The Role of State and Market in the Economic Development of Ecuador

Abstract

Since 1982, Ecuador has been trying to straighten out economic problems that developed during the oil boom of the 1970s. It is evident now that grave sins were committed in the name of industrialization import substitution and that the unrepentant sinner was the central government. In 1992, after a decade of muddling through structural adjustments,1 the current administration has claimed that the only way to solve the country's chronic stagflation is-in no uncertain terms-the market. This search for the market as the only solution to the country's economic problems is not new. The Febres Cordero administration (1984-1988) made the same claim. However, the question that I raise in this paper is whether the market will ever be found. The argument I intend to develop is that, in the case of Ecuador at least, the market is not part of the natural endowment of the country; it is not as though it were a hidden treasure, waiting to be discovered and released. It is, rather, a set of social institutions and learned behaviors that needs to be built practically from scratch in some cases, developed in others, and put to work more efficiently in a selected few. In order to set the stage for what has happened since 1982, I will begin by identifying the most flagrant sins committed in the 1970s. Then, I will briefly review what the different administra-