The Postwar Reinsertion of Latin America in the World Economy

The concern in Latin America over the region's role in postwar economic arrangements formed part of wider international debate throughout the decade about the organization of the world economy.^[4] In 1942 the United States and Britain reached a preliminary agreement on the need to reshape global trade and payments systems that stemmed from a shared interpretation of the dangers of a return to the protectionism of the interwar years: between 1929 and 1933 world trade had declined by 65 percent in value and 25 percent in volume.^[5] To complement free trade in manufactures, Keynes and others pointed out the need to avoid disastrous fluctuations in raw materials prices and to coordinate national macroeconomic policies.

Before World War II European views on the economic development of Africa and Asia were, quite naturally, derived from colonial policy. Until the 1920s the United States held similar views about its southern neighbors, which, along with the Monroe Doctrine, had traditionally generated considerable resentment in Latin America. Indeed, between the wars Latin America could not be considered "poor" since average incomes were well above subsistence levels and comparable with those obtained in Southern and Eastern Europe.^[6] Industry in the region was viewed by outside observers as relatively dynamic, even if much of the impetus was considered to come from foreign corporations and immigrants rather than from the local elites, who were characterized as traditional landlords and bureaucrats.^[7]

After the Great Depression views on world economic development began to change and found reflection within the United States in the influential books by Eugene Staley published in 1939 and 1944. Staley called for support for the industrialization of the so-called noncolonial South to ensure its integration with the international division of labor.^[8] For this purpose he classified Argentina and Chile with France and Australia, and Mex-

ico, Peru, and Colombia with Spain, Portugal, and the USSR.^[9] He also argued that state intervention as well as international help were needed in the South, citing Japan, Turkey, Mexico, and Egypt as leading examples. The concern of the League of Nations during the 1920s for the economic development of poorer European nations (and, by implication, for Latin America) was manifested in a report drawn up by Stanley Bruce, the Australian delegate to the League in 1939. His plan for world socioeconomic development strongly influenced the creation of the United Nations Economic and Social Committee in 1944.^[10]

In fact, more than a decade earlier, in 1928, the Conference of American States held in Havana had already ostensibly reoriented U.S. policy toward Latin America and the Caribbean. At the Seventh Pan-American Conference in Montevideo in 1933, Cordell Hull announced the demise of "dollar diplomacy"; what the new "Good Neighbor" policy could achieve was symbolized by the material reconstruction of Puerto Rico. Latin American governments now began to perceive a permanent change in their hemispheric status, and this outlook seemed to be confirmed at the Panama Conference in 1939 when the United States announced its commitment to industrial investment in Latin America and the establishment of the Export-Import Bank to provide federal funding for capital equipment exports to the region in 1940.^[11] At Bretton Woods in 1944 agreement was reached to establish the International Trade Organization, the International Monetary Fund, and the International Bank for Reconstruction and Development in order to stabilize primary commodity prices, promote world trade in manufactures, and plan investment. The Latin American delegations at Bretton Woods seemed justified in assuming that although the Allies were committed to the U.S. position that the postwar world economy would be based on free trade, such a system would both provide for Latin American access to U.S. markets and for assistance in their own industrialization.^[12]

In Latin America little new investment had been undertaken during the war years because of restricted supplies of capital goods from the United States except in those sectors producing strategic exports for the Allies. Nonetheless, industrial employment had expanded rapidly, and the incorporation of urban groups within the political system created new pressures for industrial expansion and the provision of social infrastructure. Moreover, Latin American governments could no longer rely on the supply of cheap local wage goods, particularly peasant-produced food, to protect the in-

comes of urban industrial workers during adjustment to export decline, as had been the case in the 1930s.^[13] Latin American governments logically anticipated that the strategy of increased industrial investment and manufactured exports necessary to ensure both economic development and social stability would receive strong support from the United States.

Although the Latin American share of world trade had risen from 8 percent in 1938 to 13 percent in 1946, much of this was due to the growth in commerce between the republics during the war and the collapse of European trade. To the general arguments for a new international economic order was added the alarming fact that Latin America's terms of trade in 1940 stood at 33 percent below their 1928 level and by 1946 had fallen by a further 23 percent (see table 13).^[14]

The per capita purchasing power of exports, taking into account volume changes, from Latin America in 1940–1944 was little more than half what it had been in 1925–1929. The considerable accumulation of dollar reserves during the war reflected the contraction of import volumes far below those experienced during the Great Depression.^[15] In consequence, the fact that gross domestic product had grown by 3.4 percent annually between 1939 and 1945 was seen at the time as a rearguard action against trading odds and not, as later interpretations would suggest, as a positive result of import substitution.^[16] Moreover, as Carlos Díaz-Alejandro has pointed out, the expansionary macroeconomic monetary policy that supported demand for the output of domestic industry during the 1940s was essentially the unintended conse-

quence of the abandonment of the gold standard and the collapse of fiscal revenues from trade.^[17]

At the inter-American conference at Chapultepec in early 1945 the Latin American governments expressed strong views on the organization of markets for raw materials, particularly the issues of price stability and access to the United States for manufactured exports, especially from those industries set up to support the Allied war effort.^[18] Washington, however, refused to commit itself to aid or tariff preferences and condemned Latin American proposals for development planning. The United States now appeared to regard the economic problems of the region as essentially internal rather than as bound up with the international trade system and seemed mainly interested in the allegiance of Latin America in the emerging struggle against communism.^[19] Even though this major shift in the U.S. position evidently reflected new strategic priorities, it was still widely assumed in Latin America that industrial investment would be supported by the resumption of the concessionary credits required to purchase technology from the United States. A regional version of the Marshall Plan for Europe was even proposed at the 1948 Inter-American Conference in Bogota, albeit without success.^[20]

Nonetheless, there was still some expectation that new international arrangements would be more favorable to the region. The establishment of the International Trade Organization (ITO) was confirmed in Havana in 1948, although U.S. support turned out to be one of the last manifestations of the "Freedom from Want" policies of the Roosevelt-Truman era. The Latin Americans regarded the "Havana Charter" as legitimizing their aspirations to the status of membership in the "North" that was accorded to Central Europe between the wars and was now being granted to the dominions of the British Commonwealth. The Havana meeting also seemed to the Latin Americans to imply the continuation of the wartime export stabilization schemes and technology transfers that had been denied at Chapultepec. However, the U.S. Congress subsequently refused to ratify the ITO and the initiation of the Cold War transformed the international agenda for the 1950s.

The failure of the Havana Charter was perceived by Latin American governments as representing rejection by the United States and the region's unwilling inclusion in a "Third World" emerging from decolonization.^[21] The nature and objectives of inter-American economic cooperation as set out by Staley were among the first victims of the Cold War. The failure of the Havana Charter was thus seen as a profound political rebuff, a "shift that

was regarded as a betrayal by Latin America" and that was to have a radical effect on regional economic doctrine.^[22]