Unfinished Industrialization in Latin America

  In November 2019, Chile and Bolivia, two Latin American countries with good economic development, unexpectedly broke out large-scale protests, and the political situation fell into turmoil. Chile, as a “high-class” country in the development of Latin America, has become a model for other Latin American countries due to its market-led development model and neoliberal economic policies such as pension reform. This wealthy country with a per capita GDP that crossed the threshold of a high-income country, but the 4% increase in subway ticket prices triggered riots and street violence, which gradually evolved into large-scale protests. The protesters called for the establishment of a new constitution to replace the constitution enacted during the Pinochet military government in 1980. And this constitution provides the legal basis for Chile’s market-led development model.
  In Bolivia, the left-wing indigenous leader Evo Morales has adopted a government-led development model since winning the election by a landslide in 2005. He nationalized natural gas, advocated infrastructure construction and social welfare projects, and provided land rights and autonomy to vulnerable groups such as rural residents and indigenous people. Bolivia once became the country with the fastest economic growth in the Andes, and the effect of poverty reduction is also very significant. During Morales’ 15 years in power, Bolivia’s poverty rate dropped from 59% to 35%, and the Gini coefficient, which reflects the level of inequality, also dropped from 0.6 to 0.47. [1] However, Morales caused a nationwide protest due to allegations of fraud in the general election and was eventually forced to resign and seek refuge in another country. His supporters and opponents continue to clash in the streets.
  Whether it is Chile, a Pacific country with a population of 18 million, or Bolivia, a landlocked Andean country with a population of 11 million, has been praised by the World Bank and other Latin American countries for its relative political stability and sustained economic growth since the new century. So why did these two countries with very different development models and similar development trends suddenly encounter a political crisis?

  The crises in Chile and Bolivia are not alone. In the long development process of Latin American countries, economic strategies have changed drastically like a pendulum, and political turbulence has also occurred frequently. From the boom in the export of primary products in the early 20th century to the industrialization of import substitution after World War II, to the structural reforms of neoliberalism and the collective “turn to the left” in the early 21st century, they all reflect the hardships of Latin American countries on the road of development. explore.
  Since the Industrial Revolution, almost all successful latecomers have achieved economic development and catch-up through industrialization. For example, France, Germany, and Switzerland before the First World War, the United States and Canada before the Second World War, Italy, Norway, Spain, Japan in the golden age after the Second World War, and even the “Four Little Dragons of East Asia” in the second half of the 20th century. Successful cases in history show that sustained economic growth requires continuous industrial upgrading and technological progress. When industry becomes the dominant sector of the economy, driven by technological progress, labor productivity will increase, employment opportunities will increase, consumption will expand, and people’s living standards will be improved. However, there has never been a successful industrialization case in Latin America. So, why does the successful development experience of some countries not work in others?
  Latin American development model of the evolution of
  the Newly Industrialized nations mode usually has three types. The first category is to promote the increase of agricultural productivity or increase export income through the export of primary products, thereby generating demand for domestic manufacturing and export demand for the corresponding primary product processing industry. The second category is import substitution industrialization, that is, to protect and promote the development of domestic industries by restricting the import of industrial products. Import substitution industrialization usually includes two stages: the first stage of import substitution is to realize the transfer of basic consumer goods from imports to local production, and the second stage is the domestic production of durable consumer goods, intermediate products and capital goods. The third category is export-oriented industrialization, that is, to promote the development of industrialization by exporting manufactured products with comparative advantages. Compared with import substitution industrialization, export-oriented industrialization usually requires a more open domestic economy and a more integrated international market. Latin American countries have tried these three modes of industrialization.
  Latin America at the end of the 19th century was a continent with bright development prospects. Most countries have been free from colonial rule for more than half a century, with political independence and a high degree of market openness. At the same time, the rich natural resources of Latin American countries have created favorable conditions for the development of resource-based industrialization. At that time, Latin American countries had stable economic growth, and the gap with developed countries was not large. For example, Argentina’s per capita GDP was even ahead of many developed countries. However, the two world wars and the Great Depression stifled the development of Latin American countries. With the drop in commodity prices and the interruption of capital inflows, the fiscal revenues of Latin American countries have continued to decline, the economy has fallen into depression, and the political turmoil has also fallen.
  After World War II, Latin American scholars began to reflect on the fragility of this resource export model, especially the fluctuation of commodity prices in the international market had a huge impact on the Latin American economy. They attribute the troubles of the Latin American economy to external factors. The “dependency theory” put forward by Argentine economist Raul Prebisch, who works for the United Nations Economic Commission for Latin America, is the most influential viewpoint. Prebisch believes that the structural differences in the international division of labor have caused domestic imbalances and economic backwardness in peripheral countries. The “center-periphery” dependency relationship is first reflected in the international division of labor: the production structure of the central country is homogeneous and diversified, while the production structure of the peripheral countries is heterogeneous and specialized. the Lord. This difference results in the different status of the central and peripheral countries in the international division of labor, which is manifested in the exchange of primary products by underdeveloped countries for industrial products from developed countries. Compared with manufactured goods, the international market prices of primary products tend to decline for a long time, leading to developing countries must continue to increase primary product exports in order to ensure trade balance, thus causing peripheral countries to rely on central countries. [2] The Brazilian scholar Dos Santos further pointed out that the dependence of Latin American countries on developed countries has existed for a long time and evolved gradually, from colonial dependence before the 19th century to financial-industrial dependence at the end of the 19th century, and finally in the 20th century. After the mid-term, a technology-industry dependency was formed. [3]
  The dependency theory has a profound impact on Latin America’s development strategy after the Second World War, and it has promoted the implementation of the import substitution industrialization model. Prebisch’s ideas are also the basis for the work of the Economic Commission for Latin America. In 1964, Prebisch served as the Secretary-General of the newly established United Nations Conference on Trade and Development (UNCTAD), and the view of dependency theory was spread more widely. Although Prebisch believes that import substitution alone cannot generate sufficient foreign exchange for development and must be supplemented by exports of manufactured goods, the economic policies pursued by Latin American countries only emphasize import substitution.
  In order to reduce dependence on developed countries and dependence on the export of primary products, Latin American countries on the one hand manipulate the exchange rate, impose high tariffs on imported industrial products and impose quota restrictions to protect domestic infant industries. On the other hand, subsidies are provided to domestic industrial production departments in order to achieve industrialization. Brazil, Mexico and other countries have formulated industrial development plans that combine trade protection with investment and production. In addition, Latin American countries also use the China Development Bank to finance supporting infrastructure projects. The implementation of the import substitution strategy has once again filled the prospects for economic development in Latin America. From 1950 to 1980, the average annual economic growth of Latin American countries reached 5.5%, and the gap with developed countries continued to narrow.