When Yale University Press inquired whether Albert Hirschman would recommend the English translation and U.S. publication of Celso Furtado’s1 The Economic Growth of Brazil: A Survey from Colonial to Modern Times2 (Formação Econômica do Brasil), he stated that, in his opinion, the book was “quite outstanding,” since “Furtado always asks significant questions and comes up with an interesting answer.” He mentioned that he had “just written so to Mr. Fruge of the University of California Press which is also considering publishing it” and that the review of the book, then freshly published in The American Economic Review,3 “did not nearly do justice to the merits of the book.”4 The Economic Growth of Brazil was published in English two years after this exchange of letters, in 1963 by the University of California Press. In any case, everything indicates that Hirschman truly meant what he said, because, since at least the summer of 1968, this book was listed among the required readings for the course Economic Development in Latin America (Economics 152), which Hirschman taught at Harvard University.5

Hirschman and Furtado met in person at the International Economic Association (IEA) conference and began corresponding in the 1960s, driven by Hirschman’s interest in the regional development work carried out by the Superintendence for the Development of the Northeast (Sudene, Superintendência para o Desenvolvimento do Nordeste), an agency whose inception arose from the articulation promoted by Furtado in the early 1960s. The Brazilian Northeastern region suffered from problems caused by irregular droughts and food shortages, with a large portion of the rural population subjected to degrading working conditions. The contact between the two economists, as well as an interview Furtado granted to Hirschman to clarify questions about the context and history of the Brazilian Northeast and the political and institutional conditions of Sudene’s implementation and operation, provided material for the reflections and writing of the book Journeys Toward Progress.

In fact, Hirschman visited several peripheral countries, interviewing government officials and economists to gain insight into other perspectives on the problems faced within each country. Notwithstanding, this paper contends that, although Hirschman visited Brazil to conduct a case study of Sudene’s regional development experience, Furtado was more than just an informant. The exchange of suggestions and ideas between the two, the deep knowledge each author had of the other’s work, as well as the willingness to rethink old ideas in light of the other’s work, make Furtado’s impact on Hirschman’s work as evident as Hirschman’s impact on Furtado’s. We will demonstrate this by analyzing the correspondence exchanged between the two authors, the interview that Hirschman conducted with Furtado to study Sudene, the notes in the books available in Furtado’s personal library and the books, articles, and critical reviews written by both authors.

Several important works have been produced under the approach of the international diffusion of economic ideas,6 but few of them study cases of transmission of economic ideas developed in the periphery that are incorporated into central countries. We can mention the works of Cardoso (2009) and Bastien and Cardoso (2003), who address the case of the dissemination of structuralist ideas from CEPAL in Portugal and Spain. In this sense, we seek to expand this literature with a similar proposal: to demonstrate the importance of the contact between Hirschman and Furtado for the development of their ideas on regional planning and policymaking. We intend to emphasize Hirschman’s role in disseminating knowledge about Sudene around the world, alongside the institution’s function as both an intellectual resource and a catalyst for reflection on public policies in Latin American countries.

For the specific case under analysis, it is also interesting to stress the idea that travel and empirical knowledge about “the other” have the power to broaden the horizons of economists’ analyses, sparking new ideas, questions, concepts and worldviews (Boianovsky 2018, 153–6; Boianosvky and Maas 2022, 384–7; Carvalho and Suprinyak 2022, 562–4). As a “traveling economist,”7 Hirschman benefited from fieldwork in the Brazilian Northeast to develop new perspectives on comprehensive planning, new models about the use of discourse as a tool for manipulating policymaking and a new approach to promote foreign aid that safeguard the sovereignty of recipient countries.

This paper may raise questions about other cases of other policymakers, scholars, academics or “missionaries” who worked for a period in other countries. Did their worldviews remain unchanged? Or did they bring with them, upon their return, an intellectual baggage acquired through exchanges with other peers and interaction with other cultures?

In his biography of Hirschman, Adelman (2014) highlights that contact with Brazilians and other colleagues at the International Economic Association (IEA) conference, held in Rio de Janeiro in 1957, was pivotal to the writing of The Strategy of Economic Development. According to Adelman (2014, 333–4), “after almost three “fantastic” weeks in Brazil, Hirschman returned to Yale and feverishly rewrote the early, now lost, drafts of his manuscript.”

These “early, now lost, drafts” that Adelman mentions were produced during Hirschman’s experience working in Colombia from 1952 to 1956 as a World Bank adviser to the National Planning Council. There, he publicly clashed with economist Lauchlin Currie over policy and planning projects, leading to his resignation after two years. He remained in Bogotá until 1956 as a private consultant. Upon returning to the U.S., a Rockefeller Foundation grant at Yale allowed him to develop his Colombian experiences into his research on economic development (Álvarez, Guiot-Isaac, and Hurtado 2020, 298–301; Alacevich 2021a, 96–8; Adelman 2014, 332).

The animosity between Currie and Hirschman indicated a larger theoretical divergence: while Hirschman wanted to favor investments in specific projects that could stimulate other investments up and down the production chain, Currie thought of broader intervention policies that encompassed several projects simultaneously (Sandilands 2015, 32; Alacevich 2021a, 104). This experience contained the seeds of the main arguments that Hirschman would develop in The Strategy of Economic Development; especially with regard to the author’s disagreement with the idea of comprehensive planning8 projects (Alacevich 2016, 16).

Alacevich (2021a, 112) also mentions the importance of the IEA conference in Hirschman’s thinking and in the theoretical refinement of his practical ideas while working as a policymaker in Colombia. The author highlights Hirschman’s profound disagreement with Paul Rosenstein-Rodan’s balanced-growth approach and the role of “Latin American social scientists” who “highlighted structural imbalances and disequilibria as growth-inducing opportunities.” Celso Furtado was one of these authors who, at the time of the conference, made similar criticisms of Rosenstein-Rodan’s work.

On the occasion of the IEA conference, Rosenstein-Rodan his theory of the “big push” in the article “Notes on the Theory of the ‘Big Push.’” In the paper, the author substantiated his core argument that growth requires a simultaneous industrialization project planned and coordinated by the State,9 now applying it to the case of underdeveloped countries (Rosenstein-Rodan 1961, 58). In this paper, backwardness was characterized as a stage that should be overcome through a big push, i.e. a major industrialization drive that would be facilitated by the existence of technical progress already achieved by industrialized nations (Rosenstein-Rodan 1961, 57, 66–7).

At the conference, Furtado was in charge of debating his colleague’s work. His “Comments on Professor Rosenstein-Rodan’s Paper”, in addition to being circulated in the congress proceedings, were later translated into Portuguese and published in the journal Econômica Brasileira, which Furtado founded and edited from 1955 to 1964. In these comments, Furtado (1961, 67–8; 1958, 119–120) supported Rosenstein-Rodan’s argument regarding the role of a state-coordinated investment policy in overcoming stagnation and achieving development. However, he signaled some objections to his colleague’s analysis by emphasizing that the historical dimension of underdevelopment should not be disregarded, nor should the phenomenon of industrialization be confused with the development process that the central economies experienced during the phase of commercial capitalism.

Furtado reframed the discussion in different terms. Examining Rosenstein-Rodan’s central problem – the transition from a stationary underdeveloped economy to an economy in the process of growth – Furtado interpreted the author’s proposed solution as being surplus expansion. From this perspective, Furtado argued that it is not immediately necessary for this economy to increase its surplus – which would require an increase in productivity or the containment of consumption. To alter the structure of internal demand, it was essential to transform the “method of utilizing this surplus,” ensuring it is not diverted toward unproductive investments and consumption (Furtado 1961, 69–70; Furtado 1958, 121–2).

Following this reasoning, Furtado argued that these are issues that depend on the “role of the dominant groups in a society”: if the “prestige and power” of these groups are linked to the “ownership of a limited asset, such as land,” the surplus is used more unproductively than in the case of a dominant group associated to the commercial or industrial sector10 (Furtado 1961, 70; Furtado 1958, 121–2).

