Proposal preview

Contrasting Development Paths in Latin America and Scandinavia: What Can We Learn?

This session aims to compare the stark different development pathways that countries in Latin America and in Scandinavia have followed as well as the distinctive social and economic outcomes they have achieved. Unlike the traditional comparative approach, which focuses on rather similar countries (e.g. the patterns of industrialization in England and France, or the common roots of income inequality across Latin America), this session’s motivation lies in contrasting seemingly unrelated development experiences and, as in Pomeranz (2000), Hatton, O’Rourke, & Taylor (2007), and Huberman (2013), bringing to light neglected issues and connections.

The session intends to emphasize three dimensions of the two regions’ radically different development pathways: industrialization and productivity growth; income distribution; and labor market institutions. Papers may rely on comparison either between a pair of Scandinavian–Latin American countries, several countries from each region or all countries of the two regions.

As regards the first issue, Latin America’s failure in catching up with developed countries is usually attributed to the pattern and timing of industrialization (Bértola & Ocampo, 2014). From a historical perspective, two features distinguish manufacturing in Scandinavian and Latin American countries. First, Scandinavia joined the second wave of industrialization still in the closing decades of the nineteenth century, benefiting from an early start that allowed the manufacturing sector to account for a relatively large share of employment in the 1960s, declining afterward (Rodrik, 2013). Second, industrialization was accompanied by rapid and sustained improvements in labor productivity, closing the gap with the US and the UK at the end of the twentieth century (Prado, 2008; Inklaar & Timmer, 2012). In contrast, Latin America was quite slow to respond to the challenges of the second industrial revolution, embarking on capital-intensive industrialization only in the 1940s (Bértola & Ocampo, 2012). In addition to the late start, Latin America was severely hit in the early 1980s by the prolonged external debt crisis, which reversed the trend of productivity catch up that had prevailed since WWII. Severe macroeconomic imbalances in the following years combined with long-standing institutions and policies that curbed competition, investment and entrepreneurship, led that region to reach in the 2000s a labor productivity level lower than half the frontrunners’, as has happened in Brazil (Aldrighi & Colistete, 2015).

On the second issue, looking at the income distribution spectrum across the world along the second half of the twentieth century, Latin America and Scandinavia appear as remarkable outliers, standing out as very unequal and highly egalitarian, respectively. As a case in point, the Gini coefficient was about 0.6 in Brazil and 0.2 in Sweden in the early 1980s (Björklund & Jäntti, 2011; Baer, 2008). What are the roots of Latin America’s hugely unequal income distribution? Do they trace back to the colonial past (Engerman & Sokoloff, 1997; Acemoglu et al., 2001) or to the fact that Latin America missed the “Twentieth-Century Leveling”, as Williamson (2015) argues? Likewise, while some scholars claim that Scandinavian egalitarianism was shaped in the medieval period (Rothstein & Uslaner, 2005), more recent research provides evidence that the very low current income concentration in Sweden stems from developments during the twentieth century (Roine & Waldenström, 2008; Gärtner & Prado, 2014).

As to the third issue, since at least the 1930s, labor market institutions in Scandinavia and Latin America have evolved along very different lines. In Sweden, for instance, the conflict-ridden regime of mistrust and bitterness prevailing in the 1920s and early 1930s was superseded by the Saltsjöbad Accord, which was a successful institutional landmark that terminated the costly systematic labor unrest and has ensured regular channels of negotiation between labor unions and employers’ associations. Besides the capital–labor cooperation environment, the Swedish labor market has other three distinguishing features. First, blue-collar workers benefited from unbroken growth in real wages between 1942 and 1976 (Prado, 2010). Second, wage differentials across industries and sectors diminished sharply in the 1940s and between 1960 and 1980 (Gärtner & Prado, 2014; Hibbs, 1990), making Sweden’s wage structure one of the most compressed in the OECD countries in the 1980s (Blau & Kahn, 1996). Third, Sweden was also the first country to experience a marked decline in the female to male pay ratio, notably in the 1960s.

In sharp contrast with Sweden, the relations between industrialists and trade unions in Brazil have mostly been antagonistic and confrontational, even over periods of economic growth and democratic regime, as during the almost two decades following the end of the II World War. High income inequality helped to fuel conflicts, and workers’ demands for better labor conditions and social welfare were often dealt with repression and state intervention. Moreover, industrial wages fell behind labor productivity even over the golden age of the post-war rapid growth, reinforcing confrontation in industrial relations (Colistete, 2007).

