The Penguin History of Latin America by Edwin Williamson

Author:Edwin Williamson
Language: eng
Format: epub, mobi
ISBN: 9780141937441
Publisher: Penguin Books Ltd
Published: 2013-04-08T04:00:00+00:00

Import-Substituting Industrialization (ISI)

After the Second World War many governments, following the lead of Brazil, Argentina and Mexico, and with the assistance of the USA, chose to industrialize their economies through the substitution of imports. Import-substituting industrialization (ISI) required the intervention of the state in the economy on many fronts. To begin with, the state placed high import tariffs on those foreign manufactures it planned to replace by local products. The protected home industries were then boosted with credits from state banks and by guaranteed prices. Demand for these expensively produced industrial goods was stimulated by controlling wage and price levels and by manipulating tax and exchange rates. The state also had to invest heavily in setting up an infrastructure in transport and energy. ISI meant, therefore, an enormous expansion of the state’s commitments, and a corresponding increase in its spending.

Although the ultimate aim of ISI was to achieve economic self-sufficiency, the process itself necessarily involved multiple contacts with world markets. Technology and expertise had to be imported from abroad to equip factories and set up plant; and the massive capital investments required to finance ISI could come from only two sources – foreign earnings from the export-economy and foreign loans. Indeed, the tendency of ISI development was for imports to exceed exports because of domestic industry’s dependence on foreign technology. Governments tried to ease the burden on domestic industrialists by keeping the exchange rate artificially high so as to hold down the price of imports, but this policy produced recurrent deficits in the balance of payments, for the high exchange rate pushed up the price of Latin American exports in world markets and so reduced foreign earnings. These balance-of-payments deficits had to be covered either by borrowing abroad or by printing money. The results were mounting foreign debts and chronic inflation – the twin scourges of all industrializing countries in Latin America, no matter what the political complexion of the regime.

During the 1940s and 1950s economic policy was dominated by the drive to industrialize. In several Latin American countries manufacturing industry grew at a much faster rate than agriculture. Between 1945 and 1960 the annual industrial rate of growth in Brazil was on average 9.4 per cent, while the agricultural rate of growth was 4 per cent. The respective figures in Venezuela were 8.5 per cent and 4.7 per cent; in Colombia, 7.2 per cent and 2.1 per cent; in Peru, 6.6 per cent and 3 per cent. Even in the coffee and banana republics of Central America manufacturing outpaced agriculture: in Nicaragua the figures were 7.8 per cent and 5.5 per cent; in El Salvador, 7.3 per cent and 2.5 per cent; in Honduras, 8.5 per cent and 1.7 per cent.

Industrial development brought numerous advantages. Wages in industry were up to 4 or 5 per cent higher than those on the land. The standard of living of an industrial worker was therefore superior to a peasant’s: he had a better diet, benefited from easier access to education, housing and

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