Talk:Import substitution industrialization/Archives/2013

Economies of Scale
The explanation of Economies of Scale is somewhat confused. The current text states, "In most manufacturing processes a point of output is reached after which the cost of producing every additional unit of output diminishes."

This is misleading, because it implies that, once you reach an economy of scale, the price per unit continues to go down indefinitely. This is not always the case. The wikipedia article on Diseconomies of scale explains the mistake in this (common) idea. You can have two types of Diseconomy of Scale: when you're producing too many products, and when you're not producing enough. —Preceding unsigned comment added by 66.238.9.115 (talk) 18:49, 22 January 2009 (UTC)

Big reedit
I made big changes in the original text, which I hope please others here, but I think that there are still many incorrect statements which bother me and which I was not able to address, because in my editing work I tried to emphasize on correcting and adding data rather than on removing things. I think the following sentences are either imprecise or mistaken, and need reformulation:

"Prebisch believed that developing countries needed to create forward linkages domestically, and could only succeed by creating the industries that used the primary products already being produced by these countries. The tariffs were designed to allow domestic infant industries to prosper."

I am not sure about the industries needing to use the same primary products produced locally. Never read anything of the sort, or at least it is not the main point. Although tarifs are an important element, currency DEVALUATION was an even more important factor to limit imports, together with differentiated exchange rates. I think that the emphasis put on tarifs is misleading. It brings the topic closer to a current debate about protectionism through tarifs, but it is not precise.

"In Latin American countries where ISI was most successful, it was accompanied by structural changes to the government. Old neocolonial governments were replaced by more or less democratic governments. Banks and utilities and certain foreign-owned companies were nationalized or transferred ownership to local businesspeople."

This whole sentence should be scraped. It makes no sense.

"Many economists contend that ISI failed in Latin America, being one of many factors leading to the so-called Lost Decade of Latin American economics. Other economists contend that ISI led to the "Mexican Miracle," the period that lasted from 1940 to 1975 in which economic growth of 6 percent or more."

I like the idea put down here, but I think it should be developed better.

Abueno97 (talk)

I don't see...
I don't see what any of this has to do with import substitution as an economy strategy....

Menawhile, also in the 1990s, local purchasing became more popular, due to arguments about energy subsidy and moral purchasing, and the simple impossibility of assessing moral liability (which was more often translated into legal liability than previously) for imported goods and services. One such concern was developed nations' disdain for use of human slavery, prison labour, child labour in export production, and deforestation resulting from some practices, e.g. the so-called rainforest beef produced in ex-rainforest lands in the Amazon Basin. However, mandatory labelling and sector-specific audit regimes (such as the Harkin-Engel Protocol) were beginning to allievate this concern by the early 2000s. These more precise measures left only the energy subsidy concern, and that only in cases where the import was actually closer and cheaper in energy terms than nearest local producer (for instance, in British Columbia, it would continue to make sense in energy terms to buy apples from the state of Washington rather than from Ontario, since the foreign supplier was closer).

Today most debates on import substitution are in the context either of moral purchasing, local purchasing or food security. The overwhelming concern is not economic growth as measured in neoclassical economics, but the likelihood that uneconomic growth is leading to an inherently unstable situation where the whole import-export and commodity markets regimes may become much more expensive to maintain due to biowar potential, terrorism inspections and the loss of economic advantage and energy subsidies due to increasing concern with the comprehensive outcome of a production process.

Those who disbelieve in such potentials to make commodity markets and export markets less stable, and put all trust in market integrity and stability, are not likely to take import substitution strategies seriously when setting industrial policy, e.g. an explicit concern with sources of spare parts or fuel availability. However, it has become quite difficult to ignore in agricultural policy, due to biosecurity concerns, and the increasing pressure on developed nations to abandon subsidies to the so-called family farm, which relies effectively on exclusion of directly competitive imports.

Bold textThough it does seem that this section is a bit weighty in morality, it is important in economics to think in terms of the absolute. Thinking in terms of pure dollars and cents, or development and trade is disastrous without thinking also about absolute costs. Degredations of the environment or a particular country's "moral" structure, in my opinion, should be taken into account as they are both factors in future actions.

I do: This text appears to be a summation of the political economy of import substitution, particularly in the developed world. That would make it a 'political' economic strategy, or one in which morality supersedes the growth/maximization philosophy of economics. Thus, it seems highly relevant, if not necessarily from a neoclassical economic perspective. Add it back? —Preceding unsigned comment added by 70.144.108.174 (talk) 20:30, 9 September 2009 (UTC)

-

This I don't think is true.....


 * In the 1990s however various problems with so-called free trade regimes, notably a lack of progress in altering agricultural policy in the developed nations to permit developing nations to export food to them in more quantity, caused many (especially poorer) nations to look at import substitution more closely as a way to keep hard currency circulating locally, and only leaving the country for the most essential inputs to production.

I don't know of any developing nations that are now seriously looking at import substitution as a development strategy.

-

The article reads: "Three major tenets...and a monetary policy that keeps the domestic currency overvalued".

Shouldn't monetary policy be used in ISI to undervalue the currency in order to increase exports and decrease imports?

-

This article needs more information. Why was import substitution promoted - what was the proposed benefit of import substitution? Why did Latin America chose import substitution over other policies (including the tariff policies of East Asia?) --Confuzion 07:02, 5 Apr 2004 (UTC)

Can someone check to see if ISI really lead to the Washington Consensus? I just don't think that's true.

