The Great Depression in
Latin America
Import Substitution Industrialization
IB History of the Americas
Guiding Questions
• What is ISI?
• How where the economies of the United States and the
many Latin America economies interconnected?
• In general, what effect did the Great Depression have on
the economies of Latin American countries?
• To what extent did Vargas change the economy of Brazil
during the 1930’s?
• Compare and contrast the economic policies of
Roosevelt and Vargas.
ISI Defined
• Import Substitution Industrialization (called ISI) is a
trade and economic policy based on the premise that a
country should attempt to reduce its foreign dependency
through the local production of industrialized products.
• ISI requires state-induced industrialization through
government spending, it is largely influenced by
Keynesian economic philosophy, as well as the infant
industry arguments adopted by some highly
industrialized countries, such as the United States, until
the 1940s.
ISI in Latin America
• Import substitution policies were adopted by
most nations in Latin America from the 1930s
until the late 1980s.
• Adoption of ISI is attributed to the impact of the
Great Depression, when:
– Latin American countries, which exported primary
products (henequen, fruit, beef) and imported almost
all of the industrialized goods they consumed (radios,
appliances), were prevented from importing due to a
sharp decline in their foreign sales.
– This served as an incentive for the domestic
production of the goods they needed.
ISI in Latin America
• The first steps in ISI were based on pragmatic choices of
how to face the economic limitations caused by
recession.
• Populist governments in Argentina (Peron) and Brazil
(Vargas) modeled Fascist Italy (and, to some extent, the
Soviet Union) as inspirations of state-induced
industrialization.
• Positivism which sought a "strong government" to
"modernize" society – played a major influence on Latin
American military thinking in the 20th century.
• Perón and Vargas saw industrialization (especially steel
production) was synonymous of "progress" and was
naturally placed as a priority in ISI policy.
ISI in Latin America
• ISI was most
successful in
countries with large
populations and
income levels which
allowed for the
consumption of locally
produced products.
• Argentina, Brazil,
Mexico, and, to a
lesser extent, Chile,
Uruguay and
Venezuela, had the
most success with ISI
ISI in Latin America
• In Latin American
countries where ISI was
most successful, it was
accompanied by changes
in government. Old
neocolonial governments
were replaced by semidemocratic governments.
• Banks, utilities (gas,
water, electric) and certain
foreign-owned companies
were nationalized or
transferred ownership to
local businesspeople.
Vargas & ISI in Brazil
• Getúlio Vargas served as
president and dictator of
Brazil from 1930 to 1945
and from 1951 until his
suicide in 1954.
• Vargas also won the
nickname "O Pai dos
Pobres" (Portuguese for
"The Father of the Poor")
because of his worker's
policy.
Changes in Brazil’s Economy
• Between the two World
Wars, Brazil was a rapidly
industrializing nation; "the
sleeping giant of the
Americas" and a potential
world power.
• However, the oligarchic
confederation of the Old
Republic, dominated by
landed interests, resisted
change, industrialization,
urbanization, and other
broad interests of the new
middle class.
Vargas-Brazil
• October 1930 bloodless
coup ousted President
Julio Prestes and elected
president Washington
Luís.
• Dissatisfaction grew in
Brazil over the state of
São Paulo's political
dominance.
• Liberal Alliance forms
around the states of
Minas Gerais, Paraíba
and Rio Grande do Sul to
challenge the political
staus quo
Vargas-Brazil
• Vargas's Liberal Alliance won support of Brazil's growing
urban middle class and a group of tenentes (career
military officers), who had grown frustrated with the
politics of the cafe’ com leite (landed elites in coffee and
cattle business)
• Liberal Alliance backed Vargas (who lost). The election
outcome was denounced as fraudulent (often the case in
the period known as the Old Republic1889–1930).
• The military, traditionally active in Brazilian politics,
deposed Washington Luís and installed the runner-up
Vargas as the “provisional president”
Vargas-Brazil
• Like FDR in the U.S., Vargas focused on economic
stimulus. A state interventionist policy utilizing tax
breaks,, and import quotas allowed Vargas to expand the
domestic industrial base.
• Vargas linked his pro-industrial policies to nationalism,
advocating heavy tariffs to
– "perfect our manufacturers to the point where it will
become unpatriotic to feed or clothe ourselves with
imported goods."
• Vargas advocated a program of social welfare and
reform similar to the New Deal.
Vargas-Brazil
• Parallels between Vargas
and the European police
states began to appear by
1934, when a new
constitution was enacted
with some direct almostfascist influences
• Fascist-style programs
would serve two important
aims in Brazil,
– stimulating industrial
growth and
– suppressing the
communist influence in
the country.
Vargas-ISI in Brazil
• The Brazilian constitution established a Chamber of
Deputies that placed government authority over the
private economy
• Established a system of state-guided capitalism aimed at
industrialization and reducing foreign dependency.
• Brazilian corporatism, was actually a strategy to increase
industrial output utilizing a strong nationalