State Intervention: A Barrier to Development

Topics: Latin America, Macroeconomics, Great Depression Pages: 4 (1016 words) Published: September 23, 2013
Introduction
Over the past century, most Latin American governments have heavily relied on state intervention in the markets to fuel economic growth and ‘development.’ Political and economic instability in the region throughout the 20th century set the stage for people to put their faith in a powerful state that promised stability and security. Many Latin American countries would put their faith in the Import-Substitution Industrialization (ISI) economic model, which was an “inward-oriented” model that used state intervention extensively in an attempt to fuel development. The result would be an ensuing debt crisis with high inflation that hampered any change of future development. Pursuit of the ISI economic model by Latin American governments during the second half of the 20th century proved to be a disaster and illustrated how state economic intervention never leads to sustainable development. Therefore, free market policies should be embraced and implemented by Latin American governments to ensure future economic growth and development. Growth of the State in the Pursuit of the ISI Model

Prior to the Great Depression, Latin American nations depended on high commodity exports to fuel economic growth. The Modernization Theory of development argued that this export-oriented path would fuel development in the region. This perspective proposed that Latin American nations could progress in the same fashion as the United States if markets were free from intervention and free trade policies were applied. Limited manufacturing capacity was seen as an inherent weakness of this model, because it put countries in the region at a disadvantage with industrialized ones (Kingstone). When the Great Depression set in, the demand of Latin American exports to the industrialized nations fell. Since economic policy in this region depended heavily on exports to fuel growth, Latin American countries suffered immense economic hardship. The Modernization Theory was...

Bibliography: Franko, Patrice. The Puzzle of Latin American Economic Development. Lanham, Maryland: Rowman & Littlefield Publishers, INC., 2007.
O 'Toole, Gavin. Politics Latin America. Harlow, England: Pearson Education Limited, 2011.
Kingstone, Peter. The Political Economy of Latin America: Reflections on Neoliberalism and Development. New York & London: Routlege, 2011
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