Week 4 - Big Push Flashcards
What were the key ideas, strategies and policies of the Big Push according to Nurkse?
“industrial policy” and “infant industry protection” to promote investment into “increasing returns activities”
When did the Big Push happen?
1945-1970s
What were the key ideas, strategies and policies of the Big Push according to Hirschman?
import substitution industrialisation (ISI) and backward and forward linkages
What were the key ideas, strategies and policies of the Big Push according to Arthur Lewis?
mobilisation of “surplus labour” from agriculture for labour intensive manufacturing
What were the key ideas, strategies and policies of the Big Push according to Singer and Prebisch?
“unequal trade” and problem of “primary commodity exports”
Who took on the major role in the Big Push?
major role for the state to shape markets
What brought industrial policy back on the policy agenda today?
new debates throughout OECD after 2007-2008 financial crisis and again coming out of the pandemic
China’s successful deployment of industrial policy
What are the three historic trends that led to the Big Push?
nationalist aspirations for development
East-West confrontation for “hearts and minds”
classical liberalism and Neo-classical economics were under fire
One of the three historic trends that led to the Big Push is the nationalist aspirations for development, what did this involve?
nationalist movements in Asia, Middle East and Africa, pushing for decolonisation and independence as a means to develop
“catching up” in Latin America with considerable autonomy in interwar years
Bandung Conference of Asian and African countries 1955 to the Non-Aligned Movement and the New International Economic Order at UNI General Assembly 1974
One of the three historic trends that led to the Big Push is the East-West confrontation for “hearts and minds”, what did this involve?
US and USSR each tried to win over leaders in developing worlds
Chinese Revolution won in 1949, which led to own path to development and appeal to colonial peoples
India stood between the West and Communist world
US military response to radical nationalist movements took precedence over backing redistributive forms (land reform) and political transformations they would require (Vietnam war, coups in developing countries like Guatemala, Belgian Congo, Indonesia)
One of the three historic trends that led to the Big Push is classical liberalism and Neo-classical economics were under fire, what did this involve?
the Great Depression and ruse if fascism
Keynesian “revolution in liberalism” from the 1930s (orthodox economic dealt with “special case” of economy with full employment, unemployment of people and resources meant different reasoning was needed, planning during WWII was successful)
What were four big ideas of post-war development?
“Big Push” for industrialisation
transform the relationship between agriculture and manufacturing
invest in manufacturing with attention to “forward and backward” linkages
overcome unequal arms of trade between poor and rich countries
What is a debate within the “Big Push” regarding growth?
balanced growth (simultaneous investing in many lines of manufacturing, Nurkse) vs unbalanced growth (one thing at a time, promote forward and backward linkages, Hirschmam)
What is a debate within the “Big Push” regarding financing?
finance domestically (keep TNCs at bay as tend to establish enclaves and repatriate profits, how and when to transition from ISI to production for export) vs attract foreign aid and FDI (rely on TNCs as source of technology transfer, how and when to transition from ISI to production for export)
One of the big ideas of post-war development is industrialisation, what does this involve?
industrial policy
“infant industry” protection in manufacturing sector
planning, as long-term view is needed
direct finance (including aid and foreign investment) to productive sectors
need for a “big push”, which requires “critical mass of investment” and “balanced growth”
depart from price signals (as they are slow and short-term and do not capture externalities)
import-substitution industrialisation
What are policy moves to promote industrialisation?
tariffs to protect infant industries
control foreign exchange to use for priority investment
overvalue currency to discourage primary exports and favour production for domestic market
state control of finance
incentives/compulsion on foreign firms to invest in priority sectors
subsidies to private firms in priority sectors
state directly established firms where private sector found it too risky, or where private sector was absent
What is Lewis’ Two Sector Model?
