Author:
Laura Colon-Melendez
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Date Posted: 18:27:46 05/20/02 Mon
Disclaimer: my "definition" for ISI is long, for it involves many concepts. It is probably going to be one of the chosen ids. Email me if you don't understand what i wrote. -Laura
INFANT INDUSTRIES
An industry at the early stage of its development. If you are starting to make some kind of product, the cost per unit will be high, and you still have a long way to go to learn how to make the production more cost-effective.
To protect infant industries, goverments usually put tariffs on similar imports, benefiting you, because that way you have more time to be more cost effective in your production... therefore, when the tariffs are lifted (which would be the ideal case), you'd be able to compete with others (imported good x, which is the same good you produce)
STRUCTURALISM
If you look up the definition of "economic structuralism" in the net, you'll get this: "The belief that economic structure determines politics, as the conduct of world politics is based on the way that the world is organized economically". It was the belief of development theorists (such as Raúl Prebisch) that to get Latin America off its underdevelopment pattern, radical economic policies had to be adopted. Therefore, ISI was proposed.
IMPORT SUBSTITUTION INDUSTRIALIZATION (in Latin America)
Government protection of infant industries.
(How can governments do this? Impose high tariffs on imported goods).
The general belief that led many Latin American countries' economic experts to implement ISI was that, if infant industries are protected by very high tariffs, then whoever produces x will get really good at making x, therefore when they have to compete with the imported x good, they won’t have problems with this… (see economies of scale and learning ids)
The benefits of ISI also include sovereign and autonomous development (so ISI was politically advantageous), and vigorous industrialization.
ISI political companion was a very naturalistic, nationalist rhetoric (example from the USA: Made in the USA stickers, even thought the USA didn’t engage in ISI)
Simple, right? No.
One of the reasons ISI failed was because it assumed companies knew how to make products and that they had the technologies necessary to produce them. Even though ISI wanted to get rid of dependency, in the long run, it created technological and financial dependency (i.e. Latin America is hugely in debt as of today). ISI led to overproduction (factories designed to produce # units producing more than they should) and, therefore, inflation, which in many places was made tacit by the production of more money, which led to currency devaluation. (Evidence for this: with the adoption of neoliberal economic policies, which lifted tariffs, prices on products went up by A LOT… people cannot afford them)
Governments ran out of money in trying to get the necessary equipment for the companies they sought to protect. Also, from a neoliberal point of view, ISI failed because the government got too involved in things which should be private industry matters. (oversized bureaucracy).
Also, there was the problem of rent seeking businessmen. (Someone should have defined rent seeking). (These are businessmen who benefit from having high tariffs, so they encourage the gov’t to keep the tariffs up)
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