt to ask whether that
statement "was genuinely from President Reagan" or just reflected the views
of the State Department, which he did not trust. Laxalt said that it was from
Reagan. Then Marcos asked Laxalt if Reagan wanted him to resign. Laxalt
called Reagan, who told the senator that Marcos "would be welcome to come
to the United States," but did not answer the question whether he wanted
Marcos to resign. 51 Reagan was no more prepared to ask Marcos to resign
than Carter had been to ask Somoza. But neither was he prepared to defend
a declining dictator.
In his next conversation with Marcos, Laxalt therefore answered the ques-
tion about Reagan's view on resignation indirectly: "I indicated that I wasn't
prepared to make that kind of representation." Then, Marcos asked Laxalt's
own views, and as Laxalt recalled: "I wasn't bound by diplomatic niceties. I
said, 'Cut and cut cleanly. The time has come'."52 Marcos decided to leave.
49. For an account of the conversation between the U.S. ambassador and Aquino based on
interviews with both see Sandra Burton Impossible Dream: The Marcoses the Aquinos and the
l l l l
Unfinished Revolution (New York: Warner Books, 1989), pp. 361-363 371.
1
50. Gerald Boyd, "U.S. Had Warnings of Manila Revolt," New York Times, February 25, 1986,
p. 6. A good report on the military coup-plotters and their contacts with the United States is
Burton, Impossible Dream, pp. 366-385.
51. Laxalt, "My Conversations with Marcos/' pp. 2-5.
52. For Laxalt's comments, see Charles Mohr, "Laxalt Says Marcos Vote Was Suggested by
436
The economic situation that Corazon Aquino inherited was catastrophic,

and the political panorama threatening. Nonetheless, she managed to assem-
ble a government, negotiate with the guerrillas, and maintain control of the
armed forces. The democratic transition in the Philippines was one of the
two most successful of these succession crises.
CHILE, 1988-89
As it had with the Philippines, the Reagan administration at first repudiated
Carter's human rights policy, and sought warm relations with the dictator-
ship of General Augusto Pinochet, who had held power since 1973. Nearly
four years later in 1984, the administration returned to a policy similar to
that of Carter's for three reasons: violence by the extreme left; intensified
demands for a return to democracy by the moderate opposition; and the
desire to demonstrate that the administration's commitment to democracy
was not just a ploy for obtaining aid for the contras in Nicaragua. The
administration decided to show it was serious about democracy in Nicaragua
by supporting it in Chile.
The New York Times reported on December 2, 1984, that: "Mediation in
Chile Termed Essential by U.S. Officials: Review Produces a Consensus for
a Major Effort to Avoid'Another Nicaragua'." Like Marcos, Pinochet tried to
turn the same analogy in his favor by arguing that it was his opponents who
wanted to tum Chile into "another Nicaragua." The administration began to
vote against loans to Chile or to abstain in the international development
banks, and it urged reforms and a democratic transition, although it was
unwilling to consider overthrowing Pinochet. 53 Indeed, the consensus in the
policy review was that the United States should not even "take sides"; rather
it should be an impartial mediator between Pinochet and the opposition.
Chile's 3uccession crisis was the most gradual and controlled of all cases
examined here, perhaps because of Chile's virtually unbroken 140-year dem-
CIA," New York Times, July 18, 1986, p. 5; for the White House statement and background
comments, see Seth Mydans, "Marcos Ignores Plea by U.S. and Vows to Stay in Office: Rebels
to Swear in Aquino," New York Times, February 25, 1986, pp. 1,5; Bernard Gwertzman, "Reagan
Sent Marcos Secret Message 12 Hours Before White House's Plea," New York Times, February
28, 1986, p. 6.
53. Bernard Gwertzman, "Mediation in Chile Termed Essential by U.S. Officials: Review Pro-
duces a Consensus for a Major Effort to Avoid'Another Nicaragua'," New York Times, December
2, 1984, pp. 1, 4; Joel Brinkley, "U.5. to Abstain on Loan to Chile to Protest Human Rights
Abuses," New York Times, February 6, 1985, p. 4; "Pinochet Charges Opponents Want Another
Nicaragua," Mexico City News, July 5, 1986, p. 6.
437
ocratic and constitutional tradition before Pinochet's 1973 coup. 54 The polar-
ization during the Allende government (1970-73) and the resulting coup
were traumas that the majority of the Chilean public had no desire to repeat.
Initially intimidated by Pinochet, the opposition finally decided to unite and
participate in the plebiscite on Pinochet's tenure scheduled for October 5,
1988.
With U.S. encouragement, the opposition succeeded in negotiating the
conditions necessary to assure that the election would be free. One important
reason was that Pinochet thought he could win a free election and wanted
to ensure that it would not appear tainted. His confidence was based on the
country's prosperity, and polls that showed it was a close contest. Interna-
tional observers were invited, and with the eyes of the world focused on the
election, it would have been very costly to rig the vote count or disregard
the outcome. 55
On October 5, 1988, nearly four million Chileans voted, representing 97
percent of the registered voters. They rejected Pinochet by 54 to 43 percent,
and although there was some reluctance on Pinochet's part to accept the
results, the other military members of the junta issued an immediate and
clear statement that the opposition had won. This cleared the way for a
presidential election on December 14, 1989, with the victor to take office on
March 11, 1990.
In the debate on constitutional reform, the military junta, led but no longer
controlled by General Pinochet, demonstrated that it was prepared to over-
rule its leader in order to keep the electoral process on track. In addition
both the opposition, representing sixteen center-left political parties, and the
conservative parties showed considerable patience and pragmatism in their
campaigns, which augured well for the consolidation of the democratic
process.
Bad and Good Outcomes: Internal and External Explanations
Three of the crises culminated with non-democratic anti-American revolu-

tionary regimes-the worst outcome from the perspective of the United States
54. See Arturo Valenzuela, "Chile: Origins, Consolidation, and Breakdown of a Democratic
Regime," in Larry Diamond, Juan J. Linz, and Seymour Martin Lipset, eds., Democracy in
Developillg COllntries, Volume IV: Latin America (Boulder, Colo.: Lynne Rienner, 1989), especially
pp. 159-16l.
55. An excellent study is "The Chilean Plebiscite: A First Step Toward Redemocratization,"
report by the International Commission of the Latin American Studies Association to Observe
the Chilean Plebiscite, LASA Forum, Vol. 19, No.4 (Winter 1989), pp. 18-36.
438
and local democrats. Two of the cases ended with democracies--the best
outcome. Two led to military take-overs. How can the different outcomes be
explained? Although the U.S. presidents were very different, U.S. policies
toward these crises were quite similar. In Haiti, the Kennedy administration
tried harder but with less success to persuade the elder Duvalier to leave in
the earlier phase than the Reagan administration did during the second
phase. These examples as well as the other cases make it clear that U.S.
policy alone cannot explain the different outcomes.
First, I will summarize the stages of the succession crises, then discuss
explanations for the different outcomes, looking at internal explanations first,
then reviewing their relationship to U.S. policy. (See Table 1 on page 60.) I
conclude with an analysis of past and future options available for U.S. foreign
policy-makers.
In these cases, when a broad-based opposition movement identified the
United States with the dictator, the U.S. president tried to alter that percep-
tion and gain leverage on the dictator by distancing and eventually disso-
ciating from him. Dissociation was a tactic to try to persuade the dictator to
accept a transitional arrangement. A free election was the vehicle the United
States preferred for steering between the unacceptable options of defending
or overthrowing the dictator, or accepting the revolutionaries. When the
crisis worsened and the worst-case scenario became more likely, the United
States searched frantically to assemble a third force-a moderate, perhaps
even democratic alternative to the dictator and the revolutionaries.
This was the sequence-identification, distancing and dissociation to en-
courage a free election, and the search for a third force-in every case, except,
partially, in Iran. The president viewed his policy as one of support for the
Shah to the end, but Carter's own comments on human rights were perceived
as a distancing policy, and at the operational level, the ambassador also
distanced himself from the Shah and searched for a third force. 56 This was
the only case in which the pattern of u.s. policy was ambiguous.
The middle sector played the pivotal role in every case. All or most of the
middle sectors dissociated themselves from the dictator; indeed the crisis
could be said to have begun, at least from the U.S. perspective, when middle
class defection became apparent. In three cases, the decision by centrist
56. Carter did not distance himself officially from the Shah for several reasons: the Shah was
viewed as a modernizer; democratic groups were weak; the major threat came from anti-
democratic, anti-American clergy; and Iran was a major oil-producer in a strategic location on
the periphery of the Soviet Union. For a description of the overall ambiguity of the policy, see
Sick, All Fall Down.
439
groups and democratic governments to support a violent overthrow of the

