ABSTRACT
All Latin American states were economically very vulnerable, as the impact of the depression showed in a most dramatic way. They exported either agricultural produce or minerals and ores whose prices were falling even before the depression, and after 1929 they declined very rapidly. Exports receded and therefore imports had to be curtailed severely. Debt service and the flight of capital reduced the means available for imports even more. There were two ‘buffers’ which shielded the states of Latin American to some extent. First, many imports were non-essential and could be omitted easily, and second, large numbers of unemployed workers and agricultural labourers would go back to the countryside and simply fade away. The fate of those people has hardly been studied and they tend to be forgotten in the relevant literature. Presumably they returned to subsistence agriculture, but as pointed out earlier, subsistence agriculture may be a myth which hides suffering behind a smokescreen of bucolic charm. Nevertheless, both buffers enabled indigenous businessmen to accumulate capital and to invest in the home market, thus overcoming the effects of the depression. The first buffer stimulated import substitution, the second one helped to keep wages low and to shift the burden of the depression to the rural poor. The deteriorating terms of trade of the periphery were paralleled by a similar shift of the terms of trade to the disadvantage of the rural people. Latin American economists have highlighted the importance of the depression as a turning point in the economic development of
Latin America. By uncoupling themselves from the world market and concentrating on the home market, the Latin Americans had reduced their dependence on foreign countries and cultivated some inner strength. Import substitution is stressed
heavily in this respect while the conditions of the rural poor are conveniently forgotten. There is no doubt that the governments of many Latin American states felt compelled to foster self-reliance and to adopt measures in favour of indigenous industries, etc. Some progress was made in this direction, but it was also accompanied by an increase in state interventionism and a general distrust of the old ideas of free trade. The enthusiasm for import substitution and internal development of the economists associated with the Economic Commission for Latin America has influenced the interpretation of the economic history of the 1930s to such an extent that a more sober historical analysis tends to be neglected. These economists, so to speak, magnified the roots of import substitution in the 1930s as they looked back at them from the position of a subsequent period when import substitution had definitely made a mark. But the recovery from the depression was to a much larger extent due to the revival of exports than these economists tended to believe. However, even though import substitution may have to be given a lesser weight when assessing the economic history of Latin America in the 1930s, the emergence of state intervention was certainly a dominant feature of this period. It also played a role in export promotion by means of multiple exchange rates or bilateral trade agreements. The diversification of agricultural production was another sphere of active state intervention. Agricultural import substitution was in some states perhaps as important as industrial import substitution.
