Models of Economic Development in Latin America (20th Century)

Models of Economic Development in Latin America (20th Century)
Import-Substitution Industrialization
In Latin America and many Third World countries, the import-substitution industrialization model was pronounced. Notably, it was after the First World War. The countries proposed ways of substituting imported goods with locally produced products. According to Hirschman (1968), the states implemented subsidies for local industries and high import tariffs for exchange trades. The model was characterized by a fall in currencies in Latin American countries and Third World countries. These led to less importation as European countries had prevented the importation of goods as well. Secondly, the import substitution industrialization model was characterized by state promotion of local industries to replace imports from Europe. Local producers were given incentives and lower tariffs for local products. Moreover, there were import tax barriers, overestimation of currencies, and excessive bureaucracy by powerful states.
For a while, before the 1970s, the model worked as it provided high employment in the local industries. It led to growth in medium and small-scale enterprises (Hirschman, 1968). There was an increase in consumption in the utilization of local goods with lower transport costs for raw materials. The governments also provided welfare to the industrial workers. However, with time the system became exhausted. The high consumption rate could not keep up with local production, leading to high prices of goods. Local industry leaders and politicians created oligarchs with an increased number of regional monopolies. The markets were fully state-regulated, which diminished the free market system. Over time the local industries were complacent and did not encourage innovation and technology adoption for more excellent production rates and goods. In addition, there was little competition for the local industries. Eventually, the local industries became stagnant by the 1970s and 1980s.
Neoliberal Model
The neoliberal model promotes individualism in a capitalistic environment that allows for free trade or free market principles of doing business. Unlike the import-substitution industrialization model, the push is against government intervention (Rodríguez, 2021). The primary characteristic of the model is the privatization of business and industrialization. Often it involves the relinquishing of state-owned properties and businesses to individuals for business growth. Such state-operated industries include social services institutions, utility companies, and banks. Moreover, Rodríguez (2021) notes that neoliberalism also encourages less regulation of the market, and deregulation allows for greater profitability. Neoliberalism also encouraged globalization in a free trade enterprise. This led to multination and multilateral organizations. Unfortunately, this meant the diminishing of reasonable public consideration and low government expenditure. Unlike the import-substitution model, social welfare was eliminated.
Washington Consensus
The Washington consensus was characterized by a reduction of monetary deficit by developing countries. According to Marangos (2020), this was done by reducing government expenditure...