1) traditional rural subsistence “surplus labour”
2) high productivity modern urban industrial sector, absorbs labour from rural areas
What is the unlimited supply of labour (Lewis)?
disguised unemployment in rural areas, e.g. West Indies, Egypt and India’s government needed to invest in manufacturing to absorb this labour, where there were no private investors to do the job
labour shortage due to abundant land, e.g. Ghana’s government needed to invest in raising agricultural productivity to release labour for manufacturing without driving up wages, which would discourage investment in manufacturing
match the state intervention with the specific market failure
What happens to the wage rate as surplus labour is absorbed?
wage rate rises as surplus labour is absorbed (has been happening in China over past 20 years)
One of the big ideas of post-war development is “forward and backward” linkages (Hirschman), what does this involve?
new industry with eye on both
backward linkages which promote production of inputs for the industry
forward linkages which utilise its outputs in new activities (harder)
substitute imports with goods produced at home
One of the big ideas of post-war development is overcome unequal terms of trade, what do Singer and Prebisch say about this?
critique of dependence on export of primary commodities (terms of trade unfavourable)
differences in gains from technological improvement (industrialised countries were consumers of primary commodities and producers of manufactured articles, underdeveloped countries were consumers of manufacturers and producers of raw materials)
What did Prebisch say in his 1949 ECLA Manifesto?
developing countries face declining terms of trade, leading to unequal development
workers in industrial countries capture all gains from productivity improvement
dual economy (modern and traditional)
What does ECLA stand for?
Economic Commission for Latin America
What did the ECLA say on the role of the “smart state”?
not against agriculture, trade, or private sector
reduce technological disparity
promote high return investments (e.g. steel)
implement exchange controls
endorse “healthy protectionism”
attract FDI
boost savings and investment
wage policy to boost demand (as per Keynes)
What was ECLA’s blind spot?
backing away from redistributive agrarian reform even though in favour, as it was politically sensitive issue
What was land redistributions role in the “Big Push”?
gave way to exclusive focus on raising agricultural productivity while bringing social justice and changing the balance of power
increase rural incomes by investing in education and health and creating demand for manufactured goods
could remove speculation on and accumulation of land as a strategy by elites (could free them to invest in risky but higher return activities in manufacturing)
could increase political and social power of small farmers and reduce or eliminate rural elite’s political power
land reform was seen as politically unacceptable
What was Latin America’s experience with industrialisation?
Brazil had great advance in 1950s and 1960s (early ISI, heavy industries, developmentalist ideology, succumbed to political crisis)
most of Latin America was different, half-hearted (no move from consumer to producer goods, improved consumption but not production, finishing touches on imported products, TNCs often the main beneficiaries)
What was India’s experience with industrialisation?
national planning boards, industrial development corporations, input-output analysis, growth models, built heavy industry
did not work well
Why did India’s industrialisation experience not work well?
bureaucrats were generalists
federalism undermined central state
propertied groups stayed in power
business families were more powerful than state
domestic market constraint meant no land reform
protected industries were inefficient as they were not subjected to competition
Why did Africa’s experience with industrialisation?
from very low starting point and concentrated in just a few countries
neoliberal structural adjustment abandoned industrialisation in 1980s, onward
SSA was “out of phase” with global industrialisation possiblities
Why was SSA’s experience with industrialisation?
1914-1945 was era of possible ISI but lacked independent state to work with local businesses, finance for industrialisation and trade regime
1945-1970 was era of deliberate import substitution but lacked sovereignty (until 1960), economic processes to produce what rich countries wanted and alliance between state, TNC’s and national capital
1973-1982 was debt financed growth but had no industrial products to export, did not get FDI nor foreign loans for industry and borrowing after 1979 oil shocks was for balance of payment cover
What is a criticism against the “Big Push” from a political spectrum? (Bauer)
denying price mechanism, as they are inefficient
overestimating capacity of state
suppressing entrepreneurship
biased against agriculture, which hurts exports
over-reliance on aid
scared away FDI
What is a criticism against the “Big Push” from neoclassical economists? (Krueger)
trade controls costly
resources used up in “rent seeking”
high cost of using quantitative controls because of increased competition to secure rents
false premises about unequal trade, efficacy of the state, peasant producers, etc.
no means to identify dynamic externalities
overvalued exchange rate taxed (/wrecked) agriculture and subsidised capital goods imports
What is a criticism against the “Big Push” from dependency theory?
overly optimistic view of “mutual benefit” in industrialisation of third world
Europe actually “underdeveloped” Africa
thesis on unequal trade did not go far enough
need radical rupture from the rich capitalist countries
What is Hirschman’s ‘self-critique’ of the “Big Push”?