regime provided legitimacy to the revolutionaries and neutralized a U.S. role.
In Cuba and Nicaragua the center, supported by democratic governments in
the region, aligned with the guerrillas. In Iran, the moderate National Front
aligned with Khomeini, and expelled Bakhtiar when he entered the Shah's
government. 57 The middle sectors chose the risky option of supporting the
revolutionaries out of frustration with the intransigence of the dictator and
in hope that they could moderate the revolutionaries if they helped them.
Squeezed between an illegitimate dictator and anti-American revolutionaries,
the United States would not support the dictator, but it could not intervene
against the revolutionaries since the latter had the support of the middle
classes.
In the two successful cases-the Philippines and Chile-the middle sectors
did not ally with the guerrilla insurgency, and the guerrillas did not enjoy
any support from democratic governments. In the Dominican Republic and
Haiti, the middle sectors were relatively weak, and there was no insurgency.
This eliminated the prospect of a worst-case scenario from the U.S. perspec-
tive, but it meant that the military filled the power vacuum after the dictators
departed.
The role of the military also had important effects on the outcomes. The
military remained loyal to the dictator in the cases of Cuba, Nicaragua, and
Iran, and all three militaries collapsed when the dictators left. In Nicaragua,
some thought that the Guard's disintegration was due to the lack of assur-
ances of aid by the United States, but such assurances had been given in
Cuba and in Iran with no effect. The military defection from the dictator in
the Dominican Republic, Haiti, the Philippines, and (to a limited extent) in
Chile permitted non-revolutionary successor regimes to emerge.
The elections were important to success in the Philippines and Chile. The
opposition negotiated conditions that permitted a vote in which fraud could
be detected. In these two cases, last-minute efforts to manipulate the vote
or the count failed. Whether or not the dictator was prepared to accept his
loss initially, the election denied him legitimacy more effectively than all the
demonstrations or strikes. Thus, elections served as the best vehicle for
peaceful change, even for countries emerging from long periods of tyranny.
57. See Gholam R. Afkhami, The Iranian Revolution: Thanatos on a National Scale (Washington,
D.C.: The Middle East Institute, 1985), pp. 180-191; Sick, All Fall Down, pp. 162-172.
440
The United States was important in encouraging elections in these cases,

