Price, Distribution and Accumulation in a three sectors-peripheral economy through the lens of the Classical-Keynesian Approach: A formal representation of the O’Donnell’s Argentine Pendulum (1956-1976)

Ramiro Eugenio Álvarez^[1]

Within the Latin American Structuralist School, the so-call Stop & Go cycles refer to the historical experience of interaction among output dynamics, income distribution and the balance-of-payment constraint. Under this dynamics, periods of increasing growth rate, full-employment output, low inflation and increasing real wages coincide with persistent balance-of-trade deficits, while the subsequent period is characterized by balance-of-trade surplus generated through decreases in growth rate, high unemployment, low real wages and persistent inflation.

According to the theorists belonging to a Structuralist tradition, the phenomenon is intrinsically observed in peripheral semi-industrialized economies. Even though the notion of peripheral economies can be found in different schools of thought, e.g. the theory of Unequal Exchange, the present article refers to those economies that take the international prices (in foreign currency) for both imported and exported commodities as given. On the other hand, the notion of semi-industrialized economies refers to those productive structures that persistently requires the inclusion of imported inputs under the cost-minimizing technique.

Having specified the circumstances of which the phenomenon takes place, the Structuralist explanation of this dynamics can be synthesized as follows. When output growth increases, imports grow faster than exports (determined by the exogeneous external demand) and scarcity of international currency will eventually force a devaluation of the national currency. The resulting rise of the exchange rate decreases the purchasing power of wages, since, in these semi-industrialized economies, the wage basket includes (either directly or indirectly) imported commodities. The fall in the level of effective demand, generated by the decrease in the income of the working class, adjusts the level of output, and balance-of-trade surplus is obtained through decreases in growth rate. The subsequent period is characterized by high unemployment, low real wages and persistent inflation related with the alteration of relative reproduction prices and the pass-through by sectors that used imported means of production. The accumulation of the international reserve by the monetary authority reestablishes the possibility to apply expansive policies by popular government and achieve both full-employment output and a rise in the real wage. However, the latter triggers eventually a new deficit in balance-of-payment and the basis for a new contractive phase^[2].

In “State and Alliances in Argentina, 1956-1976”, the Argentine political scientist, Guillermo O'Donnell, highlights the political determinants of such dynamics, by presenting its history as the history of the pendular alternation of class alliances concerning the determination of economic policies. His contribution can be understood as an attempt to explain why Argentine economy observed the same dynamics both in democratic and Authoritarian-Bureaucratic States, i.e. technocratic regimes under which political parties representing the working-class interest were proscribed. The interpretation provided by O’Donnell includes two novelties with respect to the traditional contributions. On one hand, his approach is characterized by the elimination of the dualist representation of the peripheral economies (Agricultural Vs. Industrial sector), by differentiating the industrial capital good producer sector from the manufactured sector that produces final consumption goods. On the other hand, the inclusion of the international bourgeoisie, as governing the production process of industrial capital goods, constitutes a central element to approach a historical period in which developmentalist governments adopted policies to incentive the inclusion of the transnational corporations in the industrialization because of its preferential access to technological frontier. The latter must be conceived as the strategy followed by Authoritarian-Bureaucratic States to deepen the industrialization process in those means of production that still needed to be imported.

O’Donnell’s contribution can be divided in two theses. The first one is that the cycle is nothing else but the alternation of two class alliances regarding the determination of policies applied by the Authoritarian-Boreoarctic States. These two class alliances are: the coalition composed by International Bourgeoisie, National Bourgeoisie and working class, as the ruling alliance during the expansive period, and the alliance that unites the international bourgeoisie and the agrarian bourgeoisie, during the contractive one.

The second thesis is that the only persistent element along the alternation of governing alliance is the presence of the international bourgeoisie. O’Donnell explains its ambivalent behaviour in the alliance strategy as the impossibility to turn its economic predominance (related to the preferential access to the technological frontier) into a political hegemony, i.e. the incapability to impose economic policies without any threat and objection by the rest of the classes and capitalist fractions. When the ruling alliance is shared with the working class and the national urban bourgeoisie, the expansive economic policies (associated to the deepening of industrialization) increase the relative bargaining power of the latter members and Balance-of-Payment crisis arrives. When the alliance with the rural bourgeoisie adopts laissez-faire policy trade, the tendency towards full-agrarian specialization implies the elimination of the effectual demands for the productive process ruled by international bourgeoisie, undermining the material basis of the political arrangement.

The article is inserted in the recent formal interpretation of the Structuralist explanation of the Stop & Go dynamic through the lents of the Classical-Keynesian Approach (cf. Crespo & Lazzarini, 2015; Dvoskin & Feldman, 2015, 2017a, 2017b). The reconstruction of some Structuralist theorists in the light of the latter approach implies not only the provision of a consistent theory of value and distribution for the Latin-American school of thought, but also to deepen the extension of Classical-Keynesian Approach into other fields of economic theory, such as international trade or development economics. Moreover, the revisiting of Structuralist theorists has been incentivized by the replication of the dynamics that characterized Stop & Go cycles in Argentina after the end of 2000s.

