The Obstacles to Brazilian Development - Assignment Example

Running Head: LATIN AMERICA Latin America [The of the will appear here] [The of the will appear here] [The of the Professor] [Course] What are the obstacles to Brazilian development according to Leff? According to Leff, there were basically three obstacles to Brazilian development. One of them was the declining per capita in Northeast Brazil. While per capita income in US was increasing, the per capita income remained constant in Brazil despite the increase in output of the country. This was at a time when Brazil was going through a period of rapid economic growth. While per capita income remained standard in Brazil in general, the per capita income declined in North East Brazil. Leff points the cause of this to be the decline in demand of two of main agriculture crops of Brazil: sugar and cotton. Since Brazil dependent on primary commodities, it experienced a case of Dutch Disease during this time. Another obstacle towards Brazilian development was the elastic supply of labor. Initially Brazil took advantage of the import of slaves from Africa but with the abolition of slavery that Brazil tried to ignore for as long as it could, Brazil began to gain labor from Southern Europe. The plantation owners began to press the government to transport labor from southern Europe at low costs. Thus an elastic supply of labor was maintained which resulted in a stable labor costs. While labor costs should have increased with the abolition of slavery, Brazil managed to keep them down through its lax immigration laws. One obstacle to the development of Brazil was the high cost of transportation. The country depended on waterways for the transportation of labor and other commodities. But the topography is Brazil is such that these waterways are not strategically placed within the country. Also the flow of certain rivers did not allow for an advantage through water transportation. The other option available to Brazil was land transportation. Unfortunately, land transportation was not a feasible option as most roads were broken and vehicles could not pass by them. The high cost of transportation therefore led to a limited interregional and international trade. Agriculture producers were only limited to market in their immediate vicinity. The surplus that was being produced in certain areas could not be transported in such a manner as to profit the crop owners. The inelasticity of supply that generated as a result meant that prices would increase every time the demand of advanced products increased in the market. Thus the domestic agriculture sector of Brazil was unable to flourish as a result of the inelastic transportation system within the country. Even though the government realized the impact of the under development transportation system, the government did not work on consciously developing its transportation infrastructure. No canal system existed within the country and the boats that were used for transporting goods were small and inadequate to support the thriving agriculture sectors, specifically sugar, cotton and coffee. The first railroad system that the country developed was made in 1854, but even that did not justify the expansion that was happening in the agriculture sector. According to Leff, the political leadership within the country was not focused on the economy of the country. The economic policies introduced by the government led to inflation and a negative exchange rate for a long period of time. The government was more concerned with bureaucracy in the system than in participating in economic development. Central government has more power of the provincial government and the fiscal policies of the Central government did not call for a fair tax system. Exports and imports were taxed the heaviest while other sectors only contributed minimal amounts. Thus as a result, Central government was forced to take heavy debts from other countries which further increased the dependency of Latin America of countries such as US (Leff, 1997). Did all Latin American countries react in the same way to Depression? Explain The Great Depression of 1930s was a time when economies all over the world went into recession before the onset of World War II. The Depression originated from the United States due to the crash of their stock market, known as Black Tuesday. As the stock market crashed in US, the effect of it was felt around the world. This affect was the greatest in countries that were dependent on US or maintained trade with the country. The construction and manufacturing industry was badly hit and thus exports of such items went down in almost every country. With the Great Depression, unemployment figures rose and prices of commodities went up. However, the US was able to check its Depression as it entered the World War II and soon most countries recovered from the Depression. Latin American economy, prior to the Depression, was greatly dependent on US investments in the country. Therefore, it came as no surprise that Latin American suffered one of the worst fates under Depression. However, there are certain countries that were most affected by the Depression including Chile, Bolivia and Peru. On the other hand, the Great Depression became the catalyst that made the industrialization of Brazil possible. Argentina, Brazil and Mexico, known for possessing half the wealth and land of the entire Latin America went through military dictatorship that contributed to their development (Duiker and Spielvogel, 2008). As far as Brazil was concerned, the Great Depression severely affected Brazilian exports. The main export item for Brazil before Depression was coffee as it accounted for 71 percent of the exports of the country. The arrival of the Depression in Brazil occurred at the same time when coffee farmers were able to produce a high yield of the crop. This would have been one of the worst times for Brazil