In view of this, Furtado’s criticism of the big push theory was that it suggests that mere large-scale action aimed at fostering capital formation is sufficient to overcome underdevelopment, when, in fact, the assimilation of foreign technology in such regions leads to an increase in the supply of labor, which is already abundant (Furtado 1961, 70, 73; Furtado 1958, 122, 125). This process, which occurs because technology has a historical-spatial dimension, reveals a context of “structural disequilibrium at the factor level”11 (Furtado 1961, 72; Furtado 1958, 124) – i.e., the mismatch between the technology being absorbed and the local availability of production factors. Accordingly, the theory “places too much emphasis on the problem of the indivisibility of processes” and “overlooks the broader aspects of social reform that are necessary if a stationary economy is to begin to develop on the basis of its own resources and incentives” (Furtado 1961, 71; Furtado 1958, 123).

Hirschman, working as a consultant for Rockefeller Foundation,12 was sent to Rio de Janeiro to participate in the conference, meeting Celso Furtado and other Brazilian economists such as Roberto Campos.13 Eugenio Gudin,14 and Alexandre Kafka.15 After Furtado’s remarks, a debate ensued among those present about the difference between the big push and balanced growth, as well as the role of economic overhead in economic development. Nurkse mentioned that the concept of balanced growth, which he agreed with and applied in his analyses, did not appear to be a necessary component of the big push theory (Ellis and Wallich 1961, 80). When Nurkse stressed that while making indirect investments ahead of demand can create excess capacity, this would actually be a real incentive for subsequent balanced growth, Hirschman intervened, stating that he doubted this was a general rule. Addressing the problem akin to Furtado’s, Hirschman argued that this would depend solely on the type of entrepreneurship available, since there is no fixed relation between overhead investments and other investments (Ellis and Wallich 1961, 80).

Another paper presentation that sparked significant debate was Nurkse’s “International Trade Theory and Development Policy”, in which the author presents his approach of balanced growth with diversification (Nurkse 1961). Participants present at the session intensely debated the author’s assertions regarding import substitution – Nurkse (1961, 254) considered it “relatively costly and inefficient.” The paper also receive comments from Eugênio Gudin and Maurice Byé16, who agreed with Nurkse on the role of savings in maintaining balance of payments equilibrium. Furtado disagreed with this perspective, suggesting that, regardless of voluntary savings, any shift from consumption to investment would mean an increase in imports in underdeveloped countries. In Furtado’s analysis, this justified a policy of import restrictions (Ellis and Wallich 1961, 273).

It is worth noting here that Furtado had already discussed with Nurkse about balanced growth through an academic exchange published in the Revista Brasileira de Economia, edited by Fundação Getúlio Vargas (FGV). Furtado responded to Nurkse’s 1951 Rio de Janeiro lecture series, published in the same journal, to which Nurkse subsequently published his rejoinder (FGV 1951, 11–190; Furtado 1952, 7–45; Nurkse 1953, 67–87). Furtado’s paper was intensely circulated and commented on, published in the International Economic Papers journal and later in the book The Economics of Underdevelopment, edited by Agarwala and Singh (1958) (Boianovsky 2010, 223–5; Szmrecsányi 2005, 690). Boianovsky (2010, 225) claims that Nurkse incorporated several parts of Furtado’s critique into his book Problems of Capital Formation in Underdeveloped Countries, “although without referring to Furtado.”

In the debate, Furtado contested Nurkse’s thesis that the conjunction of underdeveloped countries’ limited markets and productive structure’s technical indivisibilities generated a vicious cycle of poverty, resolvable solely through balanced growth. Furtado identified that an important factor in this dynamic was foreign demand. In this sense, demand would induce an increase in investments in some sectors, and the growth of these sectors would catalyze an increase in productivity in other sectors (Furtado 1952, 19; Bastos and Oliveira 2020, 14–6). Boianovsky (2010, 234) argues that this reasoning comes close to what would later be defined as unbalanced growth, a concept systematized only at the end of the decade by Hirschman.

Continuing the discussion of Nurkse’s paper at the IEA conference, Alexandre Kafka, Javier Márquez17, and José Antonio Mayobre18 also mentioned the importance of the import substitution production, highlighting that it could dynamically stimulate the economy, that increasing investment in the domestic market is often not feasible without this mechanism, and that import restrictions are a good option for generating foreign exchange (Ellis and Wallich 1961, 272–3). Hirschman added that “Nurkse seemed to have created a problem for himself, since he seemed to see no great prospects for expanding exports, and he disliked aggressive import substitution,” a valid mechanism for encouraging “entrepreneurs, because it offered them a ready market and a minimum risk” (Ellis and Wallich 1961, 273).

The concept of balanced growth also raised many doubts about its definition and the methodology to measure the degree of balance obtained. Flavián Levine19 mentioned that this measurement was necessary for the concept to be operational. Jacques Boudeville20 suggested that, at the theoretical level, it could be established that “a growth model that did not explode or oscillate might be said to possess balanced growth” (Ellis and Wallich 1961, 271–2). Hirschman added that the idea of balanced growth can also be applied to the process of recovery of a depression, although in this case the appropriate proportions were already known. He stated that the balanced growth process, as “cyclical upswing,” had not yet been explored and seemed “strongly impressed” by the difficulty of organizing this balanced growth process: according to Hirschman, “was it because the concept of balanced growth was basically unrealistic?” (Ellis and Wallich 1961, 272).

In The Strategy of Economic Development, Hirschman (1958) conceives economic development as a chain of disequilibria in which investment in one sector encourages the growth of another, in a series of backward and forward linkages in complementary productive chains. For Hirschman (1958, 25), “backwardness is due to insufficient number and speed of development decisions and to inadequate performance of developmental tasks,” that is, instead of summarizing the obstacles to economic progress – land tenure systems, administrative instability, lack of savings, etc. – Hirschman (1958, 26) summarizes it in a problem of “imperfections in the decision-making process.” Therefore, the problems of backward economies would be resolved through decision-making ability to coordinate development policies.

Regarding the decision-making process, one of the book’s central arguments concerns the inefficiency of the comprehensive planning model. According to Hirschman (1958, 205), “the very comprehensiveness” of some “plans can drown out the sense of direction so important for purposeful policy-making.” He recognizes that it is necessary to analyze the entire economy to define priority areas for the application of economic policies, but “once the choice is made” it is necessary “to concentrate on detailed concrete programs for these areas.”

Furtado published a critical review of The Strategy of Economic Development in the journal Econômica Brasileira in 1959, a year after the book’s publication. At first, Furtado (1959b, 64) commends his colleague’s ability to construct his reasoning unconstrained by abstract academic models – such as the “Harrod-Domar style”21 growth models –, thereby achieving a more nuanced understanding of the reality of underdevelopment. This approach transcends the mainstream corollary that attributes the “blame” to the capital scarcity, inability to save, or lack of technique. The author mentions that the book intends to strategically guide the “dynamic decision centers” regarding policies in underdeveloped countries; however, Furtado does not further elaborate on the conditions for the emergence and consolidation of such decision centers.

Finally, Furtado (1959b, 65, emphasis added) expresses that he agrees with Hirschman’s perspective on the structural nature of inflation and the disequilibrium of the balance of payments in Latin America; nevertheless, he is very emphatic in stating that “a large part of what is said in the book has already been said and repeated by Latin American economists.” Furtado emphasizes that the author “almost does not cite the Latin American bibliography, and, in particular, the CEPAL’s contributions,” which is “very well known to Hirschman.” More significantly, Furtado asserts that “it should be deduced that there is the intention of ignoring the contribution of the agency that acted as an authentic pioneer in the field of underdevelopment studies and, especially, in the analysis and interpretation of the Latin American economies.”

Although, in his review, Furtado expresses agreement with Hirschman’s main ideas in the book, he harshly criticizes the lack of citations from CEPAL as a political response to the neglect of the importance of the role of Latin American intellectuals and the thought produced in the periphery. Thus, interpreting his colleague’s choice as a decision to omit CEPAL’s theoretical contributions to the debate, Furtado seeks to demarcate a position of authorship of ideas on economic planning and development that were in dispute at the time.