Submission of papers addressing the distinguishing experiences of Scandinavian and Latin American countries in industrialization patterns, income distribution, and labor market institutions are welcome.

Organizer(s)

  • Svante Prado University of Gothenburg svante.prado@econhist.gu.se Sweden
  • Renato P Colistete Universidade de Sao Paulo rcolistete@usp.br Brazil

Session members

  • Jakob Molinder, Lund University
  • Cristian Ducoing, Lund University
  • Sara Torregrosa Hetland, Lund University
  • José Peres-Cajías, Universidad Católica Boliviana "San Pablo", La Paz
  • Cecilia Lara, Universidad de la República
  • María de las Mercedes Menéndez, Universidad de la República
  • Jorge Álvarez, Universidad de la República
  • Thales Z Pereira, UNIFRA
  • Alejandro E Caceres, Universidad Catolica Andres Bello/IESA School of Management

Discussant(s)

  • Luis Bértola Universidad de la República lebertola@gmail.com
  • Erik Bengtsson Lund University erik.bengtsson@ekh.lu.se

Papers

Panel abstract

This session has two goals: it aims to compare the starkly different development pathways that Latin American and Scandinavian countries have followed and to examine the distinctive social and economic outcomes that they have achieved. With regard to levels of inequality and paths of industrialization, Scandinavia and Latin America are poles apart. The first half of the session focuses on Brazil and Sweden. It begins by comparing industrialization and productivity patterns across sectors during the twentieth century and then proceeds to explore inequality through measuring wage differentials during the first half of the twentieth century. The second half of the session deals with comparisons between other Latin American and Scandinavian countries, in some cases also including the settler societies Australia and New Zealand. These papers address issues such as fiscal dependence, institutions and the connection between exports and industrialization.

1st half

Taking off from Natural Resources: fiscal dependency in comparative perspective (1850-2015)

José Peres-Cajías, Sara Torregrosa-Hetland, Cristián Ducoing

Natural resources can provide significant public revenue, through direct exploitation, taxes on business activity, and indirect taxation of exports and consumption. However, the “rentier state” hypothesis suggests that access to such income may hinder the development of other sources of revenue, limiting the development of fiscal capacity. Relatedly, the “fiscal contract” framework posits that governments would better deliver public goods when extracting tax revenue from their citizens. We apply this framework to six resource-rich economies in Scandinavia (Finland, Norway, and Sweden) and the Andean region (Bolivia, Chile, and Peru). We compare the trajectories of public finances, establishing their levels of fiscal dependency from natural resources, and whether these had an impact on the processes of tax modernization and diversification. The breaks in the series are explained with historical narrative and an econometric analysis of the determinants of tax transitions, considering the relative importance of economic, social, political and administrative changes.

Natural resources can provide significant public revenue, through direct exploitation, taxes on business activity, and indirect taxation of exports and consumption. However, the “rentier state” hypothesis suggests that access to such income may hinder the development of other sources of revenue, limiting the development of fiscal capacity. Relatedly, the “fiscal contract” framework posits that governments would better deliver public goods when extracting tax revenue from their citizens. We apply this framework to six resource-rich economies in Scandinavia (Finland, Norway, and Sweden) and the Andean region (Bolivia, Chile, and Peru). We compare the trajectories of public finances, establishing their levels of fiscal dependency from natural resources, and whether these had an impact on the processes of tax modernization and diversification. The breaks in the series are explained with historical narrative and an econometric analysis of the determinants of tax transitions, considering the relative importance of economic, social, political and administrative changes.

Long-term comparative levels of labour productivity in manufacturing: Sweden vs. Brazil, 1913–2010

Cecilia Lara, Svante Prado

Traditionally, economic history research stresses the importance of manufacturing in driving economic growth and economy-wide convergence across countries (Kaldor 1967; Hirschman 1958; Amsden 2001). Yet the empirical evidence of this manufacturing-convergence nexus relates mostly to developed countries for the long run assessment or cross-country comparisons, fraught with measurement problems, for the short run assessment (Rodrik 2013; Broadberry 1993). One would like to see, instead, what the record revealed about the long-run behaviour of comparable levels of productivity in manufacturing for a developed vis-à-vis a less developed country. Therefore, in this chapter, we aim to accomplish empirically the following: (1) we will document the labour productivity gap between Brazil and Sweden for groups of industries (roughly 2-digit level) and manufacturing at large in 1975. This productivity benchmark will be based on the industry-of-origin method (unit value ratios) using each country’s industrial census (Paige and Bombach 1959; Maddison and van Ark 1989)....

