Author:
Laura Colon-Melendez
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Date Posted: 04:38:01 05/20/02 Mon
In reply to:
Dylan
's message, "ID Stuff" on 08:09:51 05/11/02 Sat
MARKET FAILURE
Market failure exists when the price established in the market does not equal the marginal social benefit of a good and the marginal social cost of producing the good (yeah, I looked it up online).
In the context of Latin America, this has to do with Import Substitution Industrialization. Development theorists argued that Latin America’s trade relations with the rest of the world (especially Europe and the United States) were not balanced; that Latin America was one of the peripheries of the developed world (called the core).
Market failure existed because the imported goods were too expensive for Latin Americans to buy; importing goods had no social benefit because it wasn’t produced in Latin America and moreover, it kept the region underdeveloped…
(ISI led to market failure too, but that’s another story for another paragraph - ISI became “socially” expensive).
VALUE-ADDED CHAIN
Structuralists, such as Raúl Prebisch (ISI was his brainchild), suggest moving up the value chain (which, in fancy terms is called "vertical integration")(more $).
An example: (In class, we studied the cocaine example…)Leather: 1.You kill the cow. ($) 2.You kill the cow and sell its skin ($$) 3.You kill the cow, keep its skin, cure it, and then sell it. ($$$) 4.You kill the cow, keep the skin, cure it and tan it, then sell it.($$$$) 5.You do 1 -4, but you actually keep the tanned leather so that you can make shoes and belts and all that is made out of leather… ($$$$$...)
The main idea behind this is that the further (1 being the lowest) you go up the value-chain, the more money you make.
Problems with this:
1.Do you know how to cure leather? Do you know how to tan it? Do you know how to make shoes? LACK OF KNOWHOW
2.Do you have the machinery necessary to do these things?
LACK OF TECHNOLOGY
Anyways, if you get over these problems, you have to deal with the shoe making southern Italians, who have been making shoes for much more time than you, and therefore already know how to minimize the cost per unit (they can produce many units at a low cost per unit – the whole concept of ECONOMIES OF LEARNING and ECONOMIES OF SCALE)and will be your powerful competition.
I will post the other 5 soon (before midnight)(economies of learning, economies of scale, infant industries, ISI, structuralism). Email me if something is not clear.
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