had Getuilo Vargas not taken control of the city as a military dictator. Vargas began the process of industrialization within the country and shifted the focus from plantation to industrialization. Even though Vargas was cruel at times, he still gifted Brazil with industrialization. Chile was one of the worst hit countries according to the reports of the League of Nations. As a result of the Great Depression, the GDP of the country was reduced by 17 percent. This main reason for this was the dependency of Chile on its mining industry. During the Great Depression, the demand for construction material such as nitrates and copper went down and thus Chile suffered as a loss of exports. Though industrial development began in Chile, it still took time to recover from the ill effects of the Great Depression. In the case of Argentina, the power was in the hands of the landowners during the time of Great Depression. These landowners were unable to gauge the impact of the change that was occurring in the rest of the world and the need for industrial revolution. In 1916, the Radical Party came into power but the extent of their corruption further deteriorated the condition. In 1946, General Juan Peron overtook the country through the help of Peron, the country began working on the much needed change in the country. Mexico did not suffer as badly from the depression as the rest of the Latin American countries. During the start of the Great Depression, Mexican national income felt a sharp decline but Mexico was able to recover due to the presence of its manufacturing industry. The nationalization of the petroleum industry and the rail road contribute to the increase in national income. Since Mexico had developed a policy where it established its own economy in contrast with other Latin American countries who continued to depend on exports, Mexico was able to recover swiftly from the effects of the Depression. What is the Dutch Disease? Why is it relevant to understand Latin American backwardness? Dutch Disease The Dutch Disease was a name coined by one of the leading newspapers, The Economist in 1977 when analyzing the situation of Netherlands following the discovery of its natural resources. Dutch Disease refers to the deindustrialization that occurs in many countries after the discovery of natural resources within the country. Once natural resources are discovered in the country, the country’s resources are spent on exploiting these reserves and exporting them. Thus primary commodities gain focus while the manufacturing sector is often ignored which brings the employment figures down. While the exports of the country go up in terms of quantity and prices, the imports are decreased. However, the discovery of the natural resources can create issues for the country as the natural resources are going to be used up in the next few decades and the country would suffer the consequences of not investing in its manufacturing sector. Latin American and Dutch Disease In order to understand the backwardness of Latin America, the concept of Dutch Disease must be understood. Dutch Diseases occurs in countries rich in minerals and natural resources. While Latin America is rich in certain resources such as copper and nitrates in Chile, it is the abundant agricultural produce that may create a case of Dutch Disease in the country. ‘Dutch Disease not only struck Latin America during its colonial years but infected the region after independence, as a series of commodity booms occurred in the late nineteenth century’ (Cardoso and Helwege, 1995). Latin America, in general is known for its production of cotton, sugar and mostly coffee. These commodities make up the bulk of Latin American exports. As the government began to focus on the production of these products, the other parts of the economy such as manufacturing and construction were often ignored. However, one cannot put all the countries of Latin America in the same perspective. Brazil has begun a process of industrialization in the 1930s, following the Great Depression, in order to avoid the Dutch Disease. The Great Depression in the 1930s was a time when Latin America suffered the Dutch Disease most. This was a time when the US economy collapsed and thus the demand for agriculture produce and other natural resources went down drastically. At that time, the GDP of Latin America was greatly dependent on these exports. Chile and Peru were the countries that suffered the most because the government in these countries had failed to develop an industrial infrastructure. It was after the Great Depression that Latin American countries started to realize the impact of the depending on primary commodities and began a process of industrialization, at a time when worldwide economy was suffering one of the bleakest periods. The ruling parties in most countries of Latin American including Brazil prior to the Great Depression were landowners. These landowners had gained voice in the government because of their power and because the government was unwilling to participate in economic policies. As a result, the landowners were more concerned with their own private gains than realizing the impact that dependence on primary commodities was having on the country. These landowners failed to understand the need for industrialization and thus did not represent the whole Latin America. It was only after military dictatorship took over the country that industrialization began consciously in the country. References Cardoso, E. A. and Helwege, A. (1995) Latin Americas economy: diversity, trends, and conflicts, Massachussets: MIT Press Duiker, W. J. and Spielvogel, J. J. (2008) World History, Volume 2, Ohio: Cengage Learning Leff, N. (1997) Economic Development in Brazil, 1822-1913, In Haber, S. H. (1997) How Latin America fell behind: essays on the economic histories of Brazil and Mexico, 1800-1914, California: Stanford University Press Read More