doubts about mutual benefits
provided justification for authoritarian governments (worried how dictators exploited the ideas to justify their seizure of power)
What does Arthur Lewis say about surplus labour?
surplus labour moving to manufacturing without decreasing productivity in agriculture and wages in agriculture increase as there is less supply of labour
What is the centre and periphery?
centre is industrialised nations which produce and export manufactured goods
periphery is developing countries which primarily export raw materials and agricultural products
What does the centre and periphery trade pattern create?
unequal economic relationships, where the centre benefited more than the periphery (Prebisch)
What does dependency theory say?
global capitalism perpetuates the underdevelopment of peripheral nations while benefiting the core nations
focus on external factors, like colonial legacy and unequal trade relationships, rather than internal factors, like governance and policies
What did the Bretton Woods conference in 1944 lead to?
led to the creation of the IMF and the World Bank, providing international institutional support for economic development
When did the concept of economic development gain prominence?
gained prominence after World War II, with the aim of increasing per capita real income in underdeveloped countries
What did development efforts initially focus on?
initially heavily focused on capital accumulation, particularly through foreign aid to bridge the gap between domestic savings and investment needs in underdeveloped countries
In the initial development efforts, what role did foreign aid play?
was emphasised in development, with estimates suggesting that most developing nations would require significant external capital to support growth targets
What were the structuralist economics opinions in initial development efforts?
challenged the dominant neoclassical economic theories (particularly in Latin America)
argued that development challenges in underdeveloped regions streamed from structural issues, not just capital deficits
Where did early development economists come from?
many were from developed countries, and there was a growing realisation that economic theories and policies from advanced nations did not always apply to the specific needs to developing countries
What were the mid-20th century actions that were a key role in shaping development agendas?
nationalist movements and the dissolution of colonial empires, particularly in newly independent countries in Asia, Africa, and Latin America
During initial development efforts, what did emphasis shift towards?
emphasis shifted towards national development planning, with governments in developing countries assuming a large role in directing economic growth through public investment and industrialisation
During initial development efforts, what became a key strategy in developing countries?
import substitution industrialisation, particularly in Latin America, as a means to reduce dependency on foreign imports and promote domestic industries (a trade and economic policy that advocates replacing foreign imports with domestic production)
What was seen as vital for sustained economic growth in initial development efforts?
need for technical and administrative capacity, along with foreign aid and technology transfer, was seen as vital for achieving this in underdeveloped regions
During development economics in the 1950s, what was the preliminary answer for the limitations of the manufacturing sector?
the productivity of the farmers whose marketable surplus will exchange for manufactures
What is Pareto optimality?
the state at which resources in a given system are optimise in a way that one dimension cannot improve without a second worsening
What are strategies for supporting industrialisation (development economics in the 1950s)?
export more agricultural commodities, develop a self-sufficient economy emphasising the home market, to support manufacturers
What were arguments against the agricultural export strategy (development economics in the 1950s)?
the terms of trade argument, which was in two parts (historical and theoretical)
the dependency argument
What was the terms of trade argument against the agricultural export strategy (development economics in the 1950s)?
historical argument (since the commodity terms of trade have had a long-term bias against agriculture primary production should be avoided)
theoretical argument (if primary producers develop their exports faster than the industrial countries demand then the terms of trade must against them)
What were the dependency arguments against the agricultural export strategy (development economics in the 1950s)?
it perpetuates underdevelopment by creating a cycle where peripheral countries remain dependent on foreign markets and unable to build the necessary industries for self-sustained growth
What were the 1950s development efforts focused on?
characterised by a strong focus on industrialisation as the engine of development (economists debated the optimal size of the industrial sector and how to best finance modernisation efforts and there was a widespread belief that structural transformation, particularly the shift from agriculture to industry, was necessary for sustained economic growth)
What was a major debate in the 1950s for type of industrialisation?
whether developing countries should pursue capital-intensive or labour-intensive industrialisation
What is the Mahalanobis model?
advocated for capital-intensive investments in heavy industry to accelerate growth (adopted in India)
What were the neoclassical approaches in the 1950s?
