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Economic Bulletin for Latin America Economic Bulletin for Latin America Vol. V, No. 1 Santiago, Chile, March 1960 1. Heavy industry in the Latin American Common Market, by Jon Tinbergen 2. The Free-Trade Area 3. Economic developments in Venezuela in the 1950's 4. Some applications of the input-output model to the Argentine economy 61 5. Statisticol supplement k UNITED NATIONS The Economic Bulletin for Latin America, published by the Secretariat of the Economic Commission for Latin America, appears twice yearly, in February and September. The essential purpose of this periodical is to provide a résumé of the economic situation of the region designed to supplement and bring up to date the information published in the Commission's annual economic surveys. Apart from this summary, which is to appear in every issue, special articles on different subjects related to the economy of Latin America are also included. The ECLA Secretariat assumes entire responsibility for the Bulletin. Its content —intended for the information both of public officials and of the general reader— was not submitted to the Commission's member Governments before publication. EXPLANATION OF SYMBOLS Three dots (...) indicate that data are not available or are not separately reported. A dash (—) indicates that the amount is nil or negligible. A minus sign (— 300) indicates a deficit or a decrease. A space is used to separate thousands and millions (3 123 425). A stroke (/) indicates a crop year or a fiscal year, e.g., 1954/55. An asterisk (*) is used to indicate partially or totally estimated figures. "Tons" and "dollars" are metric tons and United States dollars, respectively, unless otherwise stated. Minor discrepancies in totals and percentages are due to rounding. Price oí Vol. V No. 1, of the Economic Bulletin for Latin America U.S.$1.50; 10/6 sterling; Sw. fr. 6.50 (or equivalent in other currencies) The Bulletin may be purchased from any United Nations sales agent (see back cover) in national currency Subscriptions should be placed either with these agents or with: Sales and Circulation Section Sales Section United Nations European Office of the United Nations New York Palais des Nations U.S.A. Geneva, Switzerland Published by the secretariat of the ECONOMIC COMMISSION FOR LATIN AMERICA VOL. V, No. 1. Santiago, Chile, March 1960 UNITED NATIONS HEAVY INDUSTRY IN THE LATIN AMERICAN COMMON MARKET * by JAN TINBERGEN Latin America is entering upon an important phase of its development: the beginnings of a h^vy industry have_beeii created. Before the First World War, the Latin American countries were primary producers, depending entirely~oírírñports Torlhe satisfaction of their demand for industrial goods. The interruptions of supply caused Ky bo^h world wars stimulated the establishment of a number oTlnanufacturing industries. The great depression made it~cíéar that diversification of production was necessary in order to spread the risks of price movements and it intensified the trend towards industrialization. Today it is generally recognized that the most natural possibility for larger areas to increase their well-being is to industrialize, and Latin America is adopting this course. Ob- viously, the first industries were, and in fact the great majority of those in existence at present still are, of the light type. They are either the natural extensions of primary production or handicrafts or they are the consumer goods industries whose products were most needed during the interruptions of supply. However, conditions for the development of heavy industry are gradually improving. On the one hand, demand for capital goods, heavy chemicals and so forth, is increasing as a consequence of the general process of development. On the other hand, experience in production and self^n- fidence have grown. Private capital formation as well as more conscious public policies open up possi- bilities which did not exist before. Mineral reserves appear to be of many kinds and are substantial. A number of enterprises in the heavy industries are already in existence and further projects are in preparation. This new phase in Latin American development is illustrated by the recently proposed imple- mentation of the plans for regional economic integration. Proposals are under discussion which make a distinction between tt^e types of productive activi^ in the countries concerned. The first type constitutes primary production, i.e. agriculture and mining, being production essentially for exports. The second type consists of the light industries already in existence and having vested in- terests to protect. Here integration can only proceed slowly. It can proceed more easily in the third field, that of heavy industry, for the simple reason that this type of activity has only just started and vested interests in protection of one Latin American country against the others are not numerous. * The following brief pages were contributed by Professor Jan Tinbergen of the Netherlands Economic