Group 6: Import Substitution Industrialization in Latin America

What is Import Substitution Industrialization (ISI)?

Import substitution industrialization is an economic theory normally seen in developing countries established to become self-sufficient and less dependent on foreign developed countries. This was typically done by reducing exports and increasing domestic production in consumer goods and capital goods industries. Policy makers and the country’s government assisted the new industries to protect and strengthen them to be competitive with international markets.

Raul Prebisch, an economist, was one of the first people to promote ISI (Fundación Konex, 1973). In one of his writings titled “Commercial Policy in Underdeveloped Nations,” he stated that import substitution is the only way to correct the drawbacks of peripheral growth in periphery countries (Prebisch, 253). Developing countries in Latin America were labeled as periphery or peripheral countries because they used production methods that were low tech. At the Conference of the United Nations Economic Commission for Latin America, Prebisch warned that Latin American countries “must not depend on foreign aid to solve all their financial problems” (Evening Star). Therefore, ISI was utilized to increase Latin America’s economic independence. Yet, not all ISI processes were the same (Hirschman, 5). Various factors affected the ISI outcomes of each of the Latin American countries.

ISI in Latin America:

Latin America first adopted the ISI economic model in the nineteen-twenties, but ISI proved unstable until the nineteen-fifties and -sixties. Latin America saw many different phases of ISI during World War I (WWI), the Great Depression, and World War II (WWII). ISI during the first World War was only a concept that began to develop in light consumer goods industries like textiles and foods products due to the simple technology and low capital investment it required. This movement began because the countries that provided many of Latin America’s exports were at war. However, Europe and the US came back from their short recession to resume trade. Since policy makers in Latin America did not prioritize ISI, they continued to export raw materials and primary products as usual. Because of the Great Depression in the 1930s, ISI began to slowly make an impactful return to Latin America, since the US, one of its greatest sources for imports, was struggling financially. The Great Depression negatively impacted families and migrants in both countries and throughout the world (Lange, 1936).

It wasn’t until after WWII in the nineteen-fifties and -sixties that Latin America had the opportunity to use ISI to its full potential due to the shortages of imports from foreign countries. Furthermore, the damage the US and European economies encountered could not recuperate as fast as they did during WWI. Latin America abandoned its prioritization of food and primary products exports to focus on new domestic industries that enforced the idea that “self-sufficiency in manufactured goods would place Latin American economies less at the mercy of the world economy” (Baer, 98).

Labor and labor control before and during ISI:

ISI had positive and negative aspects (Hirschman, 4). However, import substitution industrialization ultimately did not succeed in Latin America for the long term. It is important to examine the role labor control played in ISI in Latin American countries like Argentina. In countries like Argentina the success of ISI was determined by nearly unlimited labor. However, cheap labor was hard to come across in Argentina earlier on and wages in the agricultural sector were high. When ISI was put into effect under President Juan Peron, he took notice that profit was low in the industry sector. This is when he and his government began taxing the agricultural sector to provide resources to the industry sector (Anglade, 64-65).

Labor control is when an employer or organization uses their power to control employees in the workplace. Workers in Latin America experienced four types of labor control. They were restrictive institutional control, restrictive production control, co-optive institutional control, and co-optive production control (Fishwick, 662). Using these different methods, employers would limit representation and access to political institutions, increase oversight of employees, and reorganize the workplace structure to encourage compliance. This was all done to limit labor militancy and increase labor production. However, this backfired because although there was rapid economic growth and increased labor production, this growth was short term in most Latin American countries. Labor militancy increased, wages went down, and production stagnated or decreased (Fishwick, 664). The sector that appeared to suffer the most was the agricultural sector. There was a causal or negative correlational relationship between agriculture and industry/manufacturing. Overall, labor control played a pivotal role in the trajectory of ISI in Latin American countries.

Works Cited

Anglade, Christian. “System Adaptation in Latin America in the ‘Forced’ Import Substitution Industrialization Period.” European journal of political research 3.1 (1975): 47–67. Web.

Baer, Werner. “Import Substitution and Industrialization in Latin America: Experiences and Interpretations.” Latin American Research Review, vol. 7, no. 1, 1972, pp. 95–122. JSTOR, http://www.jstor.org/stable/2502457. Accessed 2 Nov. 2022.

Fishwick, Adam. “Labour Control and Developmental State Theory: A New Perspective on Import‐substitution Industrialization in Latin America.” Development and Change, vol. 50, no. 3, 2019, pp. 655–78, https://doi.org/10.1111/dech.12407.

Hirschman, Albert O. “The Political Economy of Import-Substituting Industrialization in Latin America.” The Quarterly Journal of Economics, vol. 82, no. 1, 1968, pp. 1–32. JSTOR, https://doi.org/10.2307/1882243. Accessed 3 Nov. 2022.

Prebisch, Raul. “Raul Prebisch - Commercial Policy in the Underdeveloped Countries (1959).” Scribd, Scribd, 1959, https://www.scribd.com/doc/104189606/Raul-Prebisch-Commercial-Policy-in-the-Underdeveloped-Countries-1959.

“Soviet Active at Latin Talks.” Evening star. [volume] (Washington, D.C.), 16 May 1959. Chronicling America: Historic American Newspapers. Lib. of Congress.

Fundación Konex: Argentine economist Raúl Prebisch (1901 - 1986). 1973

Dorothea Lange's Migrant Mother depicts destitute pea pickers in California, centering on Florence Owens Thompson, age 32, a mother of seven children, in Nipomo, California, March 1936.