9_Law and State_Volume 17

Underdevelopment, Dcpcndcncia, and Modernization Theory
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for Brazil15, could tend to support the skeptical view that the development
of specialized, or the application of already known, labour-intensive
technologies could better come to grips with the employment problem in
the Third World. Quite apart from which strategy of industrialization is
chosen, the employment effects of industry alone would hardly be sufficient
to do away with unemployment in Latin America, given the present
growth rates of the population. It becomes all the more difficult to
condemn the strategy of import substitution on the basis of its alleged
adverse effects on employment when one observes an increase in the numbers
of those employed in the service industries. These service industries are
largely dependent upon industry, particularly in the cities, and they are
growing at a rate exceeding that of the overall population.
Import substitution began with, and essentially rests upon the manufacture
of mass consumer articles. The import coefficient could clearly be
decreased in many Latin American countries. At most for small countries,
however, the claim can be sustained that import substitution, with its
domestic production of consumer goods, has already reached the limits of
its possibilities of industrialization. In countries like Argentina and Brazil,
completely utilized capacities in the production of consumer goods,
which signify social waste, have admittedly become evident in some
measure. But the causes of this were less low demand or excessive prices
than an excessive substitution of the import of capital goods, which was intended
to do away with the existing consumer goods industries’ dependency
upon imported raw materials and semi-manufactured products. The resultant
dearth of foreign currencies was not sufficient to provide the existing
production plants with raw materials and semi-manufactured products16.
With a view to Brazil and Argentina, one can rather speak of an extensive
import substitution which has already extended into spheres where
production costs in the long term cannot be expected to fall below those
of foreign countries. Other countries’ relatively high share of imports in
the spheres of semi-manufactured products and capital goods point to the
fact that the small domestic market does not permit a less costly production
in all spheres of production.
The dependencia school’s objection that import substitution only gives
rise to “industrial enclaves” cannot be sustained in the face of the interlinking
effect which has been demonstrated to exist in Argentina, Brazil,
Mexico, Peru and Venezuela. Cardoso and Faletto expressly emphasize
that the economic structure of Latin American countries has been considerably
altered by import substitution, and that the economy of the
1950’s and 1960’s is thus precisely the opposite of an enclave economy of
the customary type17.