1.30-2.1 - Latin American Politics Great Depression and...

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Latin American Politics 30/01/2007 17:38:00 January 30, 2007 Great Depression and collapse of Latin American exports Chile suffered more than any other country in the world in terms of declining trade This marked the end of export-led growth as model throughout region LA countries then turn inward and begin own industrialization Economic crisis of US and Europe meant that many goods – processed foods, textiles, chemicals – that were once imported had to be made by the countries of the region Here we see ISI become an explicit policy Main promoter of ISI was ECLA (Economic Commission on LA) Established 1948 Collection of economists gathered under leadership of Raul Prebisch; together, they developed dependency theory views o They argued for a deliberate gov’t policy of promoting industry o Since region could not rely on flow of capital from outside, the governments would have to provide the capital themselves; this was provided by borrowing money on world markets ISI became the favored set of economic policies for a few reasons 1) overall economic conditions: volatile commodity prices made it clear that exports were a risky basis for development 2) declining terms of trade o idea that countries would get relatively poor as terms of trade worsened o therefore, LA countries would have to produce value-added goods, manufactures, etc. To protect ‘infant industries,’ you would establish tariffs; once competitive, they could enter and compete in global markets This would negate or reduce poor terms of trade
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E.g. an auto industry would ultimately create steel industries Industries were protected through loans, subsidies, tariffs and other policies Also, if workers were paid enough, they would be able to afford the goods they were producing; therefore, a virtuous circle In many countries, manufacturing transforms the economies as it becomes as massive share of GDP (especially true for larger countries) Growth meant increased productivity o Brazil grew 7% a year each year Since world economy was also growing well post-Depression, it is hard to tell how much it had to do with ISI In general, it is very hard to link policies to consequences Still, ISI probably had a significant influence over changes ISI’s problems are less open to debate The social question How should these political systems deal with growing middle class and their demands? o Increased unionization and labor protest Elites knew that repression was not a long-term solution to unrest; the Russian example showed that such repression might lead to revolution Workers and middle class reformers unite; in America, New Deal responded to worker agitation In contrast, in Latin America the issue of political incorporation of middle class tore apart countries for decades; why? LA elites could not as easily afford to make concessions
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1.30-2.1 - Latin American Politics Great Depression and...

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