Hirschman was, in fact, aware of this review. In his personal papers, we found a photocopy of Furtado’s review among other book reviews of The Strategy of Economic Development.22 Moreover, Hirschman was familiar with Furtado’s work in Econômica Brasileira and had even sent a response – published by the same journal at the end of the following year – to a review of another piece of his: the chapter Ideologies of Economic Development in Latin America, from the book Latin American Issues, published in 1961. The book was edited by Hirschman with contributions from other scholars. It was a result of a study group on Latin America organized by the Twentieth Century Fund between the end of 1959 and mid-1960.

The first chapter of the book, written by Hirschman, contains a summary of Latin American economic ideas. Hirschman (1961a, 8–9) begins by analyzing the works of social thought by Latin American authors from the late 19th and early 20th centuries that discussed topics such as the miscegenation of ethnic groups, the slavery of black Africans, and the integration of indigenous peoples into society, using concepts influenced by Darwinian biology and evolutionary psychology (Andrews 2022, 17). These authors attributed economic backwardness to people’s laziness, arrogance, lack of initiative, and racial inferiority (Schwarcz 2022, 583).

Based on these texts, Hirschman’s (1961a, 9) interpretation was that Latin America’s ideology23 about itself was self-deprecating. The author does not argue this solely using Latin American eugenicist social thought: Hirschman also cites the Venezuelan decolonial revolutionary Simón Bolívar in a document in which he condemns the lack of democratic institutions in Latin America. To explain this phenomenon, Hirschman uses Furtado’s (1959a) The Economic Growth of Brazil, in which the author elucidates that some of these Latin American writers had “their social roots among the large landholders and slaveowners” (Hirschman 1961a, 9), which explained the origin and motivation of this perspective and also the lack of interest in proposing an industrializing policy.

Hirschman conducts this retrospective in order to subsequently analyze what was being discussed in Latin America at the time, which consisted on the agenda set by CEPAL. The latter, according to Hirschman (1961a, 13), was a unique institution, whose attributes were not often found in other international organizations: “a cohesive personality which evokes loyalty from the staff, and a set of distinctive beliefs, principles and attitudes, in brief an ideology.” Based on CEPAL documents, Hirschman (1961a, 17–20) discusses how the institution’s ideology was forged and how it was used to elaborate guidelines for development planning – which involved government intervention both in the development of public industrial policies and in the regulation of participation in international trade with the aim of protecting industry.

Hirschman (1961a, 16) identifies that, as in previous approaches, the research problem continued to be the persistence of backwardness; however, CEPAL highlights that the reason for this was the insertion of Latin America in international trade, as well as the “misleading free trade doctrines” that were applied. Conversely, the author argues that CEPAL’s work on economic programming pointed in another direction, namely towards “an attempt to ‘reform’ certain inveterate traits” of Latin American countries, “which are felt to be hindrances […] on the road to economic progress” (Hirschman 1961a, 22–3). For that reason, in Hirschman’s (1961a, 23) interpretation, the institution’s perspective “rejoins essentially those earlier analysts of Latin America” previously analyzed by him, “who had concluded that the Latin American character has to be thoroughly remolded before anything useful can be achieved.” This confirms his initial hypothesis that, although CEPAL denies it, Latin American authorities continued to have a self-deprecating image of themselves.

The “self-deprecating” point raised above warrants further elaboration. Bianchi (2007, 132) identifies the books that comprise the economic development trilogy of Hirschman’s analysis of Latin America as The Strategy of Economic Development, Journeys Toward Progress, and Development Projects Observed. To this collection, we incorporate the present chapter, Ideologies of Economic Development in Latin America, from the book Latin American Issues. Bianchi (2007, 141–2) calls attention to the fact that the concepts of fracasomania and la rage de vouloir conclure, which we will address later when discussing the book Journeys Toward Progress, are already present in germinal form in The Strategy of Economic Development.

Nevertheless, we believe that such ideas were only fully elaborated in Journeys Toward Progress because of the historical analysis of Latin American thought that Hirschman formulates Ideologies of Economic Development in Latin America. In other words, it was in his 1961 chapter that the author first elaborated, from a historical perspective and a careful reading of the literature produced in Latin America, the issue of the self-deprecating view that Latin American countries had of themselves.

With these considerations in mind, Hirschman (1961a, 34) discusses the Brazilian case. The author mentions Furtado’s work at Sudene and highlights his optimistic perspective when describing how the country began to reap the rewards of investments made in recent years in the metallurgical, oil and capital goods industries. In opposition to the previous “hydraulic solution to drought problems,” implemented through the construction of dams in the region by other development agencies, such as the National Department Against Water Drought (Departamento Nacional de Obras Contra as Secas, DNOCS), Sudene proposed the industrial use of drought-resistant crops and the use of the humid coastal lands – which were largely used for sugarcane monoculture – for food crops (Oliveira 1977, 51; Callado 1960, 13).

Quoting directly from a paper by Furtado (1960) that Hirschman considers “impressively optimistic,”24 Hirschman points out that Brazil “conquered decision centers that previously were located abroad” (Hirschman 1961a, 35). It seems that Hirschman (1961a, 35) found it interesting that Furtado applied the Perrouxian-inspired concept of “decision-making centers” to the idea of reclaiming sovereignty and strengthening the role of domestic policymakers. Subsequently, Hirschman cites the concept again to say that the “conquest of decision centers” was “the aim of economic development”; tying together all the considerations made so far, he emphasized that the pursuit for development was “a quest for self-discovery and self-affirmation and thus comes to be indissolubly tied to a new nationalism which is so noticeable a feature of the intellectual scene in Latin America” (Hirschman 1961a, 36).

The engineer and co-editor of the journal Econômica Brasileira, Américo Barbosa de Oliveira, wrote a review of this chapter. Oliveira (1959, 133–4) disagrees with Hirschman’s interpretation of CEPAL and makes very virulent criticisms, suggesting that the author’s perspective on the institution was affected by “deeply rooted prejudices” and that the author’s “strong nationalist feelings” made it difficult for him to understand Latin America.

The version of the chapter reviewed in Furtado’s journal was a working paper. According to Hirschman (1960, 127), it was only a “preliminary draft” that he “distributed to receive suggestions from some friends,” that is, everything indicates that the author probably sent the copy to Furtado, who forwarded it to his colleagues at the journal. To his reviewer, Hirschman (1960, 127) responded that, after writing the manuscript, he “had the opportunity to travel around Latin America” and that he intended to “add to it some observations from articles and books not previously consulted, specifically recent papers by Celso Furtado.”

In the general scenario, it is possible to interpret that Hirschman absorbed criticisms that Furtado made in his review of The Strategy of Economic Development and in fact prepared an in-depth study not only of the contributions and history of CEPAL, but also of the History of Economic Thought in Latin America as a whole. Indeed, Bianchi (2016, 103) notes that while The Strategy of Economic Development only references two Latin American economists: Roberto Campos and Raul Prebisch. In Journeys Toward Progress, Hirschman expands his citations to include numerous Latin American thinkers as well as CEPAL studies, a movement that Bianchi (2016, 119) also attributes to an incorporation of critiques from Furtado’s review.

More than that, as Hirschman himself argues in response to Oliveira, he sought to incorporate contemporary papers by Furtado in his chapter. Although Hirschman sometimes makes an acidic interpretation of CEPAL’s discourse,25 motivations, and actions, we cannot say that he was in the spirit of confronting Furtado. First, because Furtado was no longer part of the institution. Second, because Hirschman points out his merits as a policymaker who worked to transform Brazilian reality. And, finally, because Hirschman shows that he respects him as an interlocutor by quoting him often throughout the text and elaborating several ideas based on Furtado’s observations.