but it had encouraged free elections unsuccessfully in Cuba, Nicaragua, and
Haiti. The reason for the policy's success or failure had less to do with the
United States than with the history of the target country. Nicaragua and
Haiti had never had a free election, and Cuba's experience with democracy
was negligible. In these countries, the opposition was divided into small
fractions, many of which preferred to withdraw under protest rather than
participate in the elections. In contrast, both the Philippines and Chile had
had many free elections, and the opposition was willing to risk participation.
In both cases, the dictator had also convinced himself that he could win the
election, either honestly or with minimal, undetectable fraud. Negotiating
the terms for free elections proved more effective than negotiating transitions.
In Nicaragua, a transitional arrangement was negotiated, but it fell apart
within one day of Somoza's exit. The negotiated exit of the Shah also failed
within days of the arrival of the Ayatollah. Only where elections legitimized
a successor regime did pre-arranged transitions work.
A final factor explaining the different outcomes was the influence of recent
similar experiences on decision-makers. The trauma of Castro's victory im-
pelled both local and international actors to try to precipitate regime changes
in the Dominican Republic and Haiti in order to preempt revolution. Simi-
larly, two decades later, the Nicaraguan trauma had a profound influence on
the crises in Chile and the Philippines. The moderate sectors appeared to
have learned the principal lesson of the Nicaraguan revolution-unite, par-
ticipate in elections, and resist the siren calls of the insurgents. From the
outside, efforts to encourage and monitor elections seem to offer the most
promise for a graceful and successful exit from succession crises, although
local actors and experiences remain the principal cause of the success or
failure of elections.
The Realm of Choices for u.s. Decision-Makers
To say that U.S. policy alone could not explain the different outcomes does
not mean that U.S. policy was irrelevant or that it did not contribute to the
outcomes. But the decisive factors were indigenous. To understand how the
United States can improve its ability to facilitate democratic transitions from
succession crises, it is essential to understand the range of options available
to U.S. policy-makers.
441
As the crisis unfolds, the United States has six options: (1) bolster the
dictator; (2) overthrow the dictator; (3) aid the revolutionaries; (4) let events
take their course; (5) intervene militarily; or (6) promote a democratic tran-
sition. In every case with the partial exception of Iran, the United States
government chose the last option. To define the realm of genuine choice,
one needs to understand why presidents as different as Eisenhower, Carter,
and Reagan did not choose the other paths. An analysis of past choices can
identify the parameters within which real choices can and have been made.
OPTION NUMBER I-SUPPORT THE DICTATOR

The option to support the dictator was always discarded at some point by
both conservative and liberal presidents for reasons of both idealism and
practicality-the dictator lacked legitimacy and support. One could argue
that abandoning such dictators when they are declining is a realistic strategy,
although some realists argue the opposite-that broader U.S. purposes are
better served by helping old allies when they are under assault. 58 For most
of the succession crises, however, the United States distanced itself from the
dictator before his fall was clearly inevitable. This contradicts the conven-
tional wisdom that the United States always supports friendly dictators,
although there is much additional evidence that the United States has op-
possed or distanced itself from friendly dictators at least as often as it has
embraced them.
To explain such distancing, one needs to look at the American national
experience, a kind of collective political subconscious, which has always
given more attention to the internal behavior of regimes than have other
powers. "Foreign policy," as Arthur Schlesinger, Jr., wrote, "is the face a
nation wears to the world. "59 All nations project their style, political culture,
or character onto the international landscape.
Three elements of the American national experience are pertinent to these
succession crises. Americans view themselves as moderates and middle class;
they abhor dictators for monopolizing and abusing power; and they prefer
moderate, incremental change, preferably by elections. All three elements
are projected abroad, though often with significant variations. For example,
58. Henry Kissinger and Zbigniew Brzezinski made this argument about the Shah, and Jeane
Kirkpatrick about Somoza, in "U.S. Security and Latin America," pp. 29-40.
59. Arthur M. Schlesinger, Jr., "Foreign Policy and the American Character," Foreign Affairs,
Vol. 62, No. 1 (Fall 1983), p. 1.
442
conservative U.S. administrations tend to associate more with dictators and

to give less attention to human rights abuses than do more liberal ones.
Nonetheless, when the middle sectors attack a dictator during a succession
crisis, U.S. officials are compelled to support the middle. Even a conservative
administration cannot sustain a policy of supporting a dictator if the middle
groups in that country have rejected him. This explains the distancing from
both Batista and Somoza. It also explains why the Reagan administration,
which had originally embraced Marcos and Duvalier, established its distance
when the middle openly opposed both leaders. Carter continued to support
the Shah simply because he was viewed by Washington as the only feasible
vehicle for achieving political liberalization in Iran.
These elements of the national experience are reflected in U.S. public
opinion polls. In a 1974 poll, nearly three-fourths of the American people
agreed that it was "morally wrong" to support military dictatorships even if
that government provided military bases for the United States. Two-thirds
indicated that the United States should pressure dictators to respect human
rights. 60
OPTION NUMBER 2-0VERTHROW THE DICTATOR