Traditionally, economic history research stresses the importance of manufacturing in driving economic growth and economy-wide convergence across countries (Kaldor 1967; Hirschman 1958; Amsden 2001). Yet the empirical evidence of this manufacturing-convergence nexus relates mostly to developed countries for the long run assessment or cross-country comparisons, fraught with measurement problems, for the short run assessment (Rodrik 2013; Broadberry 1993). One would like to see, instead, what the record revealed about the long-run behaviour of comparable levels of productivity in manufacturing for a developed vis-à-vis a less developed country. Therefore, in this chapter, we aim to accomplish empirically the following: (1) we will document the labour productivity gap between Brazil and Sweden for groups of industries (roughly 2-digit level) and manufacturing at large in 1975. This productivity benchmark will be based on the industry-of-origin method (unit value ratios) using each country’s industrial census (Paige and Bombach 1959; Maddison and van Ark 1989). And (2), we will extrapolate time series of labour productivity from the benchmark in 1975 to cover the 1912–2010 period. The justification for establishing a benchmark at 1975 is the availability of an Industrial Census of Brazil in that particular year (Censo Industrial, Produção Física). This Census is the first to provide a detailed list of output in physical units, e.g. tons of cement produced, alongside the corresponding gross value in cruzeiro. Maddison and van Ark (1989) therefore used this census in their comparison of Brazil/US. We will match products in the Brazilian census with similar products in the Swedish Industrial statistics (SCB Industri, Del 2, 1975). Weighting the products together to form an overall price ratio of the two countries’ currencies, we will establish a productivity ratio for 1975. From this benchmark, we will use time series of labour productivity to cover a longer time frame. Luckily, the time series will be readily available thanks to parallel projects (Prado and Sato 2018; Lara and Prado 2018). With this long-term picture in mind, the chapter will proceed to examine how the ratio behaves over time to against the background of previous discussions about convergence in productivity at the whole economy level and convergence in productivity in manufacturing.

Wage differentials in Brazil and Sweden during the first half of the twentieth century

Jakob Molinder, Thales Zamberlan Pereira, Svante Prado

On the issue of inequality, looking at the income distribution spectrum across the world along the second half of the twentieth century, Sweden and Brazil appear as remarkable outliers, standing out as very unequal and highly egalitarian, respectively. As a case in point, the Gini coefficient was about 0.6 in Brazil and 0.2 in Sweden in the early 1980s (Björklund & Jäntti, 2011; Baer, 2008). What are the roots of Latin America’s hugely unequal income distribution? Do they trace back to the colonial past (Engerman & Sokoloff, 1997; Acemoglu et al., 2001) or to the fact that Latin America missed the “Twentieth-Century Leveling”, as Williamson (2015) argues? Likewise, while some scholars claim that Scandinavian egalitarianism was shaped in the medieval period (Rothstein & Uslaner, 2005), more recent research provides evidence that the very low current income concentration in Sweden stems from developments during the twentieth century (Roine & Waldenström, 2008;...

On the issue of inequality, looking at the income distribution spectrum across the world along the second half of the twentieth century, Sweden and Brazil appear as remarkable outliers, standing out as very unequal and highly egalitarian, respectively. As a case in point, the Gini coefficient was about 0.6 in Brazil and 0.2 in Sweden in the early 1980s (Björklund & Jäntti, 2011; Baer, 2008). What are the roots of Latin America’s hugely unequal income distribution? Do they trace back to the colonial past (Engerman & Sokoloff, 1997; Acemoglu et al., 2001) or to the fact that Latin America missed the “Twentieth-Century Leveling”, as Williamson (2015) argues? Likewise, while some scholars claim that Scandinavian egalitarianism was shaped in the medieval period (Rothstein & Uslaner, 2005), more recent research provides evidence that the very low current income concentration in Sweden stems from developments during the twentieth century (Roine & Waldenström, 2008; Gärtner & Prado, 2014). Those are big questions that intrigue economic historians convinced that the past levels of inequalities can inform the debate about the origin of today’s highly unequal income distribution in Latin America and flat distribution in Scandinavia. However, assessing inequality levels through ginis before the 1950s is difficult for Sweden and hardly possible for Brazil. Instead, we will use evidence of wages to assess the levels of inequality in the two countries. Using wages across worker characteristics, gender and space to provide a gauge of inequality differences is commonplace in economic history research (Williamson 1999; van Zanden 1995). Although being practicable, very few attempts have been made to examine the available wage record of Brazil for the early part of twentieth century. Referring to wages in Brazil, almost all researchers rely on the work of Lobo et al. (1971), looking at craftsmen in Rio in the late nineteenth and early twentieth century. This Southeast bias has led us to over-estimate the average wage level of Brazil relative to other countries, and the wide regional differences that are recognized have remained concealed. Instead of relying on the Lobo study, we have gathered new evidence of wages of agricultural, skilled, and industrial workers in Brazil in 1912, 1920 and the 1930s for the three main economic regions in Brazil: the Northeast, Southeast, and South. For Sweden, our information on wages during the early half of nineteenth century is incomplete yet sufficiently well covered to allow a broad assessment of wage differentials across workers characteristics, gender and space. Recent studies of wages and labour markets indicate that the wage structure underwent radical changes from the early twentieth century until the late 1940s. The broad contour of this development is that wage differentials in the early twentieth century were quite high by today’s standard. Almost all aspects of the wage structure changed significantly in the 1930s and 1940s (Gärtner and Prado 2016; Prado and Waara 2018). This chapter will compare the spread of wages in the two countries as well as compare living standards by estimating welfare ratios (Allen 2001).