This contribution formally reconstructs the ideas and thesis suggested in O’Donnell (1978) by applying Sraffa’s representation of Production of Commodities by Means of Commodities and the Keynesian Principle of Effective Demand. The formalization provided here constitutes an attempt to capture the tensions at the productive structural level in order to reconstruct the rational foundations of the ambiguous behaviour of international bourgeoisie. In this sense, the suggested model applies Argentine productive and institutional singularities, described by O’Donnell, into the Production of Commodities by means of Commodities framework. By doing so, the theoretical complementarities between notions rooted in the Structuralist tradition and some conclusion provided by the attempts to extend Sraffa’s price equation system to the open economy framework will be highlighted.

Unlike the recent attempts in revisiting and formalizing the Structuralist tradition through the lenses of the classical revival, the novelty of the article refers to the abandonment of the traditional dichotomy between agricultural and industrial sectors to account the effects of the international capital irruption in the industrialization process. In this sense, the Sraffa’s model of production of commodities by means of commodities and the notion of basic commodities have shown to be especially useful grasp the structural changes induced by international bourgeois in the productive structure and in the relation of power among the different fractions of capitalist class. Thus, in addition to the agrarian sector and the rural bourgeoisie, the model distinguishes the productive process of manufactured goods for final consumption, ruled by national-urban capitalists, from the sector that provides capital goods, controlled by transnational corporations.

The assumptions are: 1) A synchronized production periods. 2) No joint production. 3) Each productive sector, if activated, is associated to a unique method of production. No alternative technique is considered. 4) Wage is determined by the negotiation between workers and capitalists, it is paid ante-factum and used to purchase industrial goods for final consumption and agrarian goods. 5) Land is abundant, and the rent associated to marginal land is cero. 6)The agrarian sector is characterized by the Estancias regime, a method of production based on the extensive use of land, low-technical requirements of labour and independent both from imported and domestically produced means of production. 7) All commodities are potentially tradable. No transportation costs are included. 8) There are constant returns to scale in all sectors. 9) The economy is internationally price-taker. 10) Imported means of production are required by the dominant technique. 11) We are under Bretton Woods contexts. The balance-of-payments is essentially explained by the current account result, since capital control regime is imposed.

In order to study the pattern of specialization (which change according to alliances), the Dvoskin and Feldman’s distinction between supply and demand prices is applied. While the former refers to the cost of production in domestic currency, the demand prices are defined as the international prices expressed in national currency and captures the maximum prices that consumers are willing to spend. The idea is that, under laissez-faire policy trade, each productive sector will be international competitive and, therefore, activated if supply price is lower or equal to the demand price.

After presenting each price equation, (under a laissez-faire trade policy and taking as given the wage in international currency) the impossibility of finding a unique level of rate of profit that makes all sectors internationally competitive is shown. Under such circumstances, further assumptions are included in order to capture the tendency towards the productive specialization in agricultural sector observed in Argentina and described by O’Donnell. The importance of such tendency in formalizing O’Donnell’s Pendulum is related to the elimination of the effectual demands for the productive sector ruled by international bourgeoise when the long-period composition of social product is entirely explained by the agricultural good. The pointlessness of the technical predominance of international bourgeoise under the new specialization pattern is presented as the root of the conflict at the ruling alliance during the contractive phase of the Stop & Go cycle.

Thus, international bourgeoisie is incentivized to support the adoption of protectionist trade policy, avoiding gravitation towards agrarian sector. The deliberated industrialization strategies, together with expansive fiscal and monetary policies, are also supported by working class and national urban bourgeoise, setting the basis for the governing coalition during the expansive phase. However, the increasing bargaining power of working class will force the growth of public spending beyond the limit compatible with the balance of payment. The strategy to overcome the external constraint, backed by the urban national bourgeoise and the working class, will impose restrictions to the capital transfer to the central economies, disturbing the so-called “state of confidence” of the international bourgeoise. In this sense, the latter capitalist fraction will be pushed to a new alliance with agrarian capitalist and the replication of the cycle.

Under the basis of a tripartite productive structure, O’Donnell’s interpretation of the Stop & Go dynamic is formally reconstructed as the ambivalent behavior of the international bourgeoisie with respect to its alliance strategies for the definition of the economic policies. In sum, by introducing class heterogeneity, the tensions among capitalist fractions and working class are stressed to provide an explanation for the changes in the economic policies that induced the cyclical dynamic from 1956 to 1976. The resulting image of the Argentine import substituting industrialization corresponds to the Gramscian definition of crisis, that is, a state in which the old is dying and the new cannot be born.

The main conclusions can be synthetized as follows:

1. There is room to identify theoretical complementary between Classical-Keynesian Approach and O’Donnell.
2. The inclusion of international bourgeoise in the production of capital goods is central to grasp the political determinants of the Stop and Go cycle, so far overlooked by the literature that attempted to formalize these dynamics.
3. The ambivalent behaviour of international bourgeoise can be explained as its attempt to guarantee its effectual demands, during the Stop phase, and the state of confidence, during the Go period.

Keywords: O’DONNELL – ARGENTINE INDUSTRIALIZATION – CLASSICAL KEYNESSIAN APPROACH – LATIN AMERICAN STRUCTURALISM – SOCIAL CONFLICT.

[1] PhD in Economics candidate, DEPS, Università degli studi di Siena. Gmail address: ramiroalvarez18@gmail.com.

[2] Cf. Ferrer (1963), Braun & Joy (1968), Braun (1970,1973), Diamand (1972, 1978), Villanueva (1972), Brodersohn (1974), Díaz-Alejandro (1975), Mallon & Sourrouille (1975) y Canitrot (1975).