The option of overthrowing the dictator has often been debated seriously
within the government and proposed by liberals on the outside. Several
administrations came very close to adopting this option. In the case of the
Dominican Republic, both Eisenhower and Kennedy encouraged a conspir-
acy to unseat Trujillo, but as the day of decision approached, Kennedy tried
to stop the conspiracy, and when that failed, to dissociate himself from it.
Similarly, U.S. presidents did not ask dictators to resign (except at the very
last moments in Cuba and Nicaragua), nor did they apply sufficient pressure
to compel them to resign in either the successful or "the unsuccessful cases.
There is only one known case-Vietnam-where a U.S. president encour-
aged a coup against a "friendly" dictator. In 1963, the Kennedy administration
concluded that the war in South Vietnam could not be won as long as Ngo
Dinh Diem was president, and Kennedy approved of plans for a military
coup to overthrow him. The president weighed this decision carefully from
August till the assassination of Diem on November 1, 1963. A White House
cable to Ambassador Henry Cabot Lodge on October 5th insisted that "this
60. John E. Rielly, ed., American Public Opinion and U.S. Foreign Policy, 1975 (Chicago: Council
on Foreign Relations, 1975), p. 22.
443
effort be totally secure and fully deniable." National Security Adviser Mc-
George Bundy cabled Lodge on October 25 to convey President Kennedy's
concerns "about hazard that an unsuccessful coup, however carefully we
avoid direct engagement, will be laid at our door by public opinion almost
everywhere. "61
Four years later in its study of the war, the Pentagon described the coup
as a watershed: "Our complicity in his overthrow heightened our responsi-
bilities and our commitment in Vietnam. "62 Stanley Kamow agrees: "Amer-
ica's responsibility for Diem's death haunted U.S. leaders during the years
ahead, prompting them to assume a larger burden in Vietnam. Inefficient as
Diem had been, his successors were worse."63 None of Kennedy's successors
would repeat his mistake.
Though debated, this option was uniformly rejected for several other rea-
sons as well. Friendly dictators represent an indirect rather than a direct
threat to U.S. interests. The main threat that Batista, Trujillo, Duvalier,
Somoza, or Marcos posed was that their continuing in power increased the
chances that they would be followed by anti-American revolutionaries,
which, it was believed, were more likely to threaten U.S. interests. If the
United States had forced the dictators out, it would have had to assume
responsibility for the consequences, which would almost certainly have been
a period of great instability, as in the Dominican Republic and Vietnam. This
partly explains why Kennedy backed away from a coup against Trujillo, and
virtually precluded a Haitian coup by setting such stringent conditions on it.
Such a coup could also precipitate a fight within the military, leaving a clear
path for the insurgents to come to power. In short, deposing the dictator
could produce the very outcome the United States wanted to avoid. More-
over, the United States would probably have had to deepen its involvement
to keep the opposition from fragmenting and the military from either disin-
tegrating or grabbing power. Failure to overthrow the dictator would be an
embarrassment, and a successful coup, like in Vietnam, could be worse.
Na tions, like individuals, rarely take undesirable actions unless they have
no other choice. One month before Batista fled Cuba, the Shah left Iran, or
61. These documents are from The Pentagon Papers: As Published by The New York Times (New
York: Bantam Books, 1971), pp. 158-233; quotations from pp. 216, 219. For a case study of the
coup and U.S. foreign policy, see Ellen J. Hammer, A Death in November: America in Vietnam,
1963 (New York: Dutton, 1987).
62. The Pentagon Papers, p. 158.
63. Stanley Karnow, Vietnam: A History (New York: Penguin, 1984), p. 278.
444
Somoza fled Nicaragua, the United States still believed that a "third force"
could take power, because it was unaware how powerful were the rebels or
the fundamentalists. In the case of Nicaragua, the United States was not
aware of the depth of the Sandinista arsenal or the breadth of their political
support in Latin America. Even Daniel Ortega, who did know, later admitted
that he was uncertain how near Somoza's end was. The United States post-
poned the decision until it was too late to achieve the desired outcome of
assuring a moderate government.
During the Senate Intelligence Committee Hearings in the mid-1970s, the
United States came face-to-face with the issue of assassinating foreign lead-
ers, and the consensus was that it should be prohibited. By sanctioning such
behavior, the hunter opens itself to becoming the victim. Perhaps for a similar
reason, presidents are reluctant to ask foreign leaders, especially of friendly
nations, to resign. Public opinion polls suggest that this view is widely shared
in the United States. When asked whether "there are circumstances under
which the United States should secretly get involved in overthrowing a Latin
American government," 63 percent said there were no such circumstances
and only 24 percent said there were. Dictatorships should be changed by
elections, not force. 64
OPTION NUMBER 3--SUPPORT THE REVOLUTIONARIES

