Why does it seem like import-substitution-based developed, especially utilization of high tariffs for protection of infant industries, worked really well for the US and UK in the 19th century, but failed for countries like Argentina in the 20th?

by gmanflnj

A combination of high tariffs, subsidies, and a focus on import substitutions seems to have been the basis for fantastically successful industrialization for the U.K. and US in the 19th century, but when countries such as Argentina tried it in the 20th century, the results seem to have been pretty lackluster.

  1. Am I correct in characterizing these two development strategies as similar "import substitution" based regimes with high tariffs and subsidized manufacturing? Or am I incorrectly characterizing one or both of the two instances of industrialization? I first want to make sure my premise is correct.
  2. If I am correct, why did this strategy work well in one case (US high tariffs helping in the 19th century) but failing in another? (Brazil in the 20th, for example). Did something change? Was it a different in implementation? Etc.
rememberthatyoudie

There does appear to have been a shift after 1945, although the details of it are messy.

I'm going to skim over some of the differences between the models, and why the export based models performed better and concentrate on what potentially changed around 1945. If you want to read more about that, the former /u/cal_ibre has an overview of Japan (they've unfortunately deleted their account), and there are nice write ups by /u/IconicJester and /u/aquatermain on [Argentina here] (https://old.reddit.com/r/AskHistorians/comments/gkotwi/in_the_1890s_argentina_was_the_richest_country_in/).

Many of the largest industrial powers in the 19th century, such as Germany and the United States, had significant tariff barriers. This wasn't universal, for example unequal treaties with Meiji Japan forced them to have lower tariff rates, while Australia had much higher tariffs after the first world war. Both countries were quite successful: (white) Australians had possibly the highest standards of living in the world until 1890ish and much slower growth in the interwar period, while Japan tied America with the fastest growth rates at 3-4%.

This leads into the second point: prewar growth rates were much lower, even in industrializing countries (from Vries). There were a few reasons for this. At the beginning, countries were closer to the technological frontier, so room to catch up was smaller, then once caught up, growth was slower. As the gap between industrialized and unindustrialized countries grew, the room for rapid catch up growth increased. In the interwar period for a variety of reasons (increased tariff barriers, abysmal British monetary policy, etc.) the international environment was much worse. Finally, the East Asian model was developed by Japan in Manchuria. A bizarre mix of military, fascists, and exiled development economists and Marxists were given a free hand in this laboratory and worked it out in the 1930s. As the agglomeration suggests, they had all sorts of influences, from large US plant design to Soviet 5 year plans to various fascist slave labor run factories, all of which weren't really available before then.

In the post war, the development model was in place, the international climate much better, and the technological gap far larger than in the 1800s. This allowed for the much faster catch up rates in East Asia. There were other factors involved as well, which made ISI worse at this time. Technological and managerial improvement had lead to much larger wage gaps and returns to scale than in the 1800s. The first meant that it was much easier to for countries with cheap labor but low capital reserves and backwards technology to compete on low end products such as textiles, assembly of complex parts, and so on, than was true earlier. It was still possible earlier-pre WWII, Japan wrecked Britian in textile export markets by re-engineering textile manufacturing equipment to work in their low cost settings, and took silk export markets over from China doing something similar, but much easier post. The second meant that it was much more important to take advantage of larger markets. By 1960, an efficient vehicle assembly plant would produce 200,000 vehicles a year, much larger than all but the largest markets, for example, Argentina bought 50,000 vehicles/year in 1960, increasing to 195,000 in 1965, spread among several companies the largest which made 57,000 vehicles per year. This was a large part of the reason their cars were 2.5 more expensive than American. An early 1800s iron blast furnace might have produced 5,000 tons, by the 1960s the best steel furnaces produces over a million tons per year, increasing to 7 million tons the next decade. Consumption had increased, but the sheer scale of output meant most countries would only reach returns to scale with access to international markets. Under these circumstances, Japan could industrialize with relatively small exports (I think smaller than everyone but the US), using exports to generate foreign currency and discipline companies, and China could consume most of their steel output locally, but most countries couldn't.

A final note: early Argentinian development had a large agricultural component, and while I think the resource curse is real, it is certainly not destiny, and a country like Canada, Australia or New Zealand, or even Norway might be a better comparative model for it than Japan or South Korea. Very unorthodox, but even Malaysia might be better in that they were successfulish in transitioning from a plantation and mining economy.

Sources:

"Global Economic History: A Very Short Introduction" by Allen has a some on exactly this question

"Escaping Poverty" by Vries also touches on it

The random country specific details that weren't from Allen were from memory, I can dig up sources on any of the random details you are interested in.