It was not only Furtado who left an impression on Hirschman’s thinking; the opposite is also true. In Celso Furtado’s personal library, there are several books written by Hirschman, including Development Projects Observed, Latin American Issues: Essays and Comments, a Portuguese edition of The Passions and the Interests, a French version of The Rhetoric of Reaction, and two editions of the book The Strategy of Economic Development. Furtado’s personal library has been managed by specialized archival institutions since it was donated a few years after he died in 2004.26

Reflecting on the role of personal libraries can help us better interpret the materials found in Furtado’s collection. In his famous essay on unpacking his personal library, Walter Benjamin ([1931] 1969, 67) reflects that ownership is the most intimate relationship a collector has with his books: “not that they come alive in him; it is he who lives in them.” Alberto Manguel (2018, 5), in his book that tells the story of the packing of his personal library in France before taking over as director of the National Library of Argentina, confesses in the midst of some “digressions”: “I have often felt that my library explained who I was, gave me a shifting self that transformed itself constantly throughout the years.” Camlot (2022, 57), in reviewing some academic works of intellectual history that have used personal libraries as sources, expresses that “research about libraries (and personal libraries in particular) represents a rich combination of literary interpretation, librarianship, and archival analysis,” loosely naming this process the “sociology of texts.”

Diving into Furtado’s personal library is fruitful both to understand the construction of his universe of interests and convictions, and to unravel his reading process and the development of ideas at a specific moment. A fact that may go unnoticed, but which is quite revealing, is that Furtado owned two copies of the same book by Hirschman. Although he made few critical remarks in his review of The Strategy of Economic Development, this book was very important for his thinking. His two copies have marginalia and the title page signed. The first, written “Celso Furtado. Rio [de Janeiro], dez 1959” and the second, initialed “Celso Furtado. Yale, 64.” Bearing in mind that Furtado was exiled in 1964 and probably could not take his own books with him, it is noteworthy that the author not only bought – for the second time – the book at Yale,27 but also reread and highlighted other excerpts from the book.

When we seek to reconstruct the past through historical analysis, we often need to work from clues. When it comes to Intellectual History, when the author does not express it verbally, it is difficult to know exactly what impact a specific reading has on his worldview, or even on the elaboration of a concept, a theory or a policy plan. With this in mind, we believe that it is fruitful to employ Ginzburg’s (1989) idea of “conjectural paradigm” (paradigma indiziario)28 as an interpretative tool for analyzing the marginalia present in Furtado’s books. As personal objects, when someone makes notes in their books, they rarely do so with the expectation that other people will examine them. Since in this case writing and publishing are not mediators, we can get closer to Furtado.

The first edition of the book that belonged to Furtado, i.e., the one signed with the date 1959, presents pencil highlights in several passages of nearly all the chapters of the book, which indicates that Furtado read the entire book and marked the parts that caught his attention the most. One section of the book where we can see a large amount of pencil marks is the one that refers to the definition of induced investment. Furtado highlights the part where Hirschman defines the concept of induced investment as “the provision that the projects that fall into this category must be net beneficiaries of external economies” (Hirschman 1958, 71)29. We can also find highlights in the example that Hirschman (1958, 70) gives about the phenomenon of increased demand for beer influencing the installation of a brewery and having the capacity to boost an entire production chain, leading to the creation of a national bottle industry and the expansion of barley cultivation.

In connection with this theme, Furtado also highlights an excerpt in which Hirschman (1958, 79) states that the issue of the priority of investment choices “must be resolved on the basis of a comparative appraisal of the strength with which progress in one of these areas will induce progress in the other.” Furthermore, Furtado also underlines the passage in which Hirschman (1958, 100) defines the backward and forward linkage effects, which have the potential to combine within directly productive activities.

Furtado also highlights the excerpt in which Hirschman (1958, 94) claims “the argument in favor of development via SOC [social overhead capital] shortage” – i.e., that the expansion of directly productive activities must be undertaken first, in view of their potential to boost the installation of social overhead capital – “applies with particular force to an underdeveloped country’s own backward areas.” This means that Furtado is interested in Hirschman’s perspective on the topic not only within the problem of development, but also of regional inequality presented in underdeveloped countries.

It is pertinent to compare Hirschman’s proposals on the ideal procedure for a policymaker in charge of planning an underdeveloped economy with the Sudene’s First Master Plan, prepared by the Sudene Deliberative Council, with Furtado serving as its representative and primary author. In the section of the Plan dedicated to industry, it is stated that Sudene ([1961] 1966, 155) intends “to coordinate and manage a set of incentives for private investments,” unifying exchange, tax, and financial incentive policies. The priorities would be, in addition to infrastructure projects and activities linked to the supply of food – for instance, agriculture, livestock agriculture and manufacturing –, “basic industries that use local raw materials on a large scale and that have a germinative nature, enabling the installation of other industries and the integration of the economic system” (Sudene [1961] 1966, 155, emphasis added). Indeed, the projects “classified under the essentiality criteria” focused on processing industries capable of generating backward linkage effects that would stimulate further investment in regional agricultural production (Sudene [1961] 1966, 153).

In Sudene’s First Master Plan, Furtado also pays attention to the steel industry. In addition to an entire section planning the survey and use of the region’s mineral resources, he also dedicates a few pages to outlining the guidelines for the implementation of the steel industry, establishing “a specialized group with the objective of investigating the possibilities of installing” the steel industry in the Northeast, already anticipating that the studies “lead to optimistic preliminary conclusions” (Sudene [1961] 1966, 155).

The steel industry induces more forward linkage effects than backward linkage effects, which would not be ideal from Hirschman’s perspective. However, in Furtado’s copy of The Strategy of Economic Development, he underlines a remarkable passage in which Hirschman (1958, 108) states that “in any event it is interesting to note that the industry with the highest combined linkage score is iron and steel. Perhaps the underdeveloped countries are not so foolish and so exclusively prestige-motivated in attributing prime importance to this industry!”

Despite all these examples, it is not possible to assert that Furtado subscribed to all the passages that are underlined in his copy of The Strategy of Economic Development. Among them, it is possible to highlight the passage already mentioned above in which Hirschman (1958, 205) disagrees with comprehensive planning: Sudene was founded under a comprehensive plan.

Furthermore, Furtado also highlighted another passage in which Hirschman (1958, 194) states that it is not ideal to attack the problem of regional inequality by making public investments in infrastructure available to the affected region “because of the weakness of its entrepreneurship and the purely ‘permissive’ character of the inducement mechanisms set in motion by these investments.” In the base document for the creation of Sudene, Furtado argues that it is important for the government to invest in infrastructure, since, given the volume of resources needed to implement such services, the private sector tends not to take charge of this (GTDN 1959, 54–6).

In 1960, Furtado and Hirschman began to correspond, due to the latter’s interest in the former’s work at Sudene. In 1963, Hirschman published Journeys toward Progress: Studies of Economic Policy-Making in Latin America, with a dedication to Furtado.30 To write this book, Hirschman (1963, ix-x) conducted field research in Brazil, Colombia, and Chile in the summer of 1960. In these countries, the author interviewed “numerous government officials, political, business and labor leaders, intellectuals, and economists,” with the intention of discovering whether there was a Latin American style or strategy of policymaking/problem-solving.31

The author addresses the problem of drought in the Brazilian Northeast, inflation in Chile, and land use and land reform in Colombia. By studying these cases, Hirschman (1963, 2) sought to understand when and how different repetitive and persistent issues became a problem, whether there was a learning process in attacking such problems, and what the role of foreign advice was. The author later resumed his travels in the summer of 1962, both to resolve other questions that had arisen while writing and to keep up to date with the latest developments that had occurred in these countries.

Hirschman (1963, 7) argued that this book was relevant “to the current Latin American scene and to United States policy,” given that the U.S. government was “embarked on a uniquely daring venture with its Alliance for Progress.” Nevertheless, Hirschman (1963, 5) works with a research hypothesis that runs counter to U.S. exceptionalism32 by claiming that “the existence of defects in political structure does not constitute an absolute impediment to progress.” Therefore, rather than discovering the prerequisites for development, it is better to seek “to show how a society can begin to move forward as it is, in spite of what it is and because of what it is” (Hirschman 1963, 6, emphasis in original).