2nd half

On resource blessing and strategic wisdom in Latin America and Scandinavia: The role of the State in industrial development patterns of Venezuela and Norway during 1960s and 1970s

Alejandro E. Cáceres

Venezuela and Norway are countries sharing two common factors. First, they are resource based economies, with high emphasis on oil. Second, they experienced high levels of State intervention in industrial development. During the whole period the State played as well a major role in the industrial development of both countries. In Venezuela, this effort was funded from taxation and royalties on foreign oil companies that exploited oil until 1976. Since then, it has been funded with profits of Petroleos de Venezuela, S.A. (PDVSA), the national oil company. In contrast, Norwegian funds came from taxation on private and public companies which exploited a broader range of resources comprising fishing, timber, hydroelectric energy, iron, aluminium, along with shipping industry. Since 1970, oil became a major source of state revenues, exploited by the national oil company, STATOIL, and private companies. State intervention played a major role in the efforts to develop modern industrial...

Venezuela and Norway are countries sharing two common factors. First, they are resource based economies, with high emphasis on oil. Second, they experienced high levels of State intervention in industrial development. During the whole period the State played as well a major role in the industrial development of both countries. In Venezuela, this effort was funded from taxation and royalties on foreign oil companies that exploited oil until 1976. Since then, it has been funded with profits of Petroleos de Venezuela, S.A. (PDVSA), the national oil company. In contrast, Norwegian funds came from taxation on private and public companies which exploited a broader range of resources comprising fishing, timber, hydroelectric energy, iron, aluminium, along with shipping industry. Since 1970, oil became a major source of state revenues, exploited by the national oil company, STATOIL, and private companies. State intervention played a major role in the efforts to develop modern industrial enterprises. In turn these ones are central institutions for economic growth dynamics1. Nevertheless, the results have been divergent. While Norway has experienced sustained economic growth, Venezuela has stagnated. This paper analyzes and compares the State’s role on industrial development in Venezuela and Norway. It is done applying a framework that considers the set of strategies that the State can apply in respect of national industry and its market-conformity. The main research question is identifying what were Venezuelan and Norwegian State strategies during the decades of 1960 and 1970 which led to divergent behaviour in the development of national industry? This paper shows that the causes of the industrial development during the 1960s and 1970s of both countries can be found in the way each State applied the operational and entrepreneurial strategies and its market conformity. The dramatic differences in departure conditions at the beginning of the period e.g., stage of industrialization, political system, capitalism style, State institutional development, for Norway and Venezuela exercised influence on how they applied the strategies, which goes in line with the suggestions of Terry Lynn Karl when analysing the way Venezuelan and Norwegian State dealt with oil booms. But, setting aside these departure conditions, the wisdom in the application of strategies played a critical role in industrial development patterns, especially in the State support for private sector and the entrepreneurial State. Venezuela applied partially the resource and creation of conditions for competitive development of industry. Also, although there was some cooperation and consensus between State and industry, mutuality did not exist, so it was a partial application. Nor did isolation of policymaking from interest groups, and rent seeking could not be avoided. It was entrepreneurial but was not able to develop competitively the sectors where it ventured, other than oil. None of them were market conforming. Thus, only oil industry kept as the engine of Venezuelan economy, since the private industrial sector would not survive without protection and the State owned industry lived off oil revenues. In contrast Norway was able to deploy industry development strategies in a market conforming way, leading to a competitive private and State owned industry. In turn, economic growth, estimated by GDP per capita, got past from Venezuela’s during the 1970s. All of which allows to conclude that in the 1960s and 1970s the Norwegian State blessing was twofold, it came given by resources, but also by the precious strategic wisdom that its Venezuelan counterpart lacked.

