As ISI [import substitution industrialization] unraveled during the late 1970s and early 1980s, the model of capital accumulation pursued by the larger, more highly industrialized Latin American countries lost vitality and finally collapsed. By the early 1990s the ISI model had largely been rejected, and was being replaced by totally different economic strategies.
Ian Roxborough, 19941
The import-substitution model of economic development that Mexico adopted after 1940 served the country for nearly half a century and produced the Mexican economic miracle—a source of envy throughout much of the developing world. Between 1940 and 1982, Mexico’s per capita GDP increased at an average annual rate of 3.6 percent. During that period, per capita income increased by 440 percent, manufacturing by 1460 percent, and agriculture by 420 percent, while population only increased by 240 percent.
By the end of Lopez Portillo’s term (1976—1982), the development model was showing signs of disfunctionality. These signs included: 1) 150 percent inflation in 1982, 2) depletion of foreign exchange reserves, 3) virtual collapse of non-oil exports, 4) high foreign indebtedness, and 5) capital flight, which totaled $22 billion between 1980 and 1982.2
In retrospect, it is clear the import-substitution model suffered from numerous flaws. These flaws include Mexico’s market being too small to permit manufacturing economies of scale. As a result, goods manufactured in Mexico were roughly 50 percent more expensive and of lower quality than their foreign equivalents. Production of consumer durables was mainly for Mexico’s upper and middle classes, which were too small to sustain growth. Import substitution placed a constant drain on Mexico foreign currency reserves since factories established under its aegis constantly required foreign purchases of components, intermediate materials, and capital goods. Such purchases resulted in a $28 billion trade deficit between 1970 and 1981. In the early post-Second World War period, agricultural exports financed such purchases. However, after the mid-1960s, agricultural exports declined. Also, just as opponents of massive foreign investment had predicted, foreign investors withdrew $5.3 billion more than they brought into Mexico between 1974 and
1984.3
The old economic model exacerbated several existing problems. Most of Mexico’s manufacturing was concentrated in the Valley of Mexico, Guadalajara, and Monterrey—leaving little benefit for the rest of the nation. It failed to address Mexico’s employment needs since the capital-intensive factories produced few jobs. Direct economic benefits were restricted to plant owners and the relatively small organized industrial working class while the vast majority of the population waited for wealth to trickle down. As economist Manuel Gollas observed, “Industrialization was a very inefficient method of promoting economic justice.” Finally, in the late 1960s, labor productivity stagnated, making further wage increases, which had brought social peace, untenable.4
By the mid-1980s, economic policy makers deemed these problems to be sufficient cause for adopting a new economic model. While the problems associated with the import substitution are undeniable in retrospect, the question arises as to whether Mexico needed a sudden shift in economic model, as occurred, or whether it could have entered a globalizing economy in a slower, less damaging manner.
World History