many economists leaned towards this, using shadow price analysis to determine the best allocation of resources and questioning whether capital-intensive strategies would be feasible or efficient in low-income countries
What is a shadow price?
how much more profit you would get by increasing the amount go that resource by one unit
What was one of the central dilemmas of development economics in the 1950s?
balancing consumption and growth
question was whether developing countries should prioritise investment in capital goods, potentially reducing consumption in the short term, to boost future economic growth (shaped policy recommendations)
What role did social services and human development play in the 1950s development efforts?
economists began to recognise that investments in heath and social welfare (healthcare, pensions, unemployment benefits could directly enhance labour productivity and the quality of life, that laid the groundwork for later ideas around human development as a core aspect of economic progress)
What did the 1950s show about education?
the 1950s established the foundational understanding of education as critical to development with the recognition that education contributed directly to economic output
What did economists argue about the role of foreign aid and the “Big Push”?
key question in the 1950s was why LDCs needed foreign aid when hsitrocially developed countries had industrialised without it
economists argued that it could provide the necessary capital to initiate the “big push” in LDCs, overcoming issues like the low-level equilibrium, so aid was seen as a catalyst for industrialisation and modernisation
What is low-level equilibrium?
economies remain stuck at low levels of income due to insufficient investment
What was the criteria for distributing foreign aid in the 1950s?
debates on the allocation centred around the absorptive capacity of recipient countries, their social and economic policy performance, and the need to prioritise aid based on poverty levels (concern about whether aid would be efficiently utilised or whether it would lead to dependency and inefficiency)
What was the argument on agriculture and export diversification in the 1950s?
economists argued that declining commodity prices would undermine the development prospects of countries dependent on agricultural exports, meaning diversification into manufacturing and other sectors was encouraged to reduce dependence on volatile agricultural markets
What was the role of Multinational Corporations (MNCs) in the 1950s?
were seen as critical players in the development process, as they brought technology, capital and access to global markets, especially by facilitating the export of manufactured goods from developing countries
there were concerns about the dominance of foreign firms and the potential for exploitation of local resources and labour
What is the two-gap model?
extra saving cannot be converted into imports of capital goods and is therefore frustrated
What is structural inflation?
the marginal propensity to import exceeds the marginal propensity to export
When must there be balanced growth for production?
if imports and exports cannot be increased, production must follow a balanced growth path (would be facilitated by issuing indicative plans and by small countries joining customs unions within which large scale industries might be operated more efficiently)
What is ISI?
a way of achieving economic growth by protecting local industries and decreasing reliance on external goods (high tariffs, subsidies by governments)
What did ISI require?
required importing initial capital goods (e.g. machines) and then substituting imports with own industries
What did Hirschman think ISI could be financed by?
foreign investment (, however inviting in TNCs led to few spillovers)
What was a big issue under ISI?
financing, as other way would be taxing elite
Why was moving away from ISI difficult?
elites wanted to protect infant industries which they often controlled (elites worked closely with government)
What are the critiques of ISI?
overemphasis on protectionism (lack of competition)
failed to create strong linkages between industries (structural imbalances with fragmented industrial sector)
neglect for agriculture and rural development (serves interests of urban elite, unequal outcomes)
still reliant on expensive imports of capital goods and technology from advanced countries
only enhanced the dependency cycle between core and peripheral countries
agriculture remained the backbone of many developing countries, yet agricultural exports failed to generate sufficient foreign exchange
underestimated the deeper structural constraints imposed by global capitalism and the dependency relationship
initially worked but often led to inefficiencies, where economies became “stuck” (difficulty of entering export markets)
What does industry linkages mean?
investment in one sector can create demand in another (positive spillover effects)
What does the dual-sector model encourage? (Lewis)
shift resources and labour from low-productivity sector (agriculture) to high-productivity sectors like manufacturing and industry (wages rise in agriculture and industry gets promoted without a drop in agricultural productivity)
Why was there much surplus labour in agriculture in the 1950s?
many people worked on subsistence levels in agriculture and seasonal
Why are the terms of trade considered unequal?
