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This chapter develops an approach that focuses on social inequality in the developing world and introduces the concept of social exclusion. Social inequality is a combination of inequality in economic, political and cultural assets. A society in which the only source of inequality is economic assets could be called a liberal society. On the other hand, exclusion from the cultural process means that some individuals cannot participate in particular social networks. Some people may be segregated from residential areas, schools, and club memberships created by and for the wealthy. This places limits on social mobility.

The second half of the 1970s has been a period of economic crisis in Peru. The real GNP per capita of 1980 is almost 10% less than that of 1974. The annual rate of inflation has varied between 24% and 70%. Neither the decrease in real average income, nor the rates of inflation, nor the duration of the crisis has any parallel in the recent economic history of Peru. Since 1950 two short periods of crisis are recorded (1957–9 and 1967–9) but they were very mild compared to the present period. This chapter attempts to investigate the effect of the crisis on the peasant economy. To what extent has this economy been affected? The extent of the crisis In the post-World War II period until the mid-1970s Peru experienced sustained economic growth together with price stability. The real income per capita in 1974 was twice as high as in the 1950s. Annual rates of inflation never exceeded 18%. Starting around 1974–5 the economic situation changed dramatically: the economy stagnated until 1976, and there was an absolute decline in average real income. Real GNP per capita dropped by 8% in four years and the level of real income in 1980 was barely above that already reached back in 1971. The average annual rates of inflation went from 24% in 1975 to 68% in 1979. (See Table 8.1.) Politically, a new military government came to power in mid-1975, headed by General Francisco Morales Bermudez. The origin of the crisis is commonly associated with excess demand in the economy, especially as a result of the government's overspending. [ABSTRACT FROM AUTHOR]

This study has been concerned with the functioning of the peasant economy in today's Peru. This particular reality has been neglected in the economic studies on Peru, in spite of its great significance in the social system. The peasant economy has remained a reality without a theory. In this study the basic traits of the peasant economy have been investigated and then utilized to lay down the principal analytical coordinates of its prevailing economic rationality. The peasant economy has also been placed in the context of capitalist development in order to analyze its changing role in the economic system. In this final chapter a summary of our empirical findings and theoretical interpretations are presented. This will be done in terms of the hypotheses advanced in Chapter 2. Because a theoretical basis has been reached, economic policies are also discussed. Poor but efficient The economy of the peasant communities in the Peruvian sierra is organized in family units, which are the units of production and consumption. In the case of the southern sierra, the most economically depressed area, the average size of the peasant family varies between four and five members; the average total labor force is four people and the adult labor force is two. The peasant family depends upon resources of cultivable land, and usually has no more than five hectares in area in addition to access to natural pastures, communally held. The cultivable land is composed of parcels, the average number of which varies between ten and 80, depending upon the community. Regarding livestock, a peasant family typically has seven sheep, two heads of cattle and one horse. [ABSTRACT FROM AUTHOR]

The previous chapters have shown production and exchange structures in today's peasant communities in Peru. The peasant economy was observed at a given point in time (1978–9). This chapter will attempt to depict the dynamic of the peasant economy in Peru in the recent decades. If this is an economy very much integrated to the market system, has economic growth experienced in the Peruvian economy reached the peasantry? Have rapid population growth and urbanization induced growth in peasants' income through higher levels of demand for food? Growth and distribution in Peru: 1948–75 The income distribution problem presents peculiar characteristics in the underdeveloped countries. It not only refers to the problem of inequality, but also includes the problem of absolute poverty. For this reason, in order to evaluate the performance of an underdeveloped economy in terms of the distributive problem, it is necessary to determine the changes which have occurred both in the degree of inequality as well as in the proportion of the population still living in conditions of absolute poverty. In the last three decades, Peru has experienced various patterns of economic growth, initially based in export of primary products, followed by import substitution industrialization. Also, it has undergone periods of both rapid growth and recession. On the other hand, Peru passed through diverse socio-political contexts. From the initiation of the government of General Odria in 1948 until 1968, economic policy was basically liberal. Certainly one can draw distinctions concerning the degree of liberalism manifested: it was much more marked in the Odria and Prado regimes; there was a greater degree of State intervention in the first Belaunde government. [ABSTRACT FROM AUTHOR]

Even though peasant families are organized in communities, the economic decisions that they make concerning the use of their resources and labor are fundamentally family decisions. The results presented up to now show that the peasant family is at the same time a production and a consumption unit. It is of interest to know the essential elements that determine the economic behavior of the peasant family. What are the principles guiding its economic actions? What is its economic rationality? From the answers to these questions, we can derive propositions about the mechanisms that govern the allocation of peasant family labor to alternative uses and the reactions to market prices. These are the themes that we shall attempt to develop in this chapter. Portfolio of activities and risk-aversion Any economic theory which attempts to explain the behavior of the peasant family of the sierra must include as an essential element the problem of risk. There are two reasons for this. First, practically all the economic activities of the sierra peasants are subject to risk and uncertainty. Agriculture in the sierra is certainly a tremendously risky activity. Since there is normally no irrigation, dependence on rainfall is complete. The absence of rain, its appearance at the wrong time, or its over-abundance (creating floods and avalanches) affect production significantly. At certain altitudes, frost and hail are climatic factors which also affect production negatively and in an unpredictable manner. To these problems of nature we must add others, such as diseases. Livestock production also confronts significant risks, such as falls (due to the rugged nature of the terrain) and strayings. [ABSTRACT FROM AUTHOR]

