The Great Depression in Latin America Import Substitution Industrialization IB History of the Americas Guiding Questions • What is ISI? • How where the economies of the United States and the many Latin America economies interconnected? • In general, what effect did the Great Depression have on the economies of Latin American countries? • To what extent did Vargas change the economy of Brazil during the 1930’s? • Compare and contrast the economic policies of Roosevelt and Vargas. ISI Defined • Import Substitution Industrialization (called ISI) is a trade and economic policy based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products. • ISI requires state-induced industrialization through government spending, it is largely influenced by Keynesian economic philosophy, as well as the infant industry arguments adopted by some highly industrialized countries, such as the United States, until the 1940s. ISI in Latin America • Import substitution policies were adopted by most nations in Latin America from the 1930s until the late 1980s. • Adoption of ISI is attributed to the impact of the Great Depression, when: – Latin American countries, which exported primary products (henequen, fruit, beef) and imported almost all of the industrialized goods they consumed (radios, appliances), were prevented from importing due to a sharp decline in their foreign sales. – This served as an incentive for the domestic production of the goods they needed. ISI in Latin America • The first steps in ISI were based on pragmatic choices of how to face the economic limitations caused by recession. • Populist governments in Argentina (Peron) and Brazil (Vargas) modeled Fascist Italy (and, to some extent, the Soviet Union) as inspirations of state-induced industrialization. • Positivism which sought a "strong government" to "modernize" society – played a major influence on Latin American military thinking in the 20th century. • Perón and Vargas saw industrialization (especially steel production) was synonymous of "progress" and was naturally placed as a priority in ISI policy. ISI in Latin America • ISI was most successful in countries with large populations and income levels which allowed for the consumption of locally produced products. • Argentina, Brazil, Mexico, and, to a lesser extent, Chile, Uruguay and Venezuela, had the most success with ISI ISI in Latin America • In Latin American countries where ISI was most successful, it was accompanied by changes in government. Old neocolonial governments were replaced by semidemocratic governments. • Banks, utilities (gas, water, electric) and certain foreign-owned companies were nationalized or transferred ownership to local businesspeople. Vargas & ISI in Brazil • Getúlio Vargas served as president and dictator of Brazil from 1930 to 1945 and from 1951 until his suicide in 1954. • Vargas also won the nickname "O Pai dos Pobres" (Portuguese for "The Father of the Poor") because of his worker's policy. Changes in Brazil’s Economy • Between the two World Wars, Brazil was a rapidly industrializing nation; "the sleeping giant of the Americas" and a potential world power. • However, the oligarchic confederation of the Old Republic, dominated by landed interests, resisted change, industrialization, urbanization, and other broad interests of the new middle class. Vargas-Brazil • October 1930 bloodless coup ousted President Julio Prestes and elected president Washington Luís. • Dissatisfaction grew in Brazil over the state of São Paulo's political dominance. • Liberal Alliance forms around the states of Minas Gerais, Paraíba and Rio Grande do Sul to challenge the political staus quo Vargas-Brazil • Vargas's Liberal Alliance won support of Brazil's growing urban middle class and a group of tenentes (career military officers), who had grown frustrated with the politics of the cafe’ com leite (landed elites in coffee and cattle business) • Liberal Alliance backed Vargas (who lost). The election outcome was denounced as fraudulent (often the case in the period known as the Old Republic1889–1930). • The military, traditionally active in Brazilian politics, deposed Washington Luís and installed the runner-up Vargas as the “provisional president” Vargas-Brazil • Like FDR in the U.S., Vargas focused on economic stimulus. A state interventionist policy utilizing tax breaks,, and import quotas allowed Vargas to expand the domestic industrial base. • Vargas linked his pro-industrial policies to nationalism, advocating heavy tariffs to – "perfect our manufacturers to the point where it will become unpatriotic to feed or clothe ourselves with imported goods." • Vargas advocated a program of social welfare and reform similar to the New Deal. Vargas-Brazil • Parallels between Vargas and the European police states began to appear by 1934, when a new constitution was enacted with some direct almostfascist influences • Fascist-style programs would serve two important aims in Brazil, – stimulating industrial growth and – suppressing the communist influence in the country. Vargas-ISI in Brazil • The Brazilian constitution established a Chamber of Deputies that placed government authority over the private economy • Established a system of state-guided capitalism aimed at industrialization and reducing foreign dependency. • Brazilian corporatism, was actually a strategy to increase industrial output utilizing a strong nationalist appeal and co-opting workers' demands under the banner of nationalism. • While increasing worker’s rights, Vargas greatly imposed labor regulations on labor. The new constitution, drafted by Vargas allies, expanded social programs and set a minimum wage but also placed stringent limits on union organizing and "unauthorized" strikes. Vargas-Brazil • Although "the father of the poor“ expanded the electorate, granted women's suffrage, enacted social security reforms, legalized labor unions as a populist, Vargas also whittled down the autonomy of labor and crushed dissent Getulio, how about being a Good Neighbor & help me whoop some Nazis. It’s gonna cost you Yankee! 50 million in gold & a steel mill Next: Good Neighbors in War Time?