Globalisation; Interdependence?
An Introduction to Industrialisation.
Following the rapid process of decolonisation that took place between approximately 1947 and 1968, the developing world viewed industry as the leading sector for high rates of present and future economic growth. This impetus to industrialise was given additional credibility by the Keynesian lead attempts at global economic management carried out by the newly established Supragovernmental International Financial Organisations set up after the Bretton Woods agreements.
At least to a certain extent much of Latin America had already implemented similar programmes throughout this century with varying degrees of success. Many counties embarked on state lead, state controlled industrialisation designed to enable them to "catch up" with the advanced industrialised world.
Much emphasis was laid on redirecting the under- employed rural population to heavy industry in the urban areas.
Raoul Prebisch, an Argentinean economist developed at "terms of trade argument" for public investment. He pursued a dual career in education and government throughout his life. While he taught political economy at the University of Buenos Aires he was also the deputy director of statistics for the Argentine government and later the director of economic research for the National Bank of Argentina. From 1930 to 1932 he was Under Secretary of Finance for the Argentine government and later, 1933 to 1935, adviser to the Ministry of Finance and Ministry of Agriculture. In 1935 he was appointed by the president of Argentina to organise the Central Bank of Argentina. He was the direct general of the Central Bank of Argentina for eight years. Later he was asked to organise the Central Bank of Mexico. All the while he was also a professor of political economy at the University of Buenos Aires
Prebisch represents a particular approach to the economics of development that was popular in Latin America in the 1950's and 1960's. It could be called heterodoxical, in the sense that it purported to be a viable alternative to the orthodox approach to economic policy represented by the International Monetary Fund (IMF).
His approach has been described as a non-Marxist dependency theory, in that a metropolis-periphery model is at the core of the analysis of International economic relations.
In contrast to Marxist dependency theories (Baran, Frank et al) the solution to iniquities in the international economic system is not global revolutionary change but state directed industrialisation with some attempt at controlling the effects of changes in market conditions by concentrating on Import Substitution Industrialisation programmes. At the political level then, Prebisch had more in common with Peronist populist nationalism than with the revolutionary movements of Latin America.
Prebisch examined the nature of capitalist exchange between the developed and underdeveloped world and found a structural bias in the nature of their trading relations which handicapped the underdeveloped nations. In particular, Prebisch challenged neoclassical thinking, and argued instead that the underdeveloped economies were suffering from worsening terms of trade. He does this by suggesting that the world can be divided into two: centre and periphery, where the former specialises in industrial production and the latter in primary production. Prebisch argued that there are forces at work on the demand as well as the supply side in the trade between centre and periphery which cause the terms of trade to move against the periphery.
This argument is relevant for us because he points to the way in which international economic exchanges can create an international economic system which is to the inherent benefit of the developed world, at the expense of the underdeveloped world. Under these conditions, poor countries share a common interest in opposition to the rich. In effect, these conditions divide the world's interests into two camps: those of the rich developed countries, and those of the poor, underdeveloped economies.
For 50 years Latin America pursued an inward-looking strategy supported by the United Nation's Commission for Latin America, (ECLA) under Raul Prebisch's leadership. Exchange and trade restrictions- such as multiple exchange rates, protective tariffs, import licenses, quotas and export taxes served to limit trade flows and to reserve local markets for domestic producers. The goal was to provide a training ground for industry, which might eventually compete internationally.
The economic growth impetus that follows large scale State investment should it is argued provide a framework that allows for planned growth largely even when this is financed by foreign capital.
In contrast to modernisation theorists the problems of the undeveloped world are not viewed as internal and largely cultural but external and due to the built in bias of the international trade system..
The alternative industrialisation strategy more in line with both modernisation theory and with the conventional economic wisdom of the World Bank and IMF suggests that Export Orientated Industrialisation is more likely to succeed in producing internationally competitive businesses.
Having decided that industrialisation is essential for developing countries the government must, at the level economic policy, decide which types of industries are to be stimulated.
Regardless of whether ISI or EOI is the preferred strategy a rational balance has to be created between heavy and light industry, between the state and private sector, between support for large and for small scale operations and between labour or capital intensive industry.
In the Latin American example an additional factor which constrains the ability of the state to plan economic change is the dominant position of corporations that based in the advanced industrial nations, especially US owned trans national corporations.
It should be noted that the International Financial organisations have throughout their existence argued that state or governmental control over the fabric of the economy is likely to inhibit growth rather than impel it. It is argued that the best way to promote growth is to withdraw from regulation and allow the free market at the global level to bring about the transformation to industrial society that was experienced by the the Advanced Industrial countries during the nineteenth and early twentieth centuries.
In any event it is argued that in the contemporary world a nation's capacity to direct economic policy is influenced by a number of international contacts and agreements, and these have always has an enormous influence on the nature of a nation's economic policies. The ability of states to control domestic economic conditions is in large part a function of the degree of international integration.
The NICs and in particular the South East Asian Tiger economies show, it is asserted, that minimal State intervention and Labour intensive Export Orientated Industrialisation, has been successful (at least up until 1997!!!) in prompting rapid economic growth and in creating the trading conditions favourable to facilitating large scale external investments.
The contrast between these two development strategies (ISI & EOI) will be looked at in detail next week.
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