The policy of import substitution industrialisation in Colombia - Essay Example

Discuss the Policy of Import Substitution Industrialisation in one country of Latin America (Colombia). Why was it criticized? At start of the twentieth century Colombia had a poor infrastructure which helped to protect the small producers of ordinary materials for the local population. The coming of better rail and road communications linked up the bigger towns and cities and helped to encourage business development for export, especially in the main product which was coffee. Columbia first began to introduce an import-substitution industrialisation process in the 1930s and this lasted until the 1950s when an over-reliance on coffee exports caused the government to pursue a more mixed strategy, which included more emphasis on production for export.

(Ocampo: 1994, p. 132) Ocampo traces the enthusiasm for of import-substitution in “beverages, oil derivatives, non-metallic minerals and, in particular, textiles,” before the 1950s which was followed by increased industrial production of products such as “paper and printing, chemicals and rubber, basic metals and metal products” after the 1950s (Ocampo: 1994, p. 132-133). Vejarano identifies five main phases in the industrialisation of Colombia: the pioneering years: 1900-1930, the early import substituting industries 1940-1945, the late substitution: 1945-1967, the mixed strategy: 1967-1989 and economic openness: 1990 afterwards.

(Vejarano: 2002, pp. 1-15). The three middle phases are the ones that are concerned with import-substitution industrialisation. An import substitution strategy was implemented from the 1930s, which coincided with the Great Depression. (Chu: 1983, pp. The reason why it was started was because coffee production had begun to dominate the market after the First World War. Colombia benefited from high coffee prices in 1920-1930 (Palacios: 1980, p. 209) and this encouraged the growth of towns and cities.

Many people were employed in infrastructure works because of the high level of income coming to the government from sales of coffee. By 1930 there was insufficient food for the growing population, and this meant that food had to be imported. There was also a sudden a big drop in the coffee price on the world markets which affected Colombia very badly: “Between January 1929 and January 1930 the price of coffee on the world markets fell by 50 per cent, and the 40,000 workers engaged in public works projects began to lose their jobs.

(Palacios: 1980, p. 210) A period of political turbulence followed, and as the Second World War approached, European buyers for coffee began to fall. America became the main buyer for coffee and the Colombians used American dollars from this trade to finance trade with Europe for essential goods like textiles. Colombia was very vulnerable to events in Europe and America because of its dependence on income from coffee. The government could not control the price, since this often depended on whether the Brazilian harvest was good or bad, and it could not control the volume of sales, because this often depended on world events like the financial crashes or large scale wars.

One method which was used to deal with this crisis was to devalue the peso, and another method was to concentrate on internal industrial production in the hope that this would stop the huge trade deficit and encourage local industries at the same time. The initial results from this policy were good and that in the period from 1930 t0 1945: “total manufacturing value added grew on average 8.1% per year while total GDP grew at 3.3% per year (Vejarano: 2002, p. 8) This process was helped by the generally low starting point and a very fast urbanization.

When the population moved from the countryside into the towns this increased demand for manufactured goods. By cutting off the importing of some of these manufactured goods, the government aided these new industries, and protected them from too much competition coming from producers outside Colombia. This element of protectionism is one of the main reasons why import substitution was so heavily criticized by economists. It goes against theories of the free market economy which recommend that trade should be open and free in order to encourage growth in quality and quantity across the world markets.

Another reason why it is criticized is that it can result in an economy which cannot survive without heavy intervention by the government in choosing which industries can be supported, and which industries should be suppressed. Political and other world events can upset these interventions, and there is a strong argument for letting industry develop freely and find its own true level in the market. In the case of Colombia, import substitution was a useful and necessary tool to help prepare and build up a weak economy in a particular historical period.

When a certain stage of development was reached, however, it was rightly reduced and then rejected, because it was not flexible enough to deal with all of the needs of a modern industrialized country. References. Chu, D. 1983. The Great Depression and Industrialization in Colombia, in A. Berry (ed.) Essays on Industrialization in Colombia. Temple: Arizona State University. Ocampo J.A. 1994. Trade Policy and Industrialization in Colombia, 1967-91, in G.K. Helleiner (ed), Trade Policy and Industrialization in Turbulent Times. pp. 132-169.

London, Routledge. Palacios, M. 1980. Coffee in Colombia. Cambridge: Cambridge University Press. Vejarano, C.P. 2002. Industrialization and Industrial Policy in Columbia: A Tale of Economic Development. Universidad del Rosario. Available online at: http://www.urosario.edu.co/urosario_files/f7/f7380169-9949-4550-b583-2a1138726bed.pdf