9_Law and State_Volume 17

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Underdevelopment, Dependencia, and Modernization Theory 53 considerable amounts — as sufficient reason for avoiding serious efforts toward the reform of the taxation and finance system or toward resisting the trend to specialization in a few exports in the sphere of raw materials, whose harmful consequences are very soon manifest. It must also be conceded that there is not much conviction in the argument which ultimately amounted to a claim that the Latin American economy would be better off if» e- g-> mineral stores, whose exploitation would require the application of foreign private capital and imported technology, were not tapped13. Investments in the indigenous industry, however, produce quite different effects than do investments in the “extraction” sector; here, for the moment, we may leave open the question of whether the latter should be ultimately considered as harmful or beneficial. Again, other investments, such as those in the area of the currency and credit system or in the trade organization or the infrastructure, are accompanied by other effects. The alleged decapitalization of Latin America by foreign private investments can by no means be “documented” in the manner frequently employed within the literature on dependencia, namely by contrasting the total foreign capital which has poured into Latin America with the capital retransferred in the same time period. Indeed, in recent times the outflow has frequently been considerably greater than the capital inflow. But this is far from being proof that the input of foreign private investments is vastly exceeded by the outflow of profits transferred abroad. Let us simply recall, first of all, that the different capital flows must be classified according to various time phases and economic sequences. Capital which, e. g., was retransferred abroad betwen 1960 and 1970, had in all probability been formed on the basis of investments which were made before 1960. Thus it is misleading to contrast the total capital flows within a specific period —in the present example, between 1960 and 1970 — with each other, for the inflowing capital in this period will for the most part generate capital only after 1970. Further, it must be considered that, in the context of a successful foreign enterprise, the time will come in all probability in which the return flow of capital will exceed the subsequent investments, Moreover, a distinction made between foreign enterprises active in raw materials exploitation and those becoming active in the industrial sector would demonstrate that one cannot start from a general assumption of return flow surpluses. Ultimately, however, definitive conclusions would be possible only on the basis of overall calculations, for which the source material is not nearly available to an adequate degree. Without having to take up a supposition frequently expressed by economic historians, it would be very useful to consider whether, in terms of an overall accounting of the past 150 years, more foreign capital has
54 Johann Hellwege not been invested in unsuccessful enterprises in Latin America than has been retransferred in the form of profits. But even if it were true that foreign investments were exceeded by retransferred profits, this alone would not show that a decapitalization of the recipient countries had taken place as a result of foreign investments. Capital growth would still be possible, for the sum of wages, salaries, taxes, etc. paid and the remittances to local suppliers could, quite apart from’ any possible multiplicator effects, very well exceed profits, which represent only a portion of the value produced. In the following, three theses on the effects of industrialization by means of import substitution will be investigated somewhat more closely, since these are particularly often and virtually unanimously advocated by the dependencia school. The following conclusions are based especially on recent research carried out by H. Sauter14. 1st Thesis Industrialization by means of import substitution has favoured capitalintensive production methods which have contributed litde toward solving the unemployment problem and which primarily produce consumer goods in demand by the upper and middle classes. A comparison of population growth rates with the number employed in industry seems to confirm this claim. Economic policy measures taken with the aim of import substitution have also promoted the implementation of capital-intensive production processes. The logic of forced import substitution resulted in the over-estimation of domestic currencies and prohibitive customs legislation in favour of consumer goods produced in the country; this was coupled with concessions for the importation and writing off of capital goods, which were adapted to the situation of the labour market in the industrialized countries and were correspondingly capital-intensive. Social policy legislation forced wages and wage-related costs upward and constituted a further impetus toward capital-intensive modes of production. In most Latin American countries the growth rate of industrial production exceeded that of the other sectors of the economy, sometimes considerably, and hence was clearly above that of the gross domestic product. Since the application of labour-intensive production techniques is, as a rule, accompanied by low growth rates of industrial production and hence usually involves lower growth rates of industrial employment as well, it is very improbable that in the long term higher employment could have been achieved by promoting labour-intensive production processes. Econometric simulations, which are only available
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