Why not help the revolution? Why should the United States feel threatened
by another country's revolution, when revolution is also part of the American
heritage? The same values and pragmatism that prompt the United States to
reject the dictator should lead to a rejection of most, though not necessarily
all, revolutionaries. The arts of political compromise and conciliation, which
are basic to a democracy, are not learned in guerrilla wars. Moreover, no
nation wants another to be led by a group that considers it an enemy, or
whose philosophy of governance is a threat to its values, because such a
nation can become a threat either by itself or by allying with and manipulating
a powerful rival.
OPTION NUMBER 4-LET EVENTS TAKE THEIR COURSE

The "do-nothing" option is discarded when the president realizes that pas-
sivity guarantees a negative outcome. The United States may not be able to
64. Barry Sussman, upoll Finds a Majority Fears Entanglement in Central America," Washington
Post, May 25, 1983, pp. AI, 20; National Journal, May 17, 1986, p. 1224; and Adam Clymer,
USurvey Finds Support for Panama Canal Pacts," New York Times, May 13, 1989, p. 6.
445
influence the succession crisis effectively, but if it does nothing, polarization

and revolution are probable.
OPTION NUMBER 5--MILITARY INTERVENTION

Of the cases examined, the administration only considered military interven-
tion in one-Nicaragua-but there, President Carter rejected it. Nicaragua
was by then-June 1979----completely polarized; virtually the entire nation
was desperate to expel Somoza and willing to accept the Sandinistas as his
successor. Democratic governments in the region also supported the Sandi-
nistas. Even if Carter had wanted to intervene, there was probably no one
there to support. Earlier U.S. intervention, viewed by some as a possible
solution, would have been viewed by many Nicaraguans and others as the
problem.
OPTION NUMBER 6--BACKING A DEMOCRATIC TRANSITION

