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University of Toronto St. George
Political Science
Christian Campbell

- third strategy, you export products either as an end in itself or as a route to capitalisation, to capital accumulation if youre envisioning that the next step will be industrialisation -> this step has been followed by most developing countries (check slide with four factors listed by alexander) - finally, the strategy of isi -> it has a different agenda, to build up the manufacturing sector by shutting down the import of foreign goods, taking advantage of an existing market by producing the goods that you used to be imported -> build up your internal manufacturing base so that it doesnt have to compete with external manufacturers - the first wave of isi was generated by world war i -> during and because of the war, most developed economies reoriented their capital toward military needs, resulting in many shortages -> developing countries responded by either going without or producing these goods domestically -> world war ii and the depression followed, deepening these crises of production in developing countries -> until this point, developing countries are importing their secondary goods from countries in the north -> these factors interrupt production in the countries that are involved in these wars, so that developed countries are no longer exporting such goods - by the start time of decolonisation, starting in 1948 with india, these developing countries realise that this is a very vulnerable position to be in, and so new nationalistic leaders of newly independent countries decided that they needed to build up their domestic manufacturing bases as a way of asserting their political independence as well as their economic independence - historically, import substitution is actually forced upon these countries, especially in latin america, as a result of factors like the wars -> but at the same time, dependency theory is starting to develop and people start to think that isi is a solution to the core- periphery problem identified by dependency theorists -> so these nationalistic movements, this hegemony of dependency theory, these wars, all these factors interact and inspire isi in many countries in the global south - dependency theory is all about inequitable trade -> the developing world is selling cheap goods and buying expensive goods, so theres a net transfer of wealth away from the countries that sell agricultural products and the internal balance of trade cant be sustained if a country is consistently importing more than theyre exporting -> the thinking is that these countries now need to break out of this logic of dependence, breaking out of the global market, interrupting this core-periphery exchange thats not in our interest -> firstly, they can stop importing secondary goods, secondly they can stop exporting primary goods -> moving to a strategy of export-led manufacturing, the same strategy that britain and other countries have been using -> the important thing to keep in mind is that the underlying logic of isi is to build up a manufacturing base by withdrawing from the global market - so what are the reasons to implement isi? what are the things going on in these countries that make it so that economists, policymakers, political elites in the global south decide to go this route? -> as we discussed last week, impact of unequal trade, i.e. the volatility of primary commodity prices leading to precarious economies vulnerable to external forces that developing countries can not control (over production in other developingcountries, changes in consumer preferences in importing countries, the introduction of tariffs and quotas in importing countries, technological changes) -> even more important than that this is i. volatile is that this is ii. declining, so that terms of trade are not just unequal but are also declining -> as we outlined last week, one reason for the decline is that primary goods have lower income elasticity (when people get wealthier, they dont tend to consume more primary goods whereas they do tend to consume more secondary goods) -> these trends are a result of structural changes that arent going to be reversed and there have actually been substantial productivity gains in agricultural structures in developing countries but this greater productivity has only translated into lower commodity prices, so that theyre producing more but theyre not making more money off of it, and so higher productivity has not led to higher wages because of unemployment -> iii. economists also argue in the 60s and 70s that isi is a fairly safe way of developing and protecting infant industry -> the logic of isi means that you start manufacturing, building factories, creating incentives for local entrepreneurs to build factories, in areas of products where you already know theres an internal market (ex. a domestic market for cars in the face of closed car imports), and you cut off imports precisely so theres no external competition -> what youre doing through isi, then, is capturing the market in the sense that the government can ensure that consumers can not buy from overseas -> britain had managed to saturate the market even by the time later developers like germany and france had hit the market, never had to face outside competition, one reason that the industrial revolution is never going to happen to any other country is because britain had
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