Encyclopedia of Mexico: History, Society & Culture - Vol. 1

By Michael S. Werner | Go to book overview

I

IMPORT SUBSTITUTION INDUSTRIALIZATION (ISI)

Much of late-nineteenth-century Latin America responded to the international Industrial Revolution by means of an Export-Import Model. This model was defended primarily in terms of comparative advantage arguments. Governments of countries practicing this form of economic development focused their efforts on promoting the export of primary products to industrialized nations. They then used the foreign exchange gained from the export of primary products to buy manufactured imports from more advanced industrial nations. Export-Import produced rapid growth in many Latin American countries, including Mexico, where foreign trade increased nine-fold between 1877 and 1910.

The armed phase of the Mexican Revolution seriously disrupted this trajectory of rapid economic growth. During the 1920s, the Mexican economy was erratic but showed some signs of recovery using the Export-Import Model, especially during the years of 1925 and 1926. The collapse of international markets beginning in 1929 forced Latin American countries to shift their economies away from such heavy reliance on export-led growth to models that more actively encouraged domestic industrialization. Although Mexico was not as dependent upon foreign markets as some other Latin American countries, it nevertheless suffered from a decline in markets for its most valuable exports. Mining decreased in value by 50 percent and oil by almost 20 percent between 1929 and 1932. This translated into a decline in the Gross Domestic Product (GDP) of 10 percent. The primary reason that the fall in GDP was so much less than the loss of export earnings was that the Mexican economy and the majority of the Mexican population were still involved in traditional agriculture.

The global situation encouraged Latin American countries to develop their own industrial bases capable of meeting domestic demand, and thus the Latin American policy of Import Substitution Industrialization, or ISI, was born. Simply put, ISI refers to a set of policies implemented by an activist, interventionist state that are designed to encourage the domestic production of manufactured goods previously imported under the Export-Import models.

ISI was a complicated set of policies administered by a strong state densely involved in finance, production, and regulation. Central to ISI was the notion of “infant industries.” Policy makers in Mexico and elsewhere in Latin America argued that new industrial countries could not be expected to compete with already established international firms. Central to Mexican ISI was the implementation of protectionist policies against foreign import competition and extensive restrictions against foreign investment. The rhetoric carried strong biological overtones: “infant industries” must be protected at first until they grew in strength and became able to compete in the “adult world” of international competition.

Unlike some other Latin American countries, such as Argentina and Chile, Mexico had developed neither a strong entrepreneurial class nor effective mechanisms of social mobility into the middle class. Furthermore, it was clear, especially to President Lázaro Cárdenas (1934–40), that the long-term stability of the political regime was dependent upon successfully incorporating the working class and the peasantry as allies into the political regime. This political incorporation was in turn dependent upon state-sponsored economic growth and redistributive programs. ISI provided the potential to make progress on all these fronts. It promised to serve as the primary engine of economic wealth, expand the urban working class with decent wages, offer social mobility into the middle class via the private and public sectors, and legitimize the post-Revolutionary political regime as protector and promoter of the national interest.


ISI in Action: 1940–70

The so-called Mexican Miracle of 1940 to 1970 often is referenced as dramatic testimony to the success of the ISI model. The economy grew 6.5 percent per year on average, making it one of the fastest-growing economies in the world. The peso remained relatively stable and average inflation rates were low. Although wealth became more concentrated, the majority of the population experienced increases in their standards of living (particularly urban dwellers). New Mexican industries, the so-called infant industries, were protected through a combination of tariffs and import licensing, by which the government controlled goods imported into the country. By the 1950s, import licensing, rather than tariffs, had become the preferred strategy for protecting Mexican industry. A persuasive argument can be made that whatever the economic merits of such a preference, political considerations contributed to the decided preference for licensing: it provided the Mexican state with leverage over specific industries and firms that tariffs would not allow.

Mexican public policy designed to provide advantages to Mexican firms should not be interpreted to mean that foreign investment was entirely disallowed. To the contrary, according to Hector Aguilar Camin and Lorenzo Meyer, “Of the 101 most important industrial companies in 1972, 57

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Encyclopedia of Mexico: History, Society & Culture - Vol. 1
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Editor’s Note vii
  • Acknowledgments ix
  • Alphabetical List of Entries xvii
  • Thematic Outline of Entries xxiii
  • A 1
  • B 125
  • C 175
  • D 391
  • E 423
  • F 465
  • G 549
  • H 625
  • I 667
  • J 715
  • K 723
  • L 727
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