Institute. Professor Tinbergen visited the secretariat of the Economic Commission for Latin America in September and October 1959. During his stay in Santiago, Chile, he gave a series of lectures as part of the courses held by the Joint ECLA/TAO Economic Develop- ment Training Programme, and assisted in the preparatory -work for the special study on inflation which the secretariat is under- taking,-He also participated actively in the secretariat discussions on the Latin American common market studies, concentrating mainly on industrial problems. This article brings together his comments and personal views on different problems relating to the structure and development of the heavy industries in general. The conclusions to be drawn from his analysis are of undoubted. importance if they are con- sidered in relation to the specific problems posed by the Latin American common market project and the whole is viewed against the background of United States and European experience on which Professor Tinbergen's theories ate based. 2. The phase of the "take-off of heavy industry"—to coin a new phrase based on Rostow's well- known expression*—is sufficiently important to warrant special attention. Heavy industry is the most typical representative of those activities which, by their special features, challenge some well- established economic theories. Before dealing with them, it should be noted that Latin America has the advantage of entering this important phase at a time when more is known about these features and their implications. There was the case when Europe and North America were in a similar posi- tion. In other words, Latin America has the advantage, unlike Europe or North America when they started their heavy industries, of living in the age of social economic planning. The techniques of this type of planning make it possible to study a number of implications of the creation of heavy industry before embarking upon its actual establishment. Alternative possibilities can be investigat- ed and their social and economic consequences appraised in order to choose the most attractive alter- native and take the corresponding policy measures. These measures need not be measures entailing specific intervention in economic life, sometimes also indicated by the phrase "planning"; what is meant here is planning of policy in the sense of preparing it with the aid of economic research on the future development of the economies concerned. The question will no doubt be asked whether such planning is necessary, whether the most ap- propriate pattern of heavy industry does not develop by itself. It may even be suggested that Europe and North America were, in fact, better off in the days before forecasting and planning became so popular. There is, of course, the well-known tenet of what economists refer to as welfare economics, namely that the optimum situation will automatically develop if every single producer seeks to max- imize his own profits. This may be called the decentralization thesis. The point is, however, that this thesis is valid only under specific conditions and it is, in fact, doubtful that the special features of heavy industry satisfy these conditions. Recent analysis of the process of development makes it more and more probable that these features cause considerable deviations between automatic and op- timal development. (ly This article therefore deals with the two sides of the question, namelyjiow optimum development ^ of-^h'eavy industry probably appears and whether or not it can be obtained by complete freedom to create enterprises in these branches. (3^ 3. With the aid of economic models it is possible to_de;^rmine the optimum pattern of an econo- my, more particular with regard to heavy industry. Such a pattern has many aspects or "dimen- sions"; it shows a certain distrí^tíon-o£^:^¿u.cti the various industries and proces- ses ; it indicates the size of 'the enterprises and it gives information about their lo^tion. TKe~'i"n- ^dientsjo be used in the calculations arenas a milium, figures about the inputs of tl^processes uniderjronsiderat^^ A number of gen^er^ economic ^ra.n^ters such as demand elasticities in the wide^ sense and world market prices will^^so be needed. The data on inputs are typically non-linear, thus reflecting certain indivisibilities which are a characteristic of heavy industries in particular. Ideally some knowledge of external effects also comes into play, al- though present knowledge of these phenomena is still very limited. It will be concealed in the as- sumptions made of labour productivity, government investments for infra-structure and the like. The models referred to above must be very complicated as they must contain details in at least the three "dimensions" mentioned. Methodology may have to be primitive for that reason, consist- * Note by the Editor-. For a definition of the term used by W. W. Rostow, see the article entitled "The take-off into-self- sustained growth" in The Economic Journal, March 1956, pp.
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