Trade specialization, industrial growth and economic development in Scandinavian countries and the southern settler societies (Australasia and Latin American Pampas Region), 1870-1970

Jan Bohlin, Luis Bértola, Jorge Álvarez

During the first globalization era, Scandinavian countries and southern settler societies like Argentina, Uruguay, Australia and New Zealand were integrated in the world market with a small basket of primary goods for export (mining, forest, agricultural and pastoral products). This trade specialization patter, based on their abundant natural resources, gave these peripheral economies a dynamic growth impulse in the late nineteenth century. However some of these countries succeeded in developing industrial mature economies (Scandinavian countries) after the globalization wave, while others, despite high export growth, remained as peripheral countries (Argentina and Uruguay) or are considered intermediate cases (Australasia).

During the first globalization era, Scandinavian countries and southern settler societies like Argentina, Uruguay, Australia and New Zealand were integrated in the world market with a small basket of primary goods for export (mining, forest, agricultural and pastoral products). This trade specialization patter, based on their abundant natural resources, gave these peripheral economies a dynamic growth impulse in the late nineteenth century. However some of these countries succeeded in developing industrial mature economies (Scandinavian countries) after the globalization wave, while others, despite high export growth, remained as peripheral countries (Argentina and Uruguay) or are considered intermediate cases (Australasia).

Peripheral development? A comparison of economic performance between Denmark, New Zealand and Uruguay (1870-1930)

María de las Mercedes Menéndez

The main purpose of this research is to analyse the economic developments of Denmark, New Zealand and Uruguay in a comparative perspective during the period between 1870 and 1930. By 1870, the three countries presented the highest levels of GDP per cápita in the world and shared not only the characteristic of being peripheral to the core countries but also, its specialization in exporting foodstuffs that supplied mainly the British markets. We will focus on some factors that explain the divergence in the countries’ long term economic performance. In particular, we will study the way in which domestic institutions and the dynamism of technological change influence the countries’ structural changes and the long term economic performance. We hypothesize that Danish and New Zealander domestic institutions initiated a series of transformations at the institutional level that would enable them to move to a less concentrated ownership structure. This had direct effects...

The main purpose of this research is to analyse the economic developments of Denmark, New Zealand and Uruguay in a comparative perspective during the period between 1870 and 1930. By 1870, the three countries presented the highest levels of GDP per cápita in the world and shared not only the characteristic of being peripheral to the core countries but also, its specialization in exporting foodstuffs that supplied mainly the British markets. We will focus on some factors that explain the divergence in the countries’ long term economic performance. In particular, we will study the way in which domestic institutions and the dynamism of technological change influence the countries’ structural changes and the long term economic performance. We hypothesize that Danish and New Zealander domestic institutions initiated a series of transformations at the institutional level that would enable them to move to a less concentrated ownership structure. This had direct effects on the levels of equity and favored the expansion of the domestic market becoming essential requirements to successfully adapt to the new conditions posed by the world after the boom of the First Globalization. In this sense, Uruguay did not accompany the transition mentioned above. We also assume that there was a transition from extensive low-productivity agricultural production to a more intensive and high-productivity one over the analysis period. Back then, New Zealand and Denmark show higher income levels than Uruguay. At last, we suggest there was a better distribution of land ownership in Denmark and New Zealand in comparison to the one in Uruguay and the productive performance of the agricultural sector with the highest levels of productivity generated more favorable conditions for structural change in the first two countries compared to Uruguay. The comparison proposed in this research will consider the comparative qualitative method which contemplates the specificities and generalities of the institutional and technological dynamics involved in the object of study. In order to analyze the transformations at the level of the property structure, we will study the related institutional variables in the processes of conformation of the structure of the property, using databases from Agrarian Census and Statistical Yearbooks. The examination of the agrarian sector will be divided into two blocks: one that will be linked to the performance of the agricultural sector of the three countries and another linked to the innovation systems. Following the development of the research, it is hoped to shed light on the determinants of the economic performance of Denmark, New Zealand and Uruguay in order to understand the relative impoverishment of the last two in relation to the first. Taking into consideration the initial shared situation of the three countries in terms of per capita income, transformations at the level of ownership structure and production will give us a clear signal of the potential of each country to transform the productive structure and initiate a process of industrialization and a more or less vigorous growth. Ultimately, we think, these factors explain why some countries had a successful performance and others remained lagging behind.