terms of trade agreements are not favourable to the developing countries (developing countries export cheap raw materials, whereas industrialised countries export more expensive, manufactured goods)
over time, manufactured products become more expensive in relation to agricultural products (eventually you need more agricultural products to get the same manufactured products)
primary commodity products are not stable
leads to increasing between country inequalities
What is the comparative advantage trap?
where developing countries become dependent on exporting primary good in which it has a traditional advantage (limits economic diversification, and prevents the country from investing in other industries)
What does dependency theory state?
global capitalism created unequal relationships between “core” and “periphery” countries (core countries exploit the periphery for raw materials and labour while supplying high-value manufactured goods creating dependency as periphery countries are unable to industrialise or diversify and remain vulnerable to external factors)
What do dependency theorists advocate for?
reduced reliance on foreign capital and a focus on self-sustained development (e.g. through ISI)
How does population growth impact savings?
reduces savings as extremely expensive in terms of infrastructure
What were the key factors of the post-World War II period?
decolonisation movement (reduce reliance on former colonial powers)
geopolitical concerns (fear of former colonies falling under communism influence)
establishment of International Institutions (to promote global cooperation and economic growth)
all industries destroyed (WWI, WWII, Great Depression)
Why did post-World War II ‘development economists’ place emphasis on industrialisation?
seen as most effective way to generate economic growth and improve quality of life
increase productivity, foster innovation and create economies of scale
upper value of value chain (do not want to be exporting primary exports)
“depressed areas” were believed to suffer from a lack of industrial development (push from western-based international institutions, e.g. UN promoted industrial policy)
What was the historical emphasis on government intervention driven by?
driven by concerns over market failures and the need for the state to address perceived structural rigidities in developing countries
From 1950s to 1970s, what did strategies often include?
often included import-substitution industrialisation, state ownership of key industries, and extensive regulation to control economic activities (led to significant inefficiencies)
What were market failures thought to result from?
were thought to result from “structural rigidities” (lack of responsiveness to price signals)
What is structuralism used to describe?
used to describe analyses of economists who believed that various institutional features of developing countries’ economies resulted in very low price elasticities and responsiveness to incentives
What type of organisation is the government and what must it do?
non-market organisation and generally must do things on a large scale
What does the government consist of?
consists of many actors
politicians who seek political support from various groups, bureaucrats, technocrats, etc. (there are often divisions within and between each of these groups)
What type of activities does the government undertake?
activities like maintenance of law and order, provision of information, provision of basic public services which are large-scale (activities where the government is at no disadvantage in providing services on a large scale, whereas private agents would be)
What is the “iron triangle”?
when a bureaucratic agency, an interest group and a congressional committee work together to advance its own agenda and act in its own interests
What has the government’s role been historically?
was seen as undertaking activities that would compensate for “market failures”
should take the lead in allocation of investment and control the “commanding heights” of the economy
What are the two types of government failures?
failures of commission
failures of omission
What does the failure of commission involve (government failure)?
occur when government policies actively cause distortions or inefficiencies
(examples include high-cost public sector enterprises engaged in a variety of economic activities not traditionally associated with the public sector, e.g. state marketing boards, state ownership of retail shops for the distribution of foods or state operation of mines and manufacturing activities
, state-owned enterprises that operate inefficiently due to lack of competition and profit incentives
, economic controls, like price controls or subsidies, that lead to resource misallocation (e.g., overproduction in protected industries)
, large budget deficits, often resulting from high public spending on subsidies, which can trigger inflation)
What does the failure of omission involve (government failure)?
happen when governments fail to provide necessary public goods or services
(examples include inadequate infrastructure maintenance, undermining economic growth (e.g. deterioration of transport and communications facilities)
, outdated exchange rates that hurt export competitiveness (e.g. maintenance of fixed nominal exchange rates in the face of rapid domestic inflation)
, neglecting basic public services, like health and education, due to misallocation of resources)
What is an example of a government failure in India?
