After the Second World War Essay

1) Japan   2) The â€Å"four tigers†: Taiwan, South Korea, Hong Kong, Singapore (the sixties of the twentieth century); 3) Indonesia, Malaysia, Thailand, China (from the 1970s to the 1980s) In fact, by rejecting import substitution industrialization Asian nations managed to avoid some negative results of this policy. First, their economies were not dragged by inefficient industries. Second, East Asia did not have to implement policies benefiting industrial workers at the expense of those working on the farms. This was crucial for Asian countries because farmers made up the majority of their population. In addition, in order to diminish the cost of industrialization, the cost of food needed to be kept artificially low. And also, East Asia attempted to prevent the appearance of rent seeking behaviours, which resulted from the usage of the licensing schemes for import substitution strategy and which usually increased inefficiency of economics. High tariffs on manufactured goods, which were imposed by many countries in order to create their manufacturing bases, forced multinational companies to assemble or produce them locally. For example, manufacturers of motor industry exported vehicles for local assembly. Their vehicles were delivered ‘completely knocked down’ and the local assembly resulted in poorer quality and higher expenditures in comparison with those imported already built up. Moreover, the local assembly of identical products only duplicated resources and reduced economies of scale, which became increasingly inefficient for manufacturers. On the whole, at the beginning of 1980s the policy of import substitution industrialization began to fail both in Latin America and in those Asian countries where the policy was adopted. Generally, it happened because the governments involved in the policy started to overspend reserves in order to keep the stability of currency. The governments in Latin America defaulted on their debts and had to turn to the help of the International Monetary Fund. Another process which contributed to the failure of import substitution was globalization. However, some economists think that the collapse of the policy of import substitution industrialization â€Å"should not necessarily be taken as an endorsement of globalization. † Such point of view was supported by the fact that some countries of East Asia also used high tariff barriers while rejecting the rest of the strategy of import substitution. This mixed policy was focused on investment and subsidies on the industries which would produce goods for export. As a result, these Asian countries managed to create competitive industries. However, irrespective of all their achievements, the policies described above also proved to be inefficient and later led to many problems during Asian financial crisis. The closing period of import substitution industrialization was in 1989 when the Washington Consensus as a set of policies designed to promote economic growth in the countries of Latin America was presented by John Williamson. The Washington Consensus included reforms which continued the policy of import substitution industrialization offering a modernized version of its tenets. In particular, the Washington Consensus proposed the following: 1) the discipline of fiscal policy; 2) tax reform. It flattened tax curve: the tax rates on high tax brackets were lowered and the tax rates on the low tax brackets were raised. Also it suggested lowering the marginal tax rate; 3) Competitive exchange rates; 4) Trade liberalization by means of low and uniform tariffs which would replace quantitative restrictions; 5) Reduced limitation for foreign direct investment; 6) Privatization of state enterprises; 7) Deregulation, which implies â€Å"abolition of regulations that impede entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions† 8) Property rights must be legally secured; 9) Public spending should be redirected toward the investment of health, education, and infrastructure; 10) â€Å"Interest rates that are market determined and positive (but moderate) in real terms. † In the nineties the Washington consensus was being disputed. The critics of the reforms argued that they would lead vulnerable countries to crisis instead of helping to overcome it. Naomi Klein and Noam Chomsky claimed that the neoliberal policies of the Washington consensus would lead to the exploitation of labor market of an underdeveloped economy by a more developed one . Privatization of state industries, deregulation, and tax reform were seen by the opponents as the reforms which would ensure the development of the layer of local monied elite who would pursue local interests and try to maintain local status quo. Jorge Taiana, the Deputy Foreign Minister of Argentina, also disapproved the Washington consensus saying that such policies never had a real consensus and nowadays â€Å"a good number of governments of the hemisphere are reviewing the assumptions with which they applied those policies in the 1990s,† adding that governments are working on a development model which would ensure productive employment and guarantee the generation of real wealth. Another economist Duncan Kennedy in the article for The Boston Review stated that the Washington Consensus completely opposed the initial tenets of import substitution industrialization and more favoured American political interests: â€Å"In the form promoted by the United States, ISI was as hostile to free-market economics as to Communism. The overarching idea of the Washington Consensus was to wipe out every aspect of ISI: the Washington Consensus is both that free markets are good and that ISI [Import substitution industrialization] was bad. Developing countries were to develop through integration into the world commodity and capital markets, with policies of deregulated private enterprise, foreign investment, and open economic borders. † All in all, taking into consideration the mistakes of the previous experience and the criticism of the economists, the developmental policy of import substitution industrialization has never been returned since the time of the Washington Consensus. Thus, in the paper import substitution industrialization as a process and as a policy was investigated. It was found out that import substitution pursues three main goals: utilization of underused capacities, reducing unemployment and infant industries protection. The implementation of the policy of import substitution industrialization is based on three tenets: particular monetary and industrial policies, and protective trade barriers. However, it turned out that success and efficiency of import substitution industrialization was doubted by the proponents of absolute free market. Potential risks of import substitution were also visible while careful theoretical analysis and pointed out by economists. The underdeveloped countries of Latin America and East Asia implemented the policy of import substitution industrialization. It occurred that the potential risks and the negative aspects found out by the proponents of absolute free market constituted the drawbacks of the policy and finally became the chief factors of its failure. However, the major part of East Asian countries rejected the policy and experienced economic growth. The example of Brazil demonstrated that the policy of import substitution industrialization can stimulate economic growth for some period of time, but its drawbacks (first of all high expenditures and inefficiencies) pose real obstacles for continuous and strong economic development. Bibliography: 1) Bianchi A. M. Concern with Policy-relevance in the Latin American School of Economics. Post-autistic economics review. Issue no. 18, 5 February 2003 article 2 10 Nov. 2005 2) Charles J. Born in Blood and Fire Chasteen, 2001.p. 226-228. 3) Duncan Kennedy on import substitution industrialization. Totalitarianism Today. The Boston Review October 13, 2003, 10 Nov. 2005 4) Import substitution, Economic Geography Glossary, 1999, , 12 Nov. 2005 5) Import substitution, Wikipedia, 24 October 2005, 10 Nov. 2005 6) Stutz F. P & Souza A. R. : The World Economy: Resources, Location, Trade, and Development (3rd ed. ), Prentice Hall 1998.