ABSTRACT
This chapter explores the antecedent politics and economic development leading up to the shift to neoliberalism. The central argument is that the import substitution industrialization (ISI) model was fundamentally flawed, but not as dysfunctional as its most ardent critics suggest. Import substitution industrialization led to a profound transformation of the region's economy, politics, and social structure. Latin America's economic development, beginning in colonial times, was governed by mercantilist principles. The transformation of the region was not limited to good news however. Perhaps the most visible negative side of the ISI changes was the substantial and visible growth of urban poverty. ISI's shortcomings began manifesting themselves quite early. Already by the 1940s, policy makers confronted problems that arose directly from the economic model. Arguably the most serious economic consequence of ISI was inflation. Inflation – technically simply the rate at which prices are rising – is a corrosive and destructive problem.
