The Commodities Boom in South America: A Case of Regressive Restructuring?

Abstract

In the late 19th century, the Second Industrial Revolution in Europe and the United States drove up demand for raw material exports from South America. This resulted in the creation of enclave economies across much of the region without many backward or forward linkages.¹ Thus when demand collapsed for primary exports in the Great Depression (1929–1940), the region was left without a growth pole. A formalized theoretical critique of Latin America’s primary export model was developed by Raúl Prebisch and Hans Singer in the late 1940s (Bértola and Ocampo 2012: 25–28). They demonstrated that raw material export-based economies were destined to confront both sharply falling export prices (due to overproduction, the substitution of synthetic products for raw materials and declining income elasticity of demand for many primary products) and increasing long-term prices for imported manufactured goods from industrialized nations. A solution to this structural situation of falling terms of trade (TOT) can be found – but not through a laissez-faire approach that would rely on price information and ‘market forces’ to redirect the national production base of a nation.