Celso Furtado.

Asked to define underdevelopment, Celso Furtado replied in his characteristically north eastern Brazilian accent: "There is no need to define underdevelopment; just go out and look; that is underdevelopment!" Yet, his greatest contribution to development thought was a thorough understanding of underdevelopment and its determinants.

Born in the relatively poor state of Paraiba in Brazil, Furtado confronted the economic backwardness of Latin America in general, and Brazil in particular, after joining the UN Economic Commission for Latin America and the Caribbean (ECLAC) in 1949. With the world emerging from a major economic recession and a horrific war, the time was ripe to deal with the specific problems of late industrializing countries for which prevailing economic theories were ill-equipped to address or had simply ignored. ECLAC--where Furtado became Director of the Development Division and met Raul Prebisch--offered a fertile environment for the development of new ideas and the search for concrete solutions to promote the economic advancement of the region.

Prebisch had rejected the idea that all countries would benefit from organizing their productive structure and trade around their comparative advantages. He noted that growth in primary commodity suppliers was determined by external demand and subject to the business cycles of the major importing markets. More importantly, commodity exporters were unable to retain the fruits of their own technological gains and faced deteriorating terms of trade, vis-a-vis manufacturing exporters. Increasing exports would only lead to lower prices. Thus, taking the comparative advantage route would not help commodity exporters reach the income levels of manufacturing exporters; instead, as a consequence, the income gap between the two groups of countries would widen. Underdevelopment was not a temporary stage leading to development, but had become a permanent condition. Diversification of production, through industrialization, was necessary.

Inspired by this framework, Furtado further developed and enriched these ideas by rigorous historical investigation to identify the factors that explain changes in the structure of the economy over time. He was one of the main contributors to the first major report of ECLAC, the 1949 Economic Study of Latin America (Estudio Economico de America Latina), which for the first time presented the "Prebisch thesis" and became the founding document of the Latin American structuralist school of economics.

An independent thinker, the originality of Furtado's contribution to development thought was his historical perspective and acknowledgment of the cultural, political, social and institutional structures that influence the economic process and economic theory to understand the evolution of developing economies, particularly Brazil. He pursued this analysis by placing the Brazilian economy in its international context.

In the early 1950s, combining Keynesian macroeconomic theory with historical analysis was a new approach and considered quite unique. The result of this analytical effort culminated in the publication of Formacdo Economica do Brasil (The Economic Formation of Brazil) in 1959, undoubtedly Furtado's masterpiece, considered by many as "the" classic book on the Brazilian economy. Written in easy and accessible language, Formacdo was to shape an entire generation of development economists in Latin America and elsewhere.

In Formacao, Furtado argued that the various economic cycles the Brazilian economy had gone through (sugar, gold and coffee) were induced from abroad and had led to a dual economy characterized by a relatively dynamic sector linked to external markets, and a subsistence or traditional sector with low productivity. Dependent on slave labour until 1888, income and land were highly concentrated throughout, thus contributing to the thin domestic market, while the economic surplus from export activity largely remained abroad or was spent on importing goods. Capital accumulation is required for industrialization and, in his view, is determined by how the economic surplus is generated, appropriated and used, which in turn is affected by international trade specialization.

Migration and urbanization in the late 1800s and early 1900s had created the beginnings of a small domestic market for which light industries emerged. Income, however, remained highly concentrated and the backward regions continued to be marginalized, thus sharpening subsequent structures. In Furtado's view, the coffee price support measures adopted by the Government (80 million bags of coffee were bought and destroyed) helped sustain the Brazilian economy as the world recession deepened. The economy grew on its own, not merely responding to the global economy, as its dynamic centre shifted. This conclusion underscored the urgent need to industrialize, to absorb underemployed and unemployed labour, thus promoting development of the domestic market and self-sustaining growth.

Furtado believed that knowledge should be applied to promote economic progress. He also saw a major role for the State in integrating the domestic market and laying the conditions for industrialization that would break with the past. He headed the joint ECLAC/Banco Nacional de Desenvolvimiento Economico (BNDE) Commission, which analyzed the Brazilian economy using planning techniques. This analysis later became the basis of the Targets Plan (Piano de Metas) of the Kubitschek administration (1956-1961).

The view that social and economic structures are shaped by history, and therefore can be changed, permeated his analysis of the economic problems of the Brazilian northeast. The region had been in economic decline since the end of the sugar boom, lagging behind the rest of the country and scarred by widespread poverty. For Furtado, these problems did not originate in the periods of drought the region frequently endured, but rather in the way its economy was structured and related to the national economy. It lacked economic activities that absorbed labour productively and suffered from deteriorating terms of trade in relation to the relatively more industrialized regions. In his view, earlier economic policies had failed to address these problems and had only aggravated the situation. In 1960, the Superintendencia do Desenvolvimento do Nordeste or SUDENE (Northeast Development Superintendence) was born out of this diagnosis, with Furtado at its helm.

In 1961, Furtado published a second major book, Development and Underdevelopment. In it, he developed a broad historical model of economic development in the central countries; in the commercial revolution phase, profit was the objective of economic activity, and capital accumulation the means to achieve it; in the industrial revolution phase, technical progress made capital accumulation a necessity for capitalists, thus making economic development self-sustaining. He then showed how underdevelopment in the periphery was in so far the result of imperialism and industrial revolution in the centre. Furtado argued that underdevelopment and development are related, as developing economies have hybrid structures with different levels of technological development and productivity. According to him, industrialization and related investments in developed countries had involved considerable capital accumulation, driven by supply and demand factors. In the periphery, demand is still more relevant in so far as wealth and consumption concentration in these countries benefiting a minority, further constrain capital accumulation.

As his ideas evolved, Furtado became disillusioned about the prospects for industrialization in developing countries. He argued that underemployment and unemployment in developing economies were chronic problems as the dynamic modern sectors employ labour-saving, capital-intensive technologies developed in industrialized countries. This tends to increase income concentration and limit the domestic market, as large segments of the population stay in low-productivity, low-wage sectors. Thus, rapid growth does not necessarily translate into economic development--understood as new combinations of production factors that raise labour productivity in the economy. Increased trade integration has not led to widespread economic development in the developing world, where export structures remain dissociated from the rest of the national economy, limiting percolation of the gains from trade into other economic sectors. These powerful insights are valid even today.

Furtado remained in ECLAC until 1957 when he joined the BNDE in Brazil. He stayed close to the United Nations and was also one of the brains behind the creation of the United Nations Conference on Trade and Development. Later, he became a member of the Committee for Development Planning (1981-1986), the precursor of the current Committee for Development Policy, which is a subsidiary body of the Economic and Social Council.

Those who knew Furtado personally always admired his high moral principles, integrity and modesty. Following the military coup in 1964, Furtado was invited to cooperate with the new military regime by General Justino Alves Bastos. Furtado replied: "I am a federal civil servant, General. It is for the army to take responsibility for its actions in bringing down a legitimately elected government. Do not ask me to either cover up or cooperate with such actions; they cause repugnance to my republican principles.

Note

* Quoted in Flavio Lucio R. Vieira, "Celso Furtado, pensador do Brasil, Conceitos", Numero 11 e 12, Julho de 2004/Julho de 2005, Sindicato dos Docentes da Universidade Federal da Paraiba (available at: http://www.adufpb.org.br/publica/conceitos/11/art02.pdf)

ANA LUIZA CORTEZ is Chief, Secretariat of the UN Committee for Development Policy.