In this book, the author develops the concepts of la rage de vouloir conclure and fracasomania. The former, inspired by Flaubert’s novels and loosely translated by Hirschman (1963, 238) as “the mania for wanting to conclude,” refers to the “distinctive phase of the problem-solving process engaged in by latecomers” (Hirschman 1963, 240). This phase is marked by the eagerness to address the nation’s pressing issues with superficial remedies rather than substantive reforms, without a deep understanding of the problem. Thus, when the problem persists, instead of conducting a thorough diagnosis and assessment, policymakers seek another fundamental solution, often based on foreign experiences. In this sense, “genuine learning about the problem will sometimes be prevented not only by the local policy-makers’ eagerness to jump to a ready-made solution,” but also by the interference of foreign countries offering help and advice frequently misaligned with local realities (Hirschman 1963, 239).

The first concept is strongly connected to the second, fracasomania, which arises from disappointment with a policy that failed to solve the problem: it “will be emphatically cast off, ridiculed, described as an utter failure and abomination” (Hirschman 1963, 241). Policymakers will then seek the next comprehensive solution without evaluating what positive aspects the policy can bring or what has been learned from it. The origin of this complex is not simply a propensity for catastrophism, but rather ignorance of past experience.

During the writing of the book, Hirschman sent Furtado his drafts for his comments. Its first chapter, Brazil’s Northeast, deals with the historical problem of underdevelopment in the Brazilian Northeast and the obstacles of drought since the 19th century. It concludes with the creation and performance of Sudene, the political confrontations and the role of Furtado as Superintendent. Hirschman (1963, 13–8, 24) makes a profound study of the region: he presents details of the biome and climatic characteristics, introduces Brazilian national politics and the establishment of the Drought Polygon, narrates the issue of land use, sugarcane monoculture and the scarcity of food production in the semi-arid region, and discusses the political issue of the construction of dams and the diversion of public funds intended for immediate relief to the affected population.

The author identifies two main points based on the historical study of policy efforts focused on the region: “a bad drought year usually jolts the government into a major new effort”; and “the presence of a Northeastern in a key government position is most helpful in producing forceful action” (Hirschman 1963, 18). It is from this perspective that Hirschman (1963, 58–65) portrays the intermittent actions of investments and interruptions of works in the region, also pointing out the context – of response to the crisis – of the creation of institutions such as Bank of the Northeast (BNB) and Sudene.

Throughout the letters between Furtado and Hirschman,33 it is possible to verify the exchange of original works by both authors and papers written by other authors. In the Letter of July 7, 1960, along with some documentation, Furtado writes to Hirschman: “I am indeed very happy to make available to you all the information existing in Sudene that may be useful for the purposes of your study” (Furtado 2021, 256). In Hirschman’s reply of November 23, we learn that among the materials sent was a book by Antônio Callado34 and, when speaking of his trip to the Northeast, he mentions his meeting with Furtado: “let me say once again how much we enjoyed our conversations with you and how useful they were in setting the stage for our questions during the month we spent in Brazil” (Furtado 2021, 257).

During his time in the Northeast, Hirschman interviewed Furtado to gather more information about Sudene’s experience. The interview manuscripts have some interesting notes, as Hirschman realizes that it “might be [an] idea to start by saying that [the] N.Y. Times has recently ‘discovered’ the NE [Northeast] problem when actually it has been with us for over 1 century,” and then claims that “in U.S we get sensitized to problems when communists show up.”35 Hirschman was referring to the commotion caused in the American press by the discovery of the Peasant Leagues and their leader Francisco Julião, who fought for agrarian reform in the Brazilian Northeast by employing communist rhetoric and symbols associated with figures like Fidel Castro.

Later, in Journeys Toward Progress, Hirschman (1963, 277–85) was able to place this specific regional issue into a larger international politics framework, developing a game-theory-style model – Engineering Reform with the Help of the Perspective of Revolution – in which the policymaker plays on communist panic to gain bargaining power in order to implement a public policy. This was exactly what Furtado tried to do at Sudene to gain support for his project. On several occasions, Furtado overstated the power of the Peasant Leagues, to seize power and spread communism throughout the country. Although he did not believe this,36 Furtado even circulated articles internationally – under the title of “Brazil: What kind of revolution?” (1963) – claiming that Brazil has “an important segment of the population with a Marxist-Leninist bias which, given certain conditions, might be able to take the lead in the Brazilian revolutionary process” (Furtado 1963, 534).

Based on this game-theory-style model, Hirschman calculates the various possibilities of acceptance of sweeping reforms, moderate reforms, or permanence of the status quo based on the reaction to the prospect of communist revolution, considering situations in which the reformer speaks to conservatives about the imminence of revolution and to progressives about the remoteness of revolution. Hence, the results depend on the reformer’s power of persuasion and the willingness of the Parliament to accept revolution or fight against it.

When analyzing Sudene’s trajectory, Hirschman highlighted the importance of the support of various groups for the project, such as the recently elected “reform” governors (Hirschman 1963, 82), the Catholic Church, the Congressmen from Brazilian Center-South region (Hirschman 1963, 85), the federal government and the public opinion (Hirschman 1963, 86). In the same vein, the author highlights the role of “indirect help” of the Peasant Leagues, whose formation and dissemination “may have entered to some extent into the awareness of danger and emergency which no doubt was an essential element for the situation that produced Sudene” (Hirschman 1963, 84).

In the final chapter of the book, Hirschman (1963, 256) interprets his case studies and presents some reflections and proposals for his “reformmonger’s manual.” He refutes the idea that revolutions are violent and reforms are peaceful, arguing that reform also coexists with violent elements. To this end, he mentions the northeastern droughts, where hungry and thirsty people resorted to looting food stores. Those episodes of decentralized violence were not enough to demonstrate the need for action by public authorities. The popular protest was only understood as a concrete threat after the popular organization in the Peasant Leagues. Accordingly, Hirschman (1963, 258) explains that, although the creation of Sudene was mainly in response to the 1958 drought, the threat posed by the Leagues’ growth “strengthened the agency, which could now claim that its reform program represented the only alternative to a violent and disorderly change in the existing power structure in the Northeast.” Therefore, we have elements to argue that Hirschman derives his game-theory-style model directly from the dynamics observed between Furtado, Sudene and the Peasant Leagues – both during his research trip and through the interviews and conversations he held with Furtado.

In another letter dated August 21, 1961, Hirschman raises some questions about the Irrigation Law,37 pointing out that land expropriation through compensation already existed in the old legislation, which means that the new irrigation bill supported by Sudene was not necessary. On September 12, Furtado responded to the questions, arguing that, although the legislation existed, it was not enforced under those political conditions. In this same exchange of letters, we can see Hirschman requesting other documents from Furtado, who assured him that he would send them if he found them (Furtado 2021, 257–9).

On January 29, 1962, Furtado wrote thanking Hirschman for the copy of the first chapter of Journeys Toward Progress and praising his work38. He suggested that the phase of “technical irresponsibility” of DNOCS be contrasted “with the previous one, particularly the period of Luiz Vieira” – which Hirschman actually did.39 Furtado also sent Hirschman the text of a conference that he had presented in São Paulo that week. This text was Reflexões Sobre a Pré-Revolução Brasileira (1962) – the first chapter of the book A Pré-Revolução Brasileira –, the early version of the paper mentioned above, “Brazil: What kind of revolution?”. In the letter of February 28, 1962, we discover that Hirschman helped Furtado with the international publication of this paper in Foreign Affairs, acting as an intermediary between Furtado and the journal.

Throughout Journeys Toward Progress, Hirschman cites several of Furtado’s works: the report Furtado produced on behalf of the GTDN (1959), the conference he presented that was published under the title A Operação Nordeste (1959), the debates in which Furtado was a rapporteur at the Seminar for the Development of the Northeast (1959), and the book A Pré-Revolução Brasileira (1962).

