Switching from import substitution to the ‘New Economic Model’ in Latin America: A case of not learning from Asia

This paper argues that the East Asian success stories do not owe their growth toliberalised markets and laissez faire industrial policies, but to industrial developmentstrategies that share several similarities to the import-substitution industrialisation (ISI)approach. There are, needless to say, some important fundamental differences whichdetermine why Latin America and East Asia demonstrated such different outcomes, but thesehave become obvious only with hindsight. Nonetheless, the switch from ISI to theWashington Consensus-derived, neo-liberal ‘New Economic Model’ (NEM) has not in anyway minimised these differences. I argue that the NEM – as currently formulated – cannotsustain long-term industrial development, and is likely to erode the gains made from ISIprogrammes for the sake of efficiency and export growth. The ISI-to-NEM shift has not re-orientedLatin America towards the East Asian model but away from it. I identify fiveimportant problems with the ISI restructuring model which have reduced the opportunities forduplicating the east Asian success story, 1.The attenuation of the role of government; 2.unreasonable expectations from the liberalisation of FDI for industrial development; 3. thefailure to sustain absorptive capacity; 4. The failure to sequence FDI and domestic capacity intandem; and 5. The failure to recognise the inertia of transition, and coordination failures.