India’s “Permit Raj” where the extensive system of licences and permits for business operations stifled innovation and entrepreneurship
What is an example of a government failure in Sub-Sahran African countries?
many governments maintained fixed exchange rates well beyond their viability, leading to severe balance of payments crises
What is an example of a government failure in Latin America?
hyperinflation as large fiscal deficits funded by printing money caused hyperinflation in several countries, e.g. Argentina and Brazil during the 1980s
What are examples of limited administrative capacity (government failures)?
delivery of fertiliser too late in the season to be effective
inability to collect crops for which the government had made the marketing board the monopsonistic buyer
average delay of 18 months in approving investment licences
What is the relationship between the government and rent seeking and corruption?
government intervention often creates opportunities for rent-seeking, where individuals or groups seek to gain economic benefits through lobbying or corruption
(examples include the allocation of import licences or subsidies, where the distribution of rents attracts efforts to influence government decisions rather than focusing on improving productivity)
What is the relationship between the government and bureaucratic incentives and expansion?
government agencies tend to expand their activities and budgetary needs, even when the programs they manage are ineffective (bureaucrats often advocate for policies that increase their influence and resources, even if not in the public’s best interest)
What does comparative advantage role of the government mean?
governments should focus on areas where they have comparative advantage, like providing large-scale public goods (e.g., infrastructure, law enforcement, basic education) (diverting resources away from these core areas toward ones where the private sector is more efficient can exacerbate inefficiencies)
What are Kureger’s policy recommendations regarding the government?
emphasises the need for policies that minimise administrative costs and reduce rent-seeking opportunities
should be designed with a realistic understanding of government limitations (costs and constraints of government interventions, administrative feasibility and likelihood of rent-seeking)
political economy factors should be considered when designing policies, as incentives of policymakers and bureaucrats can significantly influence policy outcomes
(examples include using tariffs instead of quantitative import restrictions as tariffs are more transparent and less prone to manipulation, simplifying regulations to reduce the administrative burden and limit bureaucratic discretion, prioritising transparency in public spending to ensure that resources are allocated efficiently)
What is a critique of “market failure” approaches?
critiques earlier development policies that focused on correcting market failures without considering potential for government failures (interventions to fix market imperfections often led to worse outcomes due to unintended consequences of government overreach)
What did African nations adopt after independence?
African nations adopted Import Substitution Industrialisation (ISI) after independence, however, many projects were poorly executed, over-reliant on the state, and underfunded
What economic crises did African economies face in the late 1970s and 1980s?
in the late 1970s and 1980s, African economies faced severe crises due to both external shocks (e.g., oil crises, falling commodity prices) and internal issues (mismanagement, corruption, rising debt)
What were the Structural Adjustment Programs (SAPs)?
IMF and World Bank-led SAPs were implemented to stabilise economies and involved austerity, currency devaluation, trade liberalisation, and privatisation
What did the SAPs lead to (regarding industry)?
SAPs led to the collapse of local industries, especially in manufacturing
without state protection and facing foreign competition, industries failed, leading to job losses and declining industrial capacity
What social impacts were there due to austerity measures (SAPs)?
austerity measures resulted in reduced public spending on social services like education and healthcare, worsening poverty and inequality
What is Mkandawire’s criticism of the SAPs?
criticises SAPs for their one-size-fits-all approach, which ignored African countries’ specific contexts
argues they prioritised stabilisation over long-term development, causing further underdevelopment
What does Mkandawire advocate for as a development strategy (alternative to SAPs)?
advocates for alternative development strategies that focus on industrial rebuilding, social welfare, and more context-sensitive economic policies for Africa
What led to Latin America’s debt crisis after 1982?
despite Latin America experiencing high growth (between 1950-81) due to ISI, the countries’ inability to adjust their ISI policy led to debt crisis that impoverished their economy
When did Mexico default on its foreign aid and what did this mark?
Mexico’s default on its foreign debt in 1982 marked a turning point, ending the era of rapid growth and ushering in a period of economic stagnation and political instability in Latin America
What did the Latin American crisis in the 1980s expose?
crisis exposed the flaws of the ISI model, which had become unsustainable due to declining export revenues, rising debt, and inefficient domestic industries
When did the OECD countries experience significant economic growth and due to what?
experienced significant economic growth between 1950-1973 due to mixed economy policies (Keynesian economics + welfare state)
What did the OECD economic influence the Latin American countries to do?
to move away Ricardian economic policy (comparative advantage) from a reliance on primary commodity exports to a focus on industrialisation through import substitution
What was the shift to industrialisation in Latin America based on?