This explains Hirschman’s Furtadian interpretation of the regional issue in the Brazilian Northeast, which refers mainly to a political issue: “it concerns a geographical region removed from the main centers of political power and active economic growth” (Hirschman 1963, 17). Hirschman (1963, 36) connects this interpretation of the Northeast to the one presented in his previous book. The author mentions the passage from The Strategy of Economic Development that explains the regional distribution of public investment and reiterates that when a wealthier region of the country is developing and a poorer region is stagnant, the latter tends to be neglected in its public investment needs.

Hirschman even suggests the existence of “regional underdevelopment” – a fundamentally Furtadian interpretation of regional inequality – in some passages, when he states, “the problem of drought has been subsumed in the larger problem of underdevelopment of the entire Northeastern region, of its wide lag behind the vigorously growing Center-South of the country” (Hirschman 1963, 13). The adoption of the term “underdevelopment” is interesting because the use of this term to address the issue of regional inequality within the same country was not so common in the literature: it was generally discussed in terms of “polarized regions”, “backward regions” and, in some cases, “less agglomerated regions”. It is worth noting that Furtado, in his technical work at Sudene, always treated the case of the Northeast as an underdeveloped region within an underdeveloped country.40

We can also identify some theoretical transformations regarding Hirschman’s position on comprehensive planning. Departing from the stance taken in The Strategy of Economic Development, Hirschman acknowledges in Journeys Toward Progress the quality of comprehensive planning in connecting coordinated actions to solve multiple problems, without the emergence of major political opposition. The explanation is that powerful groups that oppose the change of a specific structural problem would not be willing to engage in a broader conflict to fight against the plan as a whole (Hirschman 1963, 80; Alacevich 2016, 33).

Furthermore, when there is a consensus that a “particularly glaring abuse needs to be corrected, a favorable opportunity exists for slipping in reform measures on which opinion is far less crystallized” (Hirschman 1963, 80). Hirschman (1963, 81) describes this as Furtado’s tactic when he linked the problem of agricultural diversification in the Zona da Mata region with the operations of DNOCS: the plan received no retaliation from the sugar landowners because they did not want to associate themselves with the tarnished image of DNOCS.41

Therefore, “Furtado’s program,” in Hirschman’s (1963, 80) view, “justified its claim to represent comprehensive planning by proposing solutions to both old and new problems and by forging links between problems that up to then had led independent lives.” The project combined the goals of several institutions42 to construct roads and dams, develop the São Francisco Valley region with its resources, promote industrialization based on xerophilous plants, and diversify agriculture. For Hirschman (1963, 231), the combination of all these problems in a comprehensive plan is “a tactical gamble that paid off,” or rather, “a generalized device for indirectly achieving recognition for the stepchild problems of a society which lacks in the manifold linkage and access mechanism of Western-type democracies.”

Hirschman’s study of the comprehensive planning method of Sudene enabled the construction of a theory about the challenges of economic policy in underdeveloped regions. Thus, we argue that it is possible to infer that the intellectual exchange with Furtado was also important for Hirschman.

On May 26, 1964, Hirschman wrote to Furtado conveying his solidarity and expressing his “deep disgust at the measures that have been taken against” Furtado. Furtado had recently been exiled after the coup d’état in Brazil and was welcomed at Yale’s Economic Growth Center, whereas Hirschman had just accepted an offer to join the faculty at Harvard. In the letter, Hirschman raised concerns about the situation of authoritarian turns in Latin America and the failure of the democratic left, and encouraged his friend to write an interpretation of the events. He reiterated that “friends at Stanford, Harvard, not to mention Columbia,” have requested his “help in preparing offers” for Furtado, and that he had “made the right decision” in choosing Yale. Still, he noted that they would not have the opportunity to see each other much that year, given that he was “beginning a study of selected World Bank projects” and would be “on the road almost the entire year, in Latin America, Asia, and Africa” – a project that would become the book Development Projects Observed (Furtado 2021, 262–3).

Furtado actually wrote his interpretation in a document published by the Economic Growth Center in April 1965. Entitled “Political Obstacles to Economic Growth in Brazil”, the paper sought to identify “the reasons why the country has so far failed to formulate and consistently follow a policy of development” (Furtado 1965a, 252). Furtado (1965a, 253) analyzes Brazilian economic and political history to argue that, historically, “Brazilian economic policy has been controlled by groups directly concerned in defending their sectional interests.” The author explains that these groups were mostly part of a rural oligarchic elite, so that industrialization in Brazil “was a by-product of measures taken to favour the traditional agricultural export-economy”43 (Furtado 1965a, 257).

According to Furtado (1965a, 259), the Brazilian political system was backward both due to the absence of an “ideologically inspired and politically active industrial-class” and due to the 1946 Federal Constitution, which supported the power of the rural oligarchy. Moreover, the legislative houses refused to carry out tax reform, a resource that would allow the State to increase its financing capacity for new investments and public works.

Furtado (1965a, 264–5) cites the example of Sudene, which was created to overcome the problem of inefficiency of numerous federal agencies operating in the area under the control of local political groups, arguing that “it proved almost impossible to wind them up.” This situation created a vicious circle, in which the capture of development-promoting agencies by the interests of rural oligarchies created administrative incompetence, which in turn reinforced regional power centers. On a national scale, all these political impasses lead to a “stalemate in the proper functioning of the basic institutions in which government is vested, creates favourable conditions for the military arbitration,” as was the case in Brazil.

This article illustrates the fact that Furtado sought in the history of Brazil and in the configuration of its political system the reasons that explain his setbacks as head of a regional development agency whose work had been interrupted by the outbreak of the military dictatorship. We can interpret this search for answers in Furtado’s reading of other works, such as the book The Strategy of Economic Development, which Furtado bought for the second time in 1964 and reread.

In the very first chapter of Furtado’s second copy of The Strategy of Economic Development, we can see underlining in the passages that point to the responsibility of the entrepreneurial figure in promoting development. Furtado marks the passage: “among the proximate causes of economic development, the supply of entrepreneurial and managerial abilities now occupies in official documents a position of pre-eminence at least equal to that of capital” (Hirschman 1958, 1).44 In the following pages, Furtado highlights the passages where Hirschman (1958, 6, emphasis added) writes that in an underdeveloped economy there is “unutilized ability to save, latent or misdirected entrepreneurship, and a wide variety of usable skills” and draws an asterisk on the line where the author highlights the need for a “binding agent.”

Furthermore, when Hirschman (1958, 16–7) discusses the notion of the individualistic entrepreneur and argues that only the qualities of leadership, inventiveness and willingness to take risks are remembered, the author lists other important qualities of an entrepreneur to contribute to economic development. Furtado highlights them almost entirely: “the ability to engineer agreement among all interested parties, such as the inventor of the process, the partners, the capitalists, the suppliers of parts and services, the distributors”; the ability “to enlist cooperation of official agencies in such matters as customs duties, permits, exchange control regulations”; and “the ability to bring and hold together an able staff, to delegate authority, to inspire loyalty, to handle successfully relations with labor and the public, and a host of other managerial talents.”

Furtado is also concerned about the role of policymaking in promoting investment. In the section where Hirschman (1958, 41) examines the complementarity effect of investment, Furtado highlights the excerpt in which it is written that “the expanding ability to invest may be considered to supply the necessary and sufficient condition for investment to come about” and writes, in English, next to it: “so the problem is to foster that ability or to organize it through the State.”

A quite revealing passage that Furtado underlined in Hirschman’s book is: “while the possibility of decay and stagnation has long been recognized, it has been seriously studied only for the mature economies of Western Europe and the United States” (Hirschman 1958, 45). This excerpt is inserted in the context in which Hirschman explains the forces corroding development, in which the author highlights obstacles that can block development, or even hold it back once it has begun.