The information presented in the previous chapter concerning intersectoral relations in peasant communities now permits us to arrive at estimates of the level and structure of income in those communities. In this way we estimate total peasant income based on previous understanding of the peasant economy. The level of total peasant income One way of calculating peasant income is to consider the value (at market prices) of consumption and investment. As net peasant production is dedicated in part to home consumption and in part to trade, income may be defined as the sum of total consumption and investment, from which the net balance of external exchange must be subtracted. As the value of exports (including transfers) is equal to the value of imports, a second alternative for measuring income is to add to home consumption the value of exports (which would give the net product of A + P + Z) and then the value of income from temporary migrations. From this sum we would have to deduct the value of imports of intermediate products which were used to obtain the net product A + P + Z. Of course, here we are using the terms imports and exports to refer to goods purchased or sold outside the community. The third method of calculating income is by way of value added. The estimations of total product A + P + Z and of inputs (domestic and imported) permit us to make this calculation, since the value added is the difference between these two figures. [ABSTRACT FROM AUTHOR]

Intersectoral flows Table 4.1 shows the intersectoral flows in six of the eight communities studied; that is, it replaces the symbols of Table 2.1 with empirical data, with one modification: the production of each separate sector of intermediate goods – the first three columns of Table 2.1 – has been consolidated into one column. This has been done for the sake of simplicity and also because it is often difficult to separate the production of intermediate goods by sector. The N column refers to non-monetary barter transactions, and the M column to monetary transactions. The former principally measures transactions with other communities, the latter transactions with the rest of the economy, above all the urban economy. Two of the communities – Ttiomayo and Sihuina – have been omitted on account of the incompleteness of the data, but the other six are sufficiently well distributed among ecological levels for the representativeness of the sample not to be affected significantly. Of course, whenever only these six communities have been used in tabulations, the weights of the sampled families have been changed accordingly to get the expanded values for ‘sample total’ and ‘southern sierra’. The reader will note that Table 4.1 contains certain identities. The figure at the bottom of column 1 is the same as the A + P + Z in the last column. The former represents the value of production viewed from the side of the cost of production whereas the latter is the value of production by destination (deliveries), and both must be equal. Because of this identity, self-employment (row 20) was estimated by difference. [ABSTRACT FROM AUTHOR]

Hypotheses on peasant economies The persistence of poverty in the peasant economy in Latin America calls for an explanation. For this, the study of the functioning of the peasant economy and its relation to the rest of the economic system is required. In fact, the relevant hypotheses can be classified according to the emphasis given either to the production process or to the process of exchange as the main cause of the economic backwardness of the peasantry. The production process There are two common views concerning peasant economies: (1) they are inefficient in their use of resources; (2) they are overpopulated, due to the absence of capitalist rules of production and distribution. Against these two hypotheses, Professor Theodore Schultz (1964) has developed a new proposition in terms of ‘traditional agriculture’. His hypothesis is basically the following: there is no significant inefficiency or overpopulation in peasant economies. Poverty here can be explained by the poor quality of resources and the traditional technology in use. Peasant families are poor but efficient. As he put it: ‘the community is poor because the factors on which the economy is dependent are not capable of producing more under existing circumstances. Conversely, … the observed poverty is not a consequence of any significant inefficiencies in factor allocation’ (p. 48). In a dynamic sense, Schultz argues that ‘the factors of production on which a community depends are expensive sources of economic growth’ (p. 97). [ABSTRACT FROM AUTHOR]

In order to study the functioning of the peasant economy the basic economic unit of such a system must be clearly established. Who has the control of resources? Who makes the decisions on the allocation of these resources? Who makes the decisions on consumption and accumulation? This chapter is devoted to answering such questions. Size of family and labor force In this study, the family is defined as all those persons who habitually live in the same house. The criterion of residence poses some difficulties on account of permanent and temporary migration, and the rule adopted was to consider as resident any person who lived in the house a total of six months or more in the preceding year. The average family size varies between 4.2 and five members in the communities (Table 3.1). The variation in these average sizes seems to bear no particular relation to the community's ecological level. Although the value of the standard deviation between family size within each community is high, the differences between communities seem to be small. These data show that it is difficult to identify a ‘typical’ peasant family size, at least without taking into account the stage of the household cycle reached by each one. This study uses two definitions of labor force. The first, designed to take into account the role of children in production, and thus to show the family's productive capacity, includes all members of six years or more of age. The second includes persons of 18 years or more of age and measures the ‘adult labor force’. [ABSTRACT FROM AUTHOR]