What role should the government play in the economy for a society to achieve prosperity? This question returned to the political debate in the early twenty-first century after years of neglect during the brief period between the fall of the Berlin Wall in 1989 and the collapse of Lehman Brothers in 2008. During the Cold War period, however, this question was at the center of deliberations among economists, sociologists, and policymakers when economic development was considered to be a way for the Western world to stop the spread of Communism. Among the different ideas under discussion, one that eventually became dominant was the one holding that governments could best promote economic development by decentralizing the decision-making process at the regional and community levels while involving the private sector in development programs. For this to succeed, the decision regarding which economic development projects to prioritize should be guided by technical analyses conducted by individuals trained in economics. In the long term, those defending this model argued, the combination of these factors would inevitably lead to a steady growth in output, bringing a general prosperity that would reduce the allure of Communism.
In the impressively researched book Sorting Out the Mixed Economy: The Rise and Fall of Welfare and Developmental States in the Americas, Amy Offner, an associate professor of history at the University of Pennsylvania, shows how some of these ideas were conceived in the United States by economists disappointed with the New Deal, were implemented in Colombia, and later were applied in the United States using the Colombian experience. To trace this journey, Offner used primary sources from thirty-two archives located in Colombia and the United States in addition to interviews with some of the main actors involved in this process, all informed by a rich secondary literature on history and economic development. The result is an impressive piece of scholarship that will become required reading for those interested in the global flow of ideas on economic development.
Offner finds the early manifestations of this economic development paradigm in David Lilienthal, who, after having worked at the Tennessee Valley Authority (TVA) in the 1940s, came to believe that what he considered the state-led anti-big business New Deal approach was not leading to good results. The TVA is considered the quintessential New Deal government agency for economic development, so Lilienthal's opinions were taken seriously by policymakers and the business community. In the 1950s, Lilienthal traveled to Colombia, where he found an audience open to his idea of the need for decentralized economic development institutions (partially modeled after the TVA) but with the strong participation of big business (chapter 1). The result was the Corporación Regional para el Desarrollo del Valle del Cauca (CVC), considered the best representative of that type of economic development model. The CVC operated in the Cauca Valley (with Cali being the main city) and was led by a group of young men with US college education. The leadership soon clashed with traditional landowners, whom the CVC considered remnants of an archaic and unproductive past. This did not mean that the CVC was interested in a redistributive agrarian reform; rather, it wanted to create the conditions to force large landowners to become more productive (chapter 2). In times when the term “agrarian reform,” in most parts of the world, meant redistributing land to smallholders, the CVC advocated for policies that reinforced large landownership, which pushed poor peasants from the countryside to the cities (a process openly seen as positive by the CVC).
As happened in many underdeveloped countries, this huge and rapid migration of peasants to the cities created unmanageable problems of urban poverty, unemployment and informal employment, and dramatic growth of shantytowns. Offner shows how debates on how to tackle this problem in Colombia led to the strengthening of a new group of professionals trained in economics in the United States whose ideology eventually dominated that country's economic policy. This was reflected in the ambitious housing project known as Ciudad Kennedy (named after US President John F. Kennedy, who inaugurated the project when visiting Bogotá). Ciudad Kennedy became a large city within the city of Bogotá, Colombia's capital. The very concept of a city within the city was explicitly conceived as a further step in decentralization. Contrary to other housing projects in other parts of the world in which the government built subsidized housing, Ciudad Kennedy followed a model by which its future residents would provide the labor for the construction of their own houses (or what was known as “self-help” construction) (chapter 3). This model, the government and its technocrats argued, had two big advantages. The first, and most obvious, was the reduction in cost that came from having people offer their own free labor to build their homes. The second, and more important in terms of consolidating a new model for economic growth, was the redefinition of housing construction not as an end in itself to solve problems of homelessness but as an engine of economic growth because of the links between construction and other sectors of the economy. In this way, instead of crowding out big business, large corporations would benefit from the demand for construction materials, transportation, or finance—something that led corporate Colombia to enthusiastically support this model for economic growth. In the long term, Offner shows, the results were not as ideal as promised, with self-built neighborhoods (including some in Ciudad Kennedy) eventually becoming hotspots of crime and chaotic urbanization, while better-financed projects were reserved for the well-to-do, leaving the lowest segments of society (especially migrants from the countryside) with an ever-worsening housing problem.
The gradual adoption of this model of economic growth, Offner shows, was encouraged by the nascent academic field of economics in Colombia. A new private university (Universidad de los Andes) became the main actor in this process, not only by training economists who eventually occupied important policymaking positions but also by conducting research that reinforced the economic paradigm they promoted. Starting in the 1960s, Universidad de los Andes gradually displaced the government-run Universidad Nacional as the source of creation of knowledge and data used by the government as well as in terms of the staff hired by the government economic agencies (chapter 4). A similar process was seen in Universidad del Valle in the city of Cali, where the Cali leadership promoted the teaching of business administration by creating Colombia's first master of business administration program (chapter 5). Contrary to Universidad de los Andes, however, Universidad del Valle was a public institution, and during the 1960s and 1970s, student protests and left-wing activism on campus harmed efforts to strengthen the teaching of business. Yet the legacy of this effort was that Colombia's elite were convinced of the need to have people formally trained in management.
During the 1980s, those advocating decentralization had several triumphs with some reforms that transferred decision-making power from the central government to municipalities. This process took place during a period in which Colombia became the world's most violent country, a result of the open war between drug lords, the government, and left-wing guerrillas. For many economists, decentralization would help to reduce the cycle of violence. Eventually, a constitutional assembly that included former guerrilla members and faced pressures from drug lords wrote a new political constitution that decentralized the government. The constitution became Colombia's magna carta starting in 1991 (chapter 8).
Lilienthal and Nelson Rockefeller (who was a donor to Universidad de los Andes) explicitly used the Colombian experience to promote self-help projects in partnership with the private sector in the United States (chapters 6 and 7). As a result, the federal and state governments contracted large corporations to train citizens for self-help programs or to supply these projects with inputs. A number of projects were implemented in poor rural and urban communities and on Native American reservations. By the 1970s, these projects were mostly controlled by large private firms with limited government participation.
Sorting Out the Mixed Economy speaks to different audiences, including those interested in Latin American history, development economics, history of economic thought, economic history, global history, and business history. For readers of Business History Review, this superb book offers a great explanation of the elements that determined the evolution of the environment and general rules under which businesses operate and the role of government policy at facilitating the growth of private corporations.
