American underwent a deep economic contraction. The prescription of import-substitution industrialisation to the economies of Latin America appeared disastrous: Prebisch himself, a vigorous advocate of the program, swiftly distanced himself from the policy, noting the onset of “dynamic insufficiency” in the Latin American economies and the vital role that the “cost of import substitution” played in its development. 179 Ultimately, ISI failed to achieve economic growth on anywhere near the same scale as EOI in East Asia for a variety of reasons. While the policy worked in the short term, it faced numerous difficulties which would limit its success in the medium and long term: Latin American domestic markets typically suffered from oversaturation, higher production costs were passed onto consumers, and technological innovation was stifled rather than enhanced due to the emergence of firms with near-monopoly power. Even though one of the central goals of ISI was to limit import dependency, import dependency remained entrenched in the structure of Latin American economies, because production processes in infant industries required a substantial number of capital goods imports. With the notable exceptions of Brazil and Mexico, the fabled competitive economies of scale in Latin American industries never emerged. Sheltered by tariff walls and state subsidies, the region’s firms failed to achieve the sam e level of efficiency as international firms. Furthermore, the excessive concentration of resources for industry would actually worsen the performance of primary product exports in Latin America which, in addition to the limits on industrial exports, greatly damaged the region’s balance of payments and resulted in large -scale international borrowing. In short, after the initial low-hanging fruits of industrialisation – particularly in textiles and shoes – had been gained, Latin America still remained immensely dependent on imports. Rather than gaining greater autonomy, a new form of vulnerability had emerged: now Latin America needed costly capital goods, “90 percent of which had to be imported and paid for with the same low-
179 Dosman, The Life and Times of Raúl Prebisch 1901-1986, page 453.
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