Import substitution industrialization (ISI)
A strategy of individual development based on manufacturing goods domestically
that was previously imported.
- Politically popular (job creation, consumer subsidies)
- Improvements in social and economic indicators
- Form of economic independence/self-sufficiency
- Established a manufacturing base
- Sectorial disparities
- Inefficient productions – not able to compete without protection
- Disappointing industrial employment results
- Small domestic markets limited growth
- Heavily dependent on loans
LA and Africa. Longer ISI resulted in more economic crisis
Export Oriented Industrialization (EOI)
An industrialization strategy that is heavily tied to exporting manufactured goods.
- By diversifying their economics into manufacturing for export, as well as for
domestic consumption, many of the East Asian economies managed to avoid
the economic pitfalls faced by LA and Africa.
East Asian Miracle
The economics take off of South Korea, Taiwan, hongkong, and Singapore in 1980s
When much of the Global South went into economic declines.
Unlike LA and Africa debt crisis and struggles East Asia has grown phenomenally
Reasons for success
- Developmental state or strong state intervention or statecraft
- Relative income equality (larger domestic markets)
- High educational level (technically skilled workforce)
- Successful agrarian reform (agricultural surplus used for industrialization
- Switched to EOI (more capital for investment, didn’t have to borrow)
- Semi or soft authoritarian (contained conflict)
- Skilled bureaucracy (worked with big business in their countries)
- Relatively work civil society (unchallenged by labor/peasant groups)
- Confucian culture (Hard work, honesty, cooperation, social harmony)
The Developmental State 1
A state that intervenes actively in the economy in order to guide or promote
particular development goals, such as growth and equity
- East Asian countries have grown through the free market, but also with a
significant state role. Ex) Japan, Singapore, Taiwan. - Similar to neoliberal or free-market of economic competition to secure
growth. Private entrepreneurs are primarily responsible for promoting
economics activities. Unlike free-market capitalism, the developmental state
rejects the idea of the invisible hand as the regulator of the marketplace and
gives the government a central role in economic development
- Government decides national priorities and assists industry (individuals
driven by self interest not trustworthy to do this)
- Economics growth and equity are viewed as essential for development:
investment in education, health, housing, infrastructure and agriculture.
(Industrialization should not mean neglecting age or rural sector)
- For more extensive and direct government economic intervention than in the
West, targeting either whole economic sectors (such as agriculture particular
companies. In all of the East Asian tigers, the state played an important role,
guiding the private sector toward targeted economic activities and
stimulating growth in areas that the government wished to expand.
- Labor-intensive, low skill manufacturing, -> capital intensive, highly skilled
- A capitalist economic system that involves excessive state intervention in
- While much of the economic activity remains in the hands of the private
sector, statist governments tend to nationalize strategically important
enterprises, such as railroads, airlines, petroleum industries power plants
and telephone companies and to invest in or protect industries that fail to
attract sufficient private capital
Nationalization: government takeover of privately owned industries
Protectionism state policies to protect infant industries from international
competition through tax breaks, retraction on import.
- State-owned enterprises are often poorly run and overstaffed. First many
state owned enterprise are frequently overstaffed an poorly run results in
inefficient, expensive operation, as well as political pressure to sell at a low
price = low money.
- Encourage inefficiency in private sector through protectionist policies
protection (e.g., tax breaks, tariffs on imports, import quotes) are commonly
used globally, but need to be scaled back as infant industries grow so that
firms have incentives to become more productive and internationally
competitive. In LA and Africa, protectionism was maintained.
- Combination of money losing state-owned industries and private sector
subsidies bankrupted much Third World government and put them i