shift was based on the belief that industrialization would lead to higher economic growth, reduced vulnerability to external shocks, and improved living standards
Why did OECD countries have declining profits prior to the oil crisis?
due to high wages and comparatively low productivity
Despite a significant increase in exports, what was seen in developing countries?
decline in their global market share
(particularly evident in the case of commodity exports)
What change in OECD countries aggravated Latin America’s ongoing economic challenges?
change from Keynesian to neoliberal policies (breakdown of the US dollar and switch to flexible exchange rate and the rise of monetarism)
(Latin American economic challenges included high inflation, debt crises and political instability)
What did current account deficits for Latin America in the 1980s lead to?
led to excessive borrowing from surplus funds from OPEC countries
What did the 1982 debt crisis in Latin America forced the countries to do?
forced Latin American countries to accept stringent neoliberal policies imposed by international financial institutions like the IMF and World Bank
What was unique about per capita income in Latin America in the 1980s?
Latin America countries experienced declining per capita income unlike the growth experienced in Asia and the stagnant per capita income in Sub Saharan Africa
What was seen as the evidence of the effectiveness of neoliberal reforms (Latin America)?
relatively quick economic recovery of Chile, which had already adopted neoliberal policies and was favoured by the IMF and seen as evidence of the effectiveness of neoliberal reforms
How did Latin American country leaders first view the shift in policy to neoliberalism?
initially, Latin American country leaders viewed the shift in policy as temporary to manage debt but eventually there was full scale switch to rigid neoliberalist policies
Why did Latin American countries go into current account deficits, external debt, inflation during the 1950s?
their exports of primary commodities did not grow in proportion to international demand due to ISI policies
When did IMF countries first introduction stabilisation plans and what did this require?
IMF introduced first stabilisation plans in 1950s, requiring countries to implement tight monetarist macro policies
Who was opposed to the IMF (and their stabilisation plans) and what did they believe in?
structuralists were in opposition to IMF
believed the solution was to focus on the inelastic supply in agriculture, weak domestic markets, and reduce dependency on commodity exports (influenced by world prices)
Did Latin American countries experience growth in the 1950s?
Yes, did experience high growth (exception of Argentina) in the 1950s however ISI policies became increasingly complex, obscure, and subject to bureaucratic manipulation since industrial elites continued rent seeking activities
What was introduced by the US due to the growth of socialism in Cuba and Latin American countries?
the Alliance for Progress was introduced by US to address economic and social issues
What did the Alliance for Progress introduced by the US lead to?
pushed the countries (Cuba, Latin American) more towards socialist policies, resulting in a clash between socialism and neoliberalism that continued in Latin American countries
What did Latin America not take advantage of while it experienced high economic growth in the 1960s and early 1970s?
did not take advantage of global trade and focused primarily on ISI
What differed between the Latin American countries and NICs regarding their protectionist measures?
key difference lay in their approach
NICs used protection to nurture export-oriented industries, while LAC focused on ISI
What caused a worsening overall trade balance for Latin American countries in the 1960s and early 1970s?
decline in commodity trade surpluses was not offset by a sufficient reduction in the trade deficit for manufactured goods
What did policymakers initially expect ISI to do in Latin American countries?
initially expected that ISI would lead to significant foreign exchange savings by reducing imports, however, the high import elasticity of output meant that these savings were lower than anticipated
What did many OECD countries adopt following the oil crisis (and what did it ignore and lead to)?
traditional monetarist policies to control inflation, however since they ignored supply side constraints and energy prices, it resulted in stagflation
What countries initially benefited during the oil crisis in Latin America?
while oil exporting countries(Mexico and Venezuela) initially benefited, it led to a case of Dutch disease in these countries and capital flight
political instability, economic uncertainty, and high inflation rates led to capital flight, further exacerbating economic problems
non oil exporters had high growth financed by debt whereas Venezuela and Mexico had stagflation
What did Latin American countries do to service their debt in the 1980s?
increased exports but this resulted in terms of trade deteriorating (imports also reduced leading to slow economic growth and hyperinflation)
What did the 1980s end with for only four countries in Latin America?
