Latin American Development

Rio de Janeiro Skyline

Most countries in Latin America, including the larger nations of Argentina and Brazil, gained their independence in the 19^th century but continued to be exploited by the North and particularly by their ex-colonizers, the Spanish and Portuguese, until around the mid 1970s. Even though the countries in Latin America were fully independent sovereign nations, the North continued to extract natural resources and raw materials from these countries at the expense of the local economy. This was, in fact, a new form of imperialism called neo-imperialism, in which the North continued to exploit the South, but without formally being declared a colonizer. The reason this new form of imperialism nourished and grew was because of the dominant international capitalist thought of the North. This is essentially the basis of the dependency theory school of thought, which seeks to explain the underpinnings of neo-imperialism as experienced in Latin America prior to the mid-20^th century (Frieden 236). Dependency theory is best explained through Immanuel Wallerstein’s description of the world. Wallerstein contended that capitalism created a world system that was essentially vertically stratified into a core, a semi-periphery, and a periphery (Hein 498). This stratified global system sought to increase the wealth of the core nations at the expense of the periphery nations by keeping the periphery nations underdeveloped in order to better exploit them (Hein 498). Wallerstein and other dependency theorists argued that capitalism working within such a context stratification only benefited the West and was detrimental to the economy and development of the Third World, particularly Latin America in this case. These same people argued that in order for the Third World to successfully industrialize and prosper economically was to completely remove any foreign capital, investment, technology, and goods from their economies and implement a highly nationalist government-sponsored policy of import-substitution industrialization (ISI) in which a country would produce everything it needed within its own borders without foreign intervention. This was the policy adopted by many of the bureaucratic-authoritarian regimes of Latin America beginning in the 1970s, including Argentina. The purpose of ISI was for Latin America to develop independently without being exploited by the North and to reestablish itself as a world economy. In order to successfully implement such a policy, an environment that stimulated local industry and business was needed and in order to create such an environment, the governments of Latin American nations looked to the technocrats within their juntas for help (Haggard and Kaufman 57). One of the key elements of ISI is protectionism and so high tariffs were imposed to stifle the importation of foreign good and promote the sales of locally manufactured goods.

In addition, the governments of Latin American nations often subsidized local business in order to stimulate local industry, though often these were elite-owned businesses. These two factors propelled ISI in Latin America, and initially Latin American nations came across much success early on. However, eventually, many Latin American nations, including Mexico, Chile, Brazil, and Argentina experienced exorbitant debt accumulation and economic decline in the 1980s, which is known as the “lost decade.” There are several reasons that explain this eventual decline in many Latin American economies. One, there were no land reforms implemented in Latin America, meaning that most of the land in Latin American nations was owned by a small, elite oligarchy, often the same people who headed the authoritarian governments of these same nations. This resulted in an unequal distribution of wealth which stifled the economy as the majority of the people were kept from participating in the new reforms. One of the keys to economic revitalization is land reform to ensure the participation of the entire population in the new reforms. Another factor that contributed to the decline of several Latin American economies was the neglectful attitude of the authoritarian governments towards the agricultural sector. The agricultural sector lost support from the governments and instead support and government subsidies were redirected to the local industries. This was a crucial mistake, as most of the Latin American economies were based on an agrarian society, and to neglect the agricultural sector was a blow to the core of these societies. A third factor that contributed to the decline of Latin American economies was the debt accumulated by these countries due to massive borrowing. In order to establish local industry, Latin American governments needed the capital to do so, but the nations of Latin America were too poor to rely solely on themselves to invest in the local industries and so they were forced to borrow exorbitantly from the West in order to subsidize industrial projects and introduce new technology into their economies. However, Latin America kept borrowing and borrowing until they had no choice but to default on their loans. This caused many Latin American nations to go bankrupt in the 1980s. Finally, the fourth factor that contributed to the decline in economic growth was the saturation of the local market, meaning that the local economy had reached its limit in terms of producing enough goods for its own people. Without exporting goods, it was virtually inevitable that such inwardly-oriented economies would reach a peak and then begin to decline. Thus, although Latin America initially experienced some success, it eventually experienced disaster as a result of a purely ISI policy, as it refused to integrate itself into the world economy by exporting and allowing foreign investment within its boundaries.