9_Law and State_Volume 17

58 Johann Hellwege
traditional exports of primary goods, such as agricultural products and
raw materials which are subject to extreme fluctuations. The establishment
of a domestic consumer goods industry, however, also led anew to
dependency upon imports. Of course these imports were of a different
kind, namely capital goods, raw materials, semi-manufactured products,
etc. Where formerly one could, without great relative repercussions, restrict
the import of consumer goods during periods of balance of payments
difficulties, now by contrast a restriction on the new imports also meant
jeopardizing the level of production, income and employment. The dependencia
school rightly points out that import requirements, in consequence
of the policy of substitution, have grown more inflexible. It must be
started, however, that this is by no means proof that this results from
dependencia. Furthermore, actual foreign currency savings through import
substitution can only be achieved if the new import needs, which arise
with domestic industrialization, at the same time are sufficiently matched
with already successfully substituted imports as a consequence of investments
already made earlier. The high degree of diversification of the
larger national Latin American economies, which has been achieved with
unusual rapidity and as a rule without specialization according to the
principle of comparative advantage, seems to indicate that phase extensions,
for considerations of currency needs, are hardly aimed at.
To the extent that empirical investigations have been carried out on
the connection between import substitution and currency requirements,
these reach different conclusions about the savings effect22. On the other
hand, however, it may be supposed that import requirements would be
even greater today if one assumes that changes in demand, which appeared
through import substitution, and the same income growth, would have
taken place without this process. Yet there can be no question that Latin
American import substitution policy has involved hindrances of exports
which have contributed considerably to the development of bottlenecks in
their balance of payments. Thus internal price relationships have frequently
been changed in favour of the new industries and at the expense
of the traditional production of primary goods. The over-evaluation of
domestic currency signified a further difficulty for raw materials and
agricultural products which made up the major portion of exports. The
industries originating in the course of the import substitution process were,
for various reasons, not in a position to export sufficient industrial goods
to compensate for the falling returns on the export of raw materials and
agricultural products. On a comparative international scale, domestic
industries’ cost level was not always raised to unusual levels by low
efficiency; but frequently it was the officials who hampered competition