---

"Three major tenets...and a monetary policy that keeps the domestic currency overvalued" is ok. Kepping the local currency overvalued allows the terms of trade to stay high, thus difficulting the exports of raw materials and making the imports cheap for the sunrise industry. On the long run, it's not competitive, but at first it could be okay in order to shift to a infdustrialised economy

Moved from article

 * Objection! Yes there has: "In 2003, import substitution policies and soaring exports, coupled with a lower inflation and expansive economic measures, triggered a surge in the GDP, which was repeated in 2004, creating jobs and encouraging internal consumption. Capital flight decreased, and foreign investment slowly returned." (from http://en.wikipedia.org/wiki/Argentina#Economy)

POV Check
This article seems to have a neoliberal slant on ISI. The various concerns I have about the article I will outline in point form below.

- It is lacking a sophisticated definition of ISI.

- It makes a simplistic generalization of ISI by comparing it mercantilism.

- It needs a definition of ISI referenced from a proponent of ISI, otherwise it will risk setting up a strawman representation of ISI if a definition is taken from its critics.

- "This proves in practice to be economically - and practically - untenable." is obviously a value judgment, and violates the policy of letting something speak for itself.

- Needs to include mention of a debate between the different schools of political economy, and within international development literature, about the tenability of ISI.

- Emotive and biased language throughout the article, "ISI succeeded only in creating, in some countries, moderate growth, at best, often resulting in inferior, or mediocre substitutes for higher quality products that could more cheaply, and sensibly, be attained in the world market."

- Needs to mention that ISI is regarded by most adherents of the Latin-American school of international development, at least, as an important transitional development policy for late-developers.

- "The policy began to fail in the early 1980s, as a result of overspending by the governments involved, mostly from spending foreign exchange reserves trying to keep the currency stable. As the Latin American governments failed, they began to default on their debts and were forced to turn to the International Monetary Fund for help." - This very conveniently forgets to mention the Oil Crisis of the 1970s which was a much much larger cause of a lot of this 'overspending' and debt accumulation.

- "The failure of ISI led to the rise of the Washington Consensus." - Linear, narrative historiography. Many things led to the Washington consensus, of which the failure of ISI could hardly rank amongst them. The Washington Consensus developed after the US actively decided to abandon the Bretton Woods system (a decision which has no connections to the failure of ISI in developing countries), and the consensus necessarily arose to fill the vacuum left by the demise of Bretton Woods.

- "Although these policies later created inefficiencies and other problems, as seen during the Asian financial crisis." - Again, linear and narrative. The Asian financial crisis largely arose out of weaknesses in the finance and banking sectors, although there are many many more reasons. Indeed, the cause of the crisis itself is still a topic of much debate, particularly between the different schools of economic thought.

- The author's characterization of ISI seems to come largely from 'Commanding Heights' which is a controversial book written from a neoliberal economic perspective. I would strongly recommend that contributions to this article come from a much wider variety of sources representing views across the spectrum of political economic thought before it can be NPOV.

-

Patrice Franko's The Puzzle of Latin American Economic Development -2nd ed. provides, in my opinion, a very neutral historical account of ISI policies used throughout Latin America. I highly recommend that it be used as a reference for editing this page if personal biases seem to be getting in the way.

It may be useful to cite that some nations have used Import Substitution as a temporary economic policy, prior to an Export-Oriented Industrialization pattern, such as in the case of Singapore in the early 1960s.

Major problems with the article
The basic problem is that it tries to include the export oriented strategies of East Asia under import substitution by emphasizing the things (industrial policy and protective tariffs) that they have in common while not mentioning the things (undervalued currency, subsidies of resource inputs) that they don't.

The exported oriented strategies of East Asia, may be a lot of things, but they aren't ISI.

Roadrunner 18:01, 12 July 2007 (UTC)

Removed
This really confuses things by mixes up ISI with an export strategy orientation. I don't think that anyone in the 1960's did so.

Roadrunner 18:09, 12 July 2007 (UTC)


 * Still, the Asian case shows that a lot of these problems can be related to the inward-looking component of one set of ISI policies, as implemented in Latin America, rather than to the strategy itself. Through export orientation, problems of inefficiency and lack of economies of scale can be tackled by larger (potential) markets and international competition outside of the home country. Besides, modern economic theory that incorporates economies of scale in trade theory, such as New Trade Theory, delivers new arguments in favour of the infant industry argument and hence of ISI policies.

I would argue that South Korea in particular used ISI as an introductory phase to protect their infant industry after which they considered a more dualistic approach which was centred on phasing out ISI and introducing Export orientated policies. They therefore had both policies in place concurrently.

It was only Latin America that failed to use this dualistic approach and many have argued that this is what contributed to their stagnation and the eventual military coup in Brazil. —Preceding unsigned comment added by 87.81.96.91 (talk) 19:08, 13 January 2008 (UTC)

Definition?
No definition of ISI is actually provided in this article. It is just an unintegrated hash of "ISI is rooted in" and "ISI was implemented in country X" and other concretes. Even the first line of the article only tells us that ISI is "based on the premise that..." It doesn't describe what it actually is. —Preceding unsigned comment added by 192.173.37.170 (talk) 14:51, 21 March 2011 (UTC)

Good point. I'll add a definition. 212.56.120.79 (talk) 23:38, 11 May 2011 (UTC)