In all cases, then, the option of attempting to promote liberalization was
selected by preference or default. It is not surprising that the United States
has proposed elections as the best middle path between the dictator and the
revolutionaries. Presidents as different as Calvin Coolidge and Jimmy Carter
have thought of elections as the way to resolve succession crises, based on
the American national experience rather than the other country's history.65
U.S. public opinion polls show a marked preference for changing dictators
by elections rather than by force, even if the results favor communists. In a
1986 poll, 40 percent agreed that the United States should push a reluctant
dictator to have elections even if the communists would win the elections;
33 percent disagreed. 66
Because compromise is a central ingredient of American politics, U.S.
policy-makers reject the idea of permanent divisions or the idea that there
are no middle options. If there are two views, there has to be a middle
option; the only issue is whether the two sides can be moved to accept a
compromise. The U.S. predilection for the middle explains the desperate
search for a third force as a succession crisis reaches a climax.
65. Colonel Henry Stimson was sent by Coolidge to Nicaragua in 1927, and Ambassador William
Bowdler by Carter in 1978, to try to resolve succession crises by elections. See Pastor, Condemned
to Repetition, chaps. 2, 5.
66. "Opinion Outlook," Nationalfournal, May 17, 1986, p. 1224.
446
In summary, as the United States transited the four stages in each of the
seven succession crises, it was guided by its national experience through a
polarized terrain of unattractive options. In some but not all cases, the search
for a middle option was fruitful..
From the beginning to the end of the crisis, the moderate groups stimu-
lated, guided, and defined the parameters of U.S. policy, although they did
so unaware of their influence. Whereas Americans proposed elections as the
solution, few if any moderates in these nations thought in those terms. They
wanted the dictator out, and thought only the United States could do it. The
worst outcomes occurred when signals were misunderstood between the
moderates who thought they were following the United States but were
actually leading it, and the United States that was a step behind them.
FUTURE CHOICES
In considering future U. S. policies, then, the only real choices are within the
parameters of this sixth option of promoting liberalization. Because military
intervention is ruled out, the United States cannot control or even manage
a succession crisis. The issue for U.S. policymakers is how to influence the
crisis from the margin of events. The outcome will depend, first and last, on
the decisions of local actors-on the dicta tor, the military, the modera te
opposition, and the radicals-but U.S. influence and timing can have im-
portant influences.
Although crises of political succession have a number of common elements
that permit a single recommended strategy, each has unique national char-
acteristics. To assist U.S. policymakers in understanding the differences and
similarities between current and past succession crises,67 a more systematic
support system is needed. Currently, the State and Defense Departments
have historical offices, but these concentrate more on writing diplomatic or
military history than on preparing historical background information useful
to the policymaker. The White Hou'se, which lacks an historical office, needs
one.
The cases demonstrate that the best outcomes occurred when dictators
agreed to elections and were forced to accept their results, and a united
opposition chose to participate and could negotiate the terms for free elec-
tions. The United States needs better information on the actors than it has
67. See Richard E. Neustadt and Ernest R. May, Thinking In Time: The Uses of History for Decision-
Makers (New York: Free Press, 1986), esp. chap. 3, "Unreasoning from Analogues."
447
had in past succession crises in order for it to contribute to an environment

that fosters this outcome. The dictator's personal needs and weaknesses
should be the object of intense and continuing study. The United States
should pursue contacts with the military at all levels and ensure that they
understand how the United States views the crisis.
The most delicate and important relationships are with the moderate op-
position and the insurgents. Here, the history of past succession crises ought
to have the most impact. When moderates divided and allied with the in-
surgents, they forfeited their future. The United States has not tended to
establish contacts with insurgents, mainly for fear that this would undermine
its relationship with the moderates. The best way to serve the goals of
contacting the rebels without hurting other relationships is to do so through
intermediaries-Congressmembers, private citizens, foreigners. Procedur-
ally, these strategies should only be pursued after fully consulting with
friendly regional governments.
As a succession crisis approaches, the United States should develop a
comprehensive strategy aimed at all four stages of the crisis: (1) isolate the
dictatorship through a clear, multilateral human rights policy; (2) facilitate
the dictator's exit through negotiations that reflect a subtle understanding of
his weaknesses and needs; (3) assist in the transition toward free elections
through the international mediation of elections, as occurred in Nicaragua
from July 1989 through April 1990, and in Haiti from July 1990 through
February 1991;hH and (4) aid the consolidation of democracy.69
But by the time the dictator has fallen into a succession crisis, the bound-
aries of U.S. influence have already narrowed. Before that happens the
United States should use the full panoply of American resources, including
non-governmental groups and quasi-governmental organizations, like the
National Endowment for Democracy and the party institutes, to aid demo-
cratic institutions and establish contacts with more groups across the political
spectrum. Other like-minded nations could assist the effort. The United
States can only expand those boundaries if it develops a longer-term strategy
for fostering and consolidating democracy.
68. For a detailed description of how international mediation made the democratic eJections in
Nicaragua possible, see Robert Pastor, "Nicaragua's Choice: The Making of a Free Election,"
Jounw/ of Democracy, Vol. 1, No.3 (Summer 1990), pp. 13-25.
69. For an elaboration of these proposals, see Robert Pastor, "Securing a Democratic Hemi-
sphere," Foreign Policy, No. 73 (Winter 1988/89); pp. 41-59.
448
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ESSAYS ON