It is worth noting that, in November 1965, Furtado published the paper “Development and Stagnation in Latin America: a structuralist approach” (1965b) in the American journal Studies in Comparative International Development. In this paper, Furtado developed a stagnationist model that was later published in the book Underdevelopment and Stagnation in Latin America ([1966] 1968).

His argument was that progress in the import substitution process at the level of the industry producing equipment and durable consumer goods was causing a stalemate in the peripheral economies. The reason for this would be the incompatibility between the minimum efficient scale for production in these industries, as well as their high investment costs, and the size of the market, given the problems of income concentration and insufficient financing mechanisms. Thus, production in these industries would be carried out below the minimum efficient scale and with high final prices, which would erode the output/capital ratio, leading to a decline in the profit rate and a tendency towards stagnation (Furtado 1965b, 167–74).

Beyond the issue of stagnation, Furtado is also interested in Hirschman’s critique of balanced growth. Hirschman (1958, 56) criticizes centralized investment planning, arguing that the case for it would only be convincing if, in the dynamics of production, only external economies were internalized, so that external diseconomies remained external to the central authorities. Furtado reiterates his position in favor of centralized – and comprehensive – planning, writing next to it: “if we are absorbing known technology couldn’t this be done to a significative point?”

Stressing, once again, his disagreement with Hirschman (1958, 61) in this sense, the author highlights the excerpt that “a society that centralizes investment decisions may therefore be expected to be biased against innovations whose introduction might cause losses to existing operators” and writes below: “think necessary to consider as special case economies underdeveloped (absorbing a technology known in these effects in different directions).”

Finally, in Furtado’s copy of the chapter on backward and forward linkages, Furtado highlights some passages identical to those he had highlighted in the previous book, such as when Hirschman (1958, 100) defines the backward and forward linkage effects, and when Hirschman discusses the importance of the steel industry for underdeveloped economies (Hirschman 1958, 106).

Through these notes, it is possible to identify a reorientation in the issues with which Furtado was concerned in both periods. We notice that the interest in operational development issues remains; however, the author focuses less on backward and forward linkage effects and emphasizes more the role of the entrepreneurial agent and the limits and possibilities of investment.

So far, we have argued that Furtado’s engagement with Hirschman’s work was important for Furtado to elaborate elements of Sudene’s policy and, subsequently, to contemplate the deeper political issues that contributed to the military coup.

We also argue that the contact between the two economists, as well as Hirschman’s travels to Northeast Brazil, was important not only in motivating Hirschman to deepen his comprehension of Latin America based on the knowledge produced by Latin Americans, but more importantly, allowed him to formulate new concepts and models to interpret the implications and practices affecting decision-making process in underdeveloped countries. Nevertheless, we contend that the most evident impact of Furtado and Sudene on Hirschman’s work is reflected in the transformations of his foreign aid analysis.

The issue of foreign aid is particularly significant from our perspective, given that Sudene diverged – regarding its goals and the scope of their projects – from the United States’ foreign aid missions that arrived in Brazil in 1961–1962 under the Alliance for Progress framework. Relations eventually deteriorated to such an extent, and the situation became so unsustainable, that the United States began to compete with Sudene and actively hinder the institution’s work by financing competing state governors and municipalities (Roett 1972).

Before that, in the early 1960s, the Hirschman was already attempting to formulate interpretations regarding the Alliance for Progress. In an article for The Reporter magazine, Hirschman (1961b, 20) points out that the program represented a “vast improvement over past doctrines which held that Latin America’s economic development could safely be left to private capital.” The author emphasized that financing equipment and machinery for government-controlled companies represented significant progress, along with the guideline that the purpose of foreign aid was to implement fundamental reforms in the social structure of Latin American countries.

However, the author raised several reservations regarding the requirement that the donor country have sound projects and a general economic policy favorable to development, that is, controlled inflation and openness to foreign capital. Hirschman’s (1961b, 21) concern was that, in Latin America, these requirements “are frequently alleged to have included not only the nondiscriminatory treatment of foreign capital and a minimum of stability in the relevant legislation, but also the readmission of private capital” into areas of state-controlled economic activity, given their centrality to the sovereignty of nations, such as oil.

Thinking precisely about national sovereignty, Hirschman (1961b, 23) draws attention to a fundamental issue: “the whole idea of a new alliance, be it even an ‘alliance for progress’, may not strike the right tone,” since Latin American nations were not interested in building alliances with the United States or the Soviet Union. An “independent and somewhat unpredictable course” between the two main centers of power was more beneficial to their bargaining power, as they “desperately want to find their own way to modernity and development.”

Hirschman makes similar reflections on the dilemma regarding foreign aid and sovereignty in a later article, published in Development in the Emerging Countries in 1962, in response to John Kenneth Galbraith’s paper, “A Positive Approach to Foreign Aid”. The author states that consensus on a development program is effective only when there is a “complete meeting of minds” between the authorities of the donor and recipient countries. However, not agreeing on a development program and still cooperating is even more important and enriching, considering that “it may be useful to identify different types of aid policies appropriate to different constellations so that we will stop looking for the one best policy applicable to all possible circumstances” (Hirschman [1962] 1971, 187).

Later, in 1965, after some years of observing the operationalization of the Alliance for Progress, Hirschman’s interpretation of the problems between the United States and Latin America within the Alliance for Progress was that they were “out of phase with one another.” In an opinion piece published in Encounter magazine in September 1965, Hirschman (1965, 21) asserts that the disagreements were the result of “misinterpretation and misunderstanding” compounded “by a disparity in thinking about economic development,” since the U.S. government prioritized investments in “human capital” over physical capital. In response, Latin American leaders began accusing U.S. policymakers of “neglecting ‘basic development’.”

Hirschman (1965, 21) agrees that the practice “of the Alliance for Progress lent itself easily to such an interpretation.” Considering that central governments have failed to implement many of the suggested reforms, “the various Washington-based aid-granting agencies could only cooperate with a progressive state government here or an enterprising municipality there.” The author concludes that, although the pursuit of numerous overarching objectives alongside the implementation of radical systemic reforms sealed Alliance’s failure, Latin America was experiencing a process of social transformation driven by it. The author posits that if such transformations are genuine, “the U.S. is bound to show understanding and to lend support, and American public opinion could regain sober confidence in the substance of the Alliance” (Hirschman 1965, 23).

In 1967, Hirschman traveled to Brazil with the support of USAID (United States Agency for International Development) to study the tax mechanisms of investment incentives formulated by Sudene, resulting in the paper “Industrial development in the Brazilian Northeast and the tax credit scheme of article 34/18,” first published in Portuguese in the Revista Brasileira de Economia (1967) and, a year later, in The Journal of Development Studies (1968).

In the paper, Hirschman (1967; 1968) analyzes article 34 of Law No. 3.995 of December 14, 1961, which approved Sudene’s First Master Plan, and article 18 of Law No. 4.239 of June 27, 1963, which sanctioned the program for the years 1963 to 1965. Together, they became known as “fiscal incentives of Article 34/18,” which functioned as a mechanism to encourage investment in the region through tax credits. These regulations derive from the guidelines developed in the Master Plan by the Council. As mentioned previously, Furtado coordinated this planning process.

According to article 34 – which Furtado (2014, 314) mentions is inspired by the Italian legislation of the Cassa del Mezzogiorno –, Brazilian legal entities could deduct up to half of their taxable income, provided that they invested the same amount in projects approved by Sudene for the Northeast. This investment would be exclusively financial, in shares without voting rights. The amounts from these deposits would be collected in a BNB fund and, if they were not applied to projects within three years, they would be returned to the National Treasury45. These projects would be designed and executed by a different group of companies, which would benefit from such financial deposits and control the undertaking. However, according to article 18, for these projects to be approved by Sudene, the beneficiary company would need to invest a significant portion of its own capital46.

