THE POLITICAL ECONOMY OF INDUSTRIALISATION

THE POLITICAL ECONOMY OF INDUSTRIALISATION

From WWI to the Great Depression

S. Haber

  • War did not produce a huge disruption in LA industrialization. Foreign goods disappeared from the market thus giving domestic production effective protection.
  • LA was hurt by war in two senses: 1. Financing had largely been coming from GB and thus capital inflows dried up. 2. Inputs became very hard to obtain e.g. coal, chemicals, capital and intermediate goods.
  • Therefore growth slowed during the war years but did not cease.
  • E.g. Brazil’s textile industry doubled in size between 1907-1914 and then did not grow at all until 1921. There was a large contraction of new investment.
  • E.g. Argentina – output stagnated 1914-18. Only industries that relied on home grown raw materials benefitted e.g. woolen textiles. Unemployment rose in urban centres by 10%.
  • e.g. Mexico – growth stalled due to lack of raw materials, machines and spare parts. Haber argues this would have occurred despite the revolution of 1910-.
  • When the war ended GB no longer the primary consumer of goods from LA, nor the source of capital, nor machinery/equipment. In all respects BG was overtaken by the USA.

POST WAR

  • After the war there was a huge increase in industrial investment such as manufacturing, textiles, beverages and began to include intermediate and capital goods too e.g. iron, steel, chems, tobacco etc.
  • Growth came from small workshops that converted to factories during the war, but also from multinationals setting up subsidiaries in LA e.g. GE, Ford, General Motors etc.
  • As investments climbed so did output.

THE GREAT DEPRESSION

  • The depression hit LA hard and before the worst of it hit the US – export prices had been falling for some time. The large scale contractions of 31/32 sent prices to rock bottom. E.g. Mexico output declined 31% between 1929-32.
  • The industries that had seen large scale investment were particularly hurt e.g. BAT was running at only 37% capacity.
  • Medium term things were not so bad – the move away from the gold standard meant large scale currency devaluation in LA and thus export products were priced very competitively in the world markets. There was rapid growth in manufacturing output. By 1939 manufacturing accounted for 16.5% of LA total GDP.
  • The increased output of the 30s was thanks to capacity that had been installed in previous decades. E.g. Brazilian steel companies showed lots of growth in 30s but all the companies had been established and equipped in the 20s.
  • e.g. Mexico – capital machinery inflows were half of their previous levels and yet recovery was in full swing, indicating they were already equipped to pursue growth opportunities in the 30s.
  • Haber does not totally discount the idea that there were new firms in the market, but he contradicts the thesis that LA’s industrial development can be dated from the 30s. The basic model and capacity of LA industry was inherited from earlier decades.
  • Once the effects of the currency devaluation had been reversed (thus ending the de facto protection) there were calls for protection by way of tariffs.
  • Tariff protection increased hugely in the 30s. Yet they were not conceived as permanent, rather they were ad hoc responses to short-term crises. Aside from protectionism they made a good deal of economic sense as the collapse of export revenues meant governments faced BOP problems. The inflow of foreign capital had stopped so a means of preventing a huge forex loss and pay for imports was needed and tariffs allowed for this.
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