2. AUTHORITARIAN AND DEMOCRATIC

3. THE ROMAN CATHOLIC CHURCH

4. SOCIAL MOVEMENTS IN LATIN AMERICA

5. PARTIES, ELECTIONS, AND POLITICAL

6. LATIN AMERICA'S INTERNATIONAL RELATIONS

7. RACE AND ETHNICITY IN LATIN AMERICA

Edited with an introduction by

NEW YORK AND LONDON

This edition published 2013 by Routledge

Routledge is an imprint of the Taylor & Francis Group, an informa business

Introduction copyright © 1994 Jorge I. Dominguez

Library of Congress Cataloging-in-Publication Data

Latin America's international relations and their domestic

The Debt Crisis: Structural Explanations of Country

Of all of the world's regions in the twentieth century, Latin

disputed access to natural resources, and, finally, there were

schools of thought. For some, such as Andre Gunder Frank,

tioning of Latin America's economies. Scholars of bureaucratic

was authoritarian or democratic. Lindenberg also demonstrated

The central scholarly concerns in the 1990s remained the same

UMEROUS ARTICLES, monographs and books have been

N written about the foreign relations of Latin America

turbed by the uneven development in nations of such elements of na-

largely on European experience, and bibliographical information, can be found in:

nation's determination to become more powerfu1. 3 But during most

of 1838. See Roberto O. Frabaschi, "Rosas y las relaciones exteriores con

y Ciencias Sociales, XIX, La Politica Exterior de Za RepUblica .Argentina,

proposed guarantees of the status quo were in a sense the recognition

de los tratados, convenciones, capitulaciones • • • , 14 Vols. (Lima, 1890-1911),

ed. by Valentin Letelier, 37 vols. (Santiago de Chile, 1887-1908), XXV, pp.

MS., CHRE, Leg. en el Ecuador, 1836-1840.

MS., CHRE, Agentes . . . , 1826-39.

existed two relatively dissociated balance-of-power systems in South

XI, pp. 492-496.

the Chilean administration in a dilemma. These events stemmed

Argentina's weakened condition, was able to focus its attention on the

n Juan B. Alberdi, "Intereses, peligros y garantias de los estados del Pa-

Chile, Min. de ReI. Ext., Memoria . .. 1866, p. 29; Memorta . . . 1867,

Peru and Bolivia signed a secret Treaty of Alliance which they

Argentina and the Peru-Bolivian alliance of 1873.

more deeply in a balan'ce-of-po,ver system. 51

Moreno, ed., Guerra del pacf,fico ... . , 9 vols. (Valparaiso, 1884-1890).

Buenos Aires and Bogota.

To counteract Spanish American hostility, the Chilean government

meeting of the Panama Arbitration Congress which Colombia was promoting.

CHRE, Correspondencia, 1879-81.

(Buenos Aires, 1945), pp. 103-8.

23, 1898, MS., CHRE, DCH, 1898, I.

4, 1898, MS., CHRE, DCH, 1898, I.

While these two regional power systems were independently de-

Projections About Unity in Latin America

ERNST B. HAAS AND PHILIPPE C. SCHMITIER

EcONOMICS AND POLITICS IN REGIONAL INTEGRATION

the economic integration of a group of nations

or potential economic union. The German Zollverein constitutes an exception

of direct help to political and sociological projection. Pure economic theory

A TYPOLOGY OF INTEGRATION PATTERNS

Our demonstration aims at the de'lineation of typical conditions and factors

depending on whether any actual delegation of national power to a central

We now wish to break down this approach to integration into observable

Conditions at the Time of Economic Union

nent delegates of governments acting alone or in the hands of periodic con-