1980s ended with only four countries (Chile, Colombia, Costa Rica and Uruguay) having recovered basic macro-balances
What made the difference in the long term economic growth between East Asia and Latin American countries?
approaches to ISI
What did ISI often lead to?
inefficient industries, high costs, and low productivity
What did FDI inflows often focus on in Latin American countries during the 1990s?
FDI inflows often focused on domestic markets rather than export markets
What did the failure of ISI in Latin American countries lead to?
rise in neoliberal policies in 1990s
What did ISI lead to an improvement in in Latin American countries?
has only led to improvement in inflation (not current account balances and low economic growth)
What are the endogenous causes of Latin American problems during the 1990s?
rigid ideologies and the characteristics of its capitalist elite that persisted during ISI and neoliberal models
ideology is often strongly adopted without evolving and then dropped in favour of another ideology (e.g. switch from socialism to neoliberal policies)
lacks social cohesion (ideology becomes a powerful force because it helps to define a sense of national identity and social purpose in the absence of other unifying factors)
elite has history of rent seeking behaviour to benefit from government policies and subsidies
(economic problems are rooted in deep-seated structural issues, including inequality, corruption, and lack of effective governance)
What does dependence mean?
means that an economy’s expansion is conditioned to another economy (the dominant one), the latter can expand and self-sustain its economy but the former (the dependent economy, the periphery countries) can only achieve such expansion through the dominant economy
What are the three stages of historical dependence?
1) colonial dependence where commercial and financial capital dominated the economic relations between Europeans and the colonies
2) financial and industrial dependence where big finance in core countries invested in mines and agriculture for consumption in core countries
3) new type of dependence in postwar period where multinational corporations invest industries that produce for the internal markets of underdeveloped countries
(each forms of dependence conditioned these countries’ external and internal economic structures, the orientation of production, the forms of capital accumulation, the reproduction of the economy, and their social and political structure)
In the first two stages of dependence (colonial, financial and industrial), what four factors restricted the emergence of internal markets?
1) most national income was derived from export
2) available manpower was subject to harsh exploitative measures which limited its consumption
3) part of the consumption was provided by the subsistence economy which complemented their income in depressions
4) for countries which land mines were owned by foreigners a great part of accumulated capital was sent to the core countries limiting consumption and reinvestment
What is the third dependence stage (new) conditioned by and what is needed to generate new investments?
conditioned by the existence of demand for international commodities and capital markets
foreign currency is needed to generate new investments (has two limitations, 1) balance of payments in goods and services, 2) patent system which allows core states to send their machinery without selling it as goods)
In what ways does the current dependency inhibit growth in periphery countries? (3)
1) industrial development needs an export sector that gives it necessary foreign capital to kickstart industrialisation, as the export sector is conditioned to the backward relationship with the core markets and dominated by oligarchies which also limits growth of internal markets
2) industry in conditioned by fluctuations in balance of payments which leads to deficit due to dependency relations (trade takes place in highly monopolised market which tends to lower price of raw materials and raise prices of industrial products) (foreign capital retains control over most dynamic sectors of the economy and repatriates a high volume of profit) (result is that foreign capital becomes necessary in financing deficits and development)
3) industrial development is conditioned by technological monopoly exercised by imperialist centres (when developing countries want to import machinery they can do so only by patenting or they convert these goods into capital and introducing them in the form of their own investment)
How does the dependency structure affect the productive structure of developing countries? (2)
1) continuation of agrarian and mining export structure where these countries specialise in exporting primary products
2) industrial and technological structure in developing countries responds to needs of core investing countries (corporations), not needs of local development needs which gives rise to the high inequality of productive structure, high concentration of incomes, underutilisation of installed capacity, and exploitation of existing markets concentrated in large cities
What does the production structure introduced by the core countries in the periphery countries inhibit?
developing countries from succeeding in gaining valuable production structures
the emergence of an internal market, as core industries employ a small amount of labour as their production is capital intensive, people remain in the rural which prevents the emergence of a strong internal market
What is Dos Santos’ main argument about the elements that are needed to gain development?
all elements that are needed to gain development, like capital, finance, and technology are monopolised by the core countries and make it very difficult for developing countries to gain access to them
