Exam 2 - Economic Geography Flashcards
Import substitution industrialization (ISI) – characteristics; factors important in its development; successes and failures.
In the attempt to move through the stages of industrialization, from ISI to exporter of manufactured goods, large-scale investments were funded by foreign capital
1. Some places in the region had astonishing results - Brazil especially, where manufactured exports increased from US$1B (1967) to US$40B (1980)
2. However, foreign debt multiplied due to massive borrowing by state corporations; example: by the 1980s, Pemex had a debt of $15B.
The frenzied foreign borrowing that began with rising oil prices in 1973-74
Third stage of industrialization (privatization)
- Selling formerly state-run industries to private investors
- Represents reinvestment in the region by foreign investors that began in the early 1990’s
A. Putting economy in the hands of the private sector
B. Debt for equity – exchanging debt for shares in newly privatized companies - Part of neoliberal ideology – shrinking state – private capital makes more efficient choices
- Some corruption occurred during the privatization process – lack of transparency and accountability – Mexico’s billionaires rose from 2 to 24 under Salinas (all with close ties to PRI)
Petrodollars – from where/to where; how it was spent
Petrodollars – capital from OPEC countries flooded private banks and Latin America looked like a good place to invest – thought countries can’t go bankrupt
- The region received US $60B in loans between 1975-82 – 60% went to Brazil, Mexico, and Argentina became top three debtors
- Much of the money was not spent in productive ways
- Capital flight and corruption – money was siphoned out of region by government and business
- Prestige ‘megaprojects’ – hydroelectric dams and roads
- Military equipment – military governments (Brazil, Argentina) bought the latest equipment for their troops
Debt Crisis – how it happened; how it was dealt with; who benefited
The Debt Crisis began in August 1982 when Mexico reported that it would not be able to make its upcoming payment on its $80B debt
- By October 1983, 27 countries had defaulted on $239B debt, 16 were Latin American countries – the four largest, Mexico, Brazil, Venezuela and Argentina, owed $176B (74%)
- About $37B of that was owed to the eight largest US banks
- Precipitated by the rise in interest rates in the US – loans had floating interest rates – and US recession that curbed demand for Latin American exports
Foreign creditors and their governments reacted after Mexico’s default to remove threat to the global banking system
- Rescheduling terms of payment – deferred but with high interest rates
- Lend new money to use in making debt payments
- Creditors stuck together but renegotiated with countries individually
controlled terms of repayment – highly profitable (banks earned extra US$1.7B on $49.5B)
- Cut all loans except those needed for payment of interest - most money now coming from international institutions – International Monetary Fund (IMF)
- A “blessing in disguise” for the US and Washington Consensus – overhaul Latin America’s economy to fit with neoliberal paradigm
Stabilization ( phase 1 )
PHASE 1: Stabilization – make debt payments
- Cut government spending
- Cutting imports – increase exports
- Devaluation of currency
- Remove barriers to trade
- During the 1980s, money flowed from poor to rich (debtor countries to creditor countries) – $218.6B
Structural Adjustment Programs (Phase 2); critiques.
PHASE 2: Structural adjustment – reforms, restructuring policies
- Cut state’s role in economy – free trade
- Austerity programs – cut social spending – health care, education
- Deregulation – of various aspects of the economy
- Privatization of formerly state controlled industries –foreign investment
- Falling investment and domestic recession (caused by austerity programs) provoked industrial collapse regressed to the levels of 1966; 1950 for Chile & Uruguay
CIRITIQUES
Debt burden not reduced
1. Hurts women and children disproportionately – loss of jobs & austerity programs
2. Applies same solutions, regardless of context
3. Undermines ability of governments to make their own decisions – limits sovereignty
4. Undermines ability of people to lobby governments
5. Free movement of goods, capital without free movement of labor
Neoliberalism
Part of neoliberal ideology – shrinking state – private capital makes more efficient choices
1. Some corruption occurred during the privatization process – lack of transparency and accountability – Mexico’s billionaires rose from 2 to 24 under Salinas (all with close ties to PRI)
Privatization
Selling formerly state-run industries to private investors.
Market niche strategy
Market Niche Strategy – return to export-oriented commodity trade
- Non-traditional agricultural exports (cut flowers, shrimp farms, strawberries, snow peas vs. bananas, sugar)
- Highly competitive – risks saturation of market as more producers enter it
- Highly perishable products makes transportation expensive – risks are taken by the producer
- Production of temperate crops is not in the local knowledge base – represents further risks
- Buyers demand perfect “looking” produce
- Pesticide treadmill – more inputs needed to produce these crops which has environmental costs
- Requires large capital investment – large foreign firms dominate – low-wage labor is local contribution
- Burgeoning economies in Asia (particularly China) are driving renewed commodity boom in the region – Lula of Brazil was especially aggressive in pursuing these trade relationships
EPZs/FTZs
EPZ (export processing zone) is a form of FTZ - which means free trades zones in which the government cant interfere nor customs to allow countries to trade without delays.
Flexibilization of labor
Flexibilization of Labor – way of managing labor to get the most profits for a company
- Companies seek flexible employment relations that permit them to increase or diminish their workforce, reassign or redeploy as desired (no job security)
- So that, labor has become the new “commodity” of the developing world (countries offer cheap labor for manufacturing)
- Mexico has faired better in terms of maintaining manufacturing exports, partly due to its maquiladoras; however, 1/3 moved to China (2001-2003)
Non-traditional agricultural exports (NTAEs) & problems
Non-traditional agricultural exports (cut flowers, shrimp farms, strawberries, snow peas vs. bananas, sugar)
Problems
1. Starvation in these countries
