Discussion on Failure of ISI and Success of the Neoclassical
Failure of the ISI Model When discussing the reasons for the failure of the import substitution industrialization model in Chile, one of the first things to consider are the inherent inefficiencies of the protected infant industries. Due to Chile being one of the most protected economies in the developing world, many of it’s industries had little incentive to innovate and become competitive. The survival of these industries, were therefore dependent on the provision of government subsidies. These subsidies however, began to take a huge toll on government expenditures by the time Allende was in power during 1970-1973. For example, by 1973, the economic losses from state-run industries …show more content…
In spite of high initial GDP growth, the active role of the government demanded under the ISI model was unsustainable in the case of Chile. The government was far too involved in the economy, and lacked the funds and resources to support all the protected infant industries. Conversely, Chile now stands as one of the strongest economies in Latin America in large part due to the massive reforms that were undertaken following the critical assumption under the neoclassical model. These reforms, while difficult at times, allowed the Chilean economy to sustain high economic growth throughout the 1990’s, and onwards. By liberalizing its economy, and becoming an active player in the global economy, Chile was able to take advantage of the growth in global trade through the expansion of it's export sectors. This growth came at a huge cost to inequality however, as the reforms largely benefited the wealthiest members of society. Nonetheless, as shown above, the neoclassical reforms implemented under Pinochet, and further pursued by the democratic administrations after the return to democracy, are a large reason for Chile’s current economic
Failure of the ISI Model When discussing the reasons for the failure of the import substitution industrialization model in Chile, one of the first things to consider are the inherent inefficiencies of the protected infant industries. Due to Chile being one of the most protected economies in the developing world, many of it’s industries had little incentive to innovate and become competitive. The survival of these industries, were therefore dependent on the provision of government subsidies. These subsidies however, began to take a huge toll on government expenditures by the time Allende was in power during 1970-1973. For example, by 1973, the economic losses from state-run industries …show more content…
In spite of high initial GDP growth, the active role of the government demanded under the ISI model was unsustainable in the case of Chile. The government was far too involved in the economy, and lacked the funds and resources to support all the protected infant industries. Conversely, Chile now stands as one of the strongest economies in Latin America in large part due to the massive reforms that were undertaken following the critical assumption under the neoclassical model. These reforms, while difficult at times, allowed the Chilean economy to sustain high economic growth throughout the 1990’s, and onwards. By liberalizing its economy, and becoming an active player in the global economy, Chile was able to take advantage of the growth in global trade through the expansion of it's export sectors. This growth came at a huge cost to inequality however, as the reforms largely benefited the wealthiest members of society. Nonetheless, as shown above, the neoclassical reforms implemented under Pinochet, and further pursued by the democratic administrations after the return to democracy, are a large reason for Chile’s current economic