Hirschman (1968, 5) made an in-depth analysis of the laws and its mechanisms of operation and, in his perspective, the Article 34/18 mechanism “has become a complex legal, administrative and institutional system,” considering that it “activates the investment decision, but does not impair essential disciplines making for efficient firm behaviour” (Hirschman 1968, 22). The reason for this is that the mandatory investment of own resources stimulates the competitiveness of the enterprise’s management.

Hirschman (1968, 26) concludes by suggesting that “this particular policy instrument” could be “attractive to ‘developers’ in other lands.” Therefore, the author advocates for the “application of the tax credit device on the international scale” (Hirschman 1968, 27, emphasis in original). He proposes that this mechanism be implemented in “international development aid,” arguing that this topic urgently needs “institutional imagination,” and the device is promising “since it has already proved itself in the context of inter regional development” (Hirschman 1968, 27).

In July 1968, Hirschman followed the research agenda he had previously proposed by publishing “Foreign Aid: A Critique and a Proposal”. This paper is divided into two parts: in the first, the author criticizes the U.S. foreign aid programs of the 1960s; and, in the second, Hirschman proposes an alternative based on the tax credit mechanism of Article 34/18 of Sudene.

In the paper, the author condemns that U.S. foreign aid policy has served as an instrument to increase the country’s power and influence at the expense of the poorest countries. Hirschman (1968, 3) states that this kind of policy was never “firmly institutionalized” in the country, having been “bolstered from time to time by cold-war conflicts and then flagging again as immediate dangers passed.”

From this perspective, Hirschman recognizes the harmful practices of the type of aid offered to Latin America through the Alliance for Progress. The resources made available would be provided “not only in connection with a broad agreement on economic-development objectives,” but also in line with advances in social development that would only be possible through the “enactment and implementation of reforms in land tenure, income taxation, educational opportunity, and the like” (Hirschman 1968, 5). Therefore, the author argues that “a country which permits its key economic policies to be determined by this type of international negotiation finds itself in fact in a semi-colonial situation” (Hirschman 1968, 11, emphasis added).

When analyzing the issue of foreign aid from the perspective of a colonial relationship, Hirschman makes categorical and forthright criticisms. The choice of this term is deliberate, since the author repeats it when addressing the issue of relations between the mission’s technical delegation and the government of the recipient country. Hirschman (1968, 13) argues that “it is in the nature of the aid relationship that comparatively low-level officials of the donor country are paired off in aid negotiations with high-level officials of the recipient countries.” In some cases, the delegation will discuss directly with central authorities, such as the President of the Republic and the Minister of Finance, so that it “recreates a typical colonial situation in which the rulers of the recipient country have to deal as equals with, and often feel that they have to take orders from, persons who, within their own country, are miles away from the seat of power” (Hirschman 1968, 13, emphasis added).

Presenting a solution to promote foreign aid while preserving the sovereignty of the recipient country, Hirschman (1968, 16) proposes the tax-credit mechanism, referencing the contribution of Sudene: “the tax-credit mechanism and a number of the other points made here were suggested by the remarkable effectiveness of a somewhat similar Brazilian scheme for regional development.” Its use would solve the main problems identified: transferring a substantial volume of resources to underdeveloped countries without tying the transfer to a prior consensus between donor and recipient countries regarding key economic policy matters, while simultaneously compelling recipient countries to make efficient use of the resources.

Hirschman’s (1968, 15) suggestion is to include taxpayers from donor countries in the process of donating funds for foreign aid, allowing them to choose “to use a limited portion of their income-tax obligation for contributions to one or several World Development Funds.” In exchange, they would receive a “full tax credit from the International Revenue Service” (Hirschman 1968, 15–6). Hirschman (1968, 18) also proposed, after considering some alternatives for allocating the deposits, establishing a series of independent private organizations, the “Development Funds,” to receive and distribute the resources raised through the deposits.

Two restrictions inspired by the legislation drafted by Sudene safeguard the responsible and efficient use of resources. The first is that, given that the main objective of the Development Funds is to transfer resources to poor countries as quickly as possible, if the deposits could not be transferred within three years, the money would revert to the Treasury. Hirschman (1968, 18) explains that “this three-year rule applies in the Brazilian scheme for the development of the Northeast.” The second is that the Funds’ investment policy must select only projects partially financed by another local organization, so that the recipient country, also bearing the cost of capital, ensures the efficient use of resources (Hirschman 1968, 19).

Hirschman (1968, 24) concludes by stating that several points proposed in the paper require “further thought,” and although the overall scheme “may seem overgenerous to the developing countries,” he is convinced that “such generosity is in the best interests of the aid-giving countries themselves.” Interestingly, in early October of that same year, Hirschman sent a letter to Senator James William Fulbright47 with the paper attached, announcing that in the work, he explored “some of the disturbing political side effects” of American foreign aid policies. In the letter, he expresses his uncertainty about the proposed alternative, stating that it “may be politically unrealistic, but I thought it worth throwing into the debate.” Hirschman’s letter was responded to by an aide to the Senator, thanking him for the material.48

Later, in 1973, the Committee on Foreign Relations, chaired by Fulbright, prepared a document titled Views on Foreign Assistance Policy, in which a number of “knowledgeable people” were invited to contribute “their views on what is wrong with the current policy and what we should do in this field in the years ahead.” The comments, published in the document, were used to foster “a better informed public dialog on foreign assistance issues and thus assist the Congress in shaping a new program” (Fulbright 1973, v-vi). The committee solicited comments from 70 intellectuals and organizations, including Albert Hirschman (Fulbright 1973, 343), but he apparently did not respond, since, according to the document, the 24 published responses were the only “substantive replies” received (Fulbright 1973, vi).

Notably, Hirschman not only offered a rigorous critique of how U.S. foreign aid was operationalized, but also proposed an alternative, more equitable framework for recipient nations. Significantly, he demonstrated commitment to implementing these reforms beyond mere rhetoric by advocating for their congressional consideration. In this context, we may interpret that the Sudene case provided Hirschman with intellectual frameworks that informed both his diagnosis of the problem and his formulation of solutions. Both because the deterioration of political relations between Brazil and the United States in the early 1960s considerably impacted the nature of the activity developed at the institution, but mainly because the intellectual innovation developed by Sudene was systematically incorporated into Hirschman’s work.

Throughout the paper, we have established how the contact between the two authors occurred and suggested that this contact, at least in part, may have inspired the writing of The Strategy of Economic Development, especially in the argumentative sense of diverging from Rosenstein-Rodan. Highlighting the main elements of this book for our argumentative purposes, we presented Furtado’s dispute over the authorship of some terms and ideas and demonstrated how this criticism was probably read and considered, since Hirschman set out to research and write about the History of Latin American Economic Thought, published in the book Latin American Issues.

Furthermore, we also highlighted Furtado’s role in the development of Journeys Toward Progress, especially in relation to the ideas on comprehensive planning and on policymaking that played with the possibilities of a communist threat. Moreover, we examined the role of Sudene in shaping the relationship between the two authors, fostering a closer personal and intellectual connection, through which they came to identify with each other’s objectives regarding the development of underdeveloped countries and the reduction of regional inequalities.

We also identified that this proximity was manifested in the theoretical impacts themselves, beyond the writing of Journeys Toward Progress, particularly in informing an important part of Hirschman’s understanding of the pitfalls of foreign aid and the necessary course of action. We demonstrate this by discussing that, in “Foreign Aid: A Critique and a Proposal”, the author developed a mechanism directly derived from Sudene’s legislation.

Beyond that, we emphasized that the relationship between the authors was a two-way street, demonstrating with primary sources from Furtado’s personal library how the author read Hirschman’s works diligently and presenting the importance of The Strategy of Economic Development: both for the elaboration of Sudene’s First Master Plan, and for the theoretical reflections Furtado formulated about Brazil after his exile.

Finally, we encouraged the reflection that ideas travel and that their path is not always from the center to the periphery. When a personality, be it an intellectual, a consultant or a policymaker, travels to delve deeper into the economic policy and institutional formation of another place, it is very unlikely that they will return home with the same ideas that they left with – even if the purpose of that visit is merely a case study.