Volume 43, Number 171,
October-December 2012
Structural Limits on Economic Development:
Brazil (1950-2005)
Bibiana Medialdea

As such, this dynamic presents two sides. It is a quantitative process, because accumulation implies a greater dimension of stock, mainly capital and not residential, and, within the process, accumulation of machines and other productive equipment. At the same time, it is a qualitative process, because this capital systematically incorporates greater technical progress. From this we understand that a developed economy’s accumulation dynamics generate a persistent increase in productivity, as this implies a gradual increase of the working-capital ratio (K/L) as the capital-product ratio (K/Y) is reduced. In other words, this is an improvement for both of the components that make up the increase in worker productivity.4 This is another crucial indicator that distinguishes non-developed economies: their reduced level of productivity and the slowness with which it increases over time.

In this way, from the point of view of accumulation dynamics, it is useful to emphasize a set of variables related with production capacity, that is, with supply. These clearly distinguish the disparate behavior between a non-developed economy and a developed economy: reduced level of gdp per capita, scarce magnitude of stock capital, minimal presence of capital goods and low working productivity.

However, the experience of developed economies makes clear that this accumulation dynamic is not continuous, but rather a cyclical evolution over time. The production capacity (production potential) is made real (effective production) when there is a market and prospects of profitability that stimulate business expectations. As such, the need to incorporate new analytical elements to explain the dynamic of economic growth arises. These are elements that mainly have to do with aggregate demand and income distribution, and at the same time are related to the functioning of institutions and the sociopolitical context. In this regard, there are clearly new and decisive differences between what happens in an underdeveloped economy in comparison to a developed economy.

We can theoretically base these questions on the crucial importance of investment for economic functioning, and note the double impact that investment has on economic dynamics, as a component of demand and as a determinant of productive capacity (Kalecki, 1977; Palazuelos and Fernández, 2009). On the one hand, as a fundamental component of effective demand, investment has a determining influence on the evolution of variables such as profits, production and employment. On the other hand, investment exercises a direct effect on potential productive capacity as it makes an increase in capital stock possible. Simultaneously, there are certainly many factors that determine the behavior of an investment, as this has to do with profitability expectations, which depend on disparate elements.

In this way, economic dynamics are configured through the interaction of a variety of variables, which, in the rising phase of the cycle generate synergies favorable to growth, between supply and demand (investment-production-aggregate demand-investment) and between demand and income distribution (investment-profits-expectations-investment). Moreover, these virtuous cycles are generated in determined political and social contexts that positively or negatively affect their reproductive mechanisms. The very conformation of the profitability rate is the result of the conflict that is generated in all capitalist societies, revolving around the division of income between profits and salaries. In this way, existing political interests and their capacity to impose themselves are of crucial importance.

This perspective also links the accumulation process with aggregate demand, income distribution and sociopolitical conditions, and key differences can be noted for underdeveloped economies. In historical terms, the secular weakness of investment is what determines the scarcity of capital stock and scarce technological content. In terms of economic dynamics, the behavior of investments and the set of aggregate demand in underdeveloped economies are fundamentally explained by the conditions of income distribution, strongly reinforced by the active political framework. The investment rate is modest because social groups that hold the majority of income use it for other purposes. Private consumption is also scarce because most of the population lacks purchasing power. At the same time, reduced productive investment and the inflexibility of the consumer market mean that the levels of business profit are not attractive enough to make bigger investments and, as such, to strengthen the productive capacity of the economy. In this way, the accumulation process is blocked because a set of relationships are systematically reproduced, between supply, demand and income distribution, the so-called structural limits on economic development, which only further consolidate underdevelopment and are antagonistic towards the accumulation mechanism that developed economies have.

4 Working productivity (Y/L) indicates the relationship between (K/L) and (K/Y), so that if a, b and c are respective growth rates,
we have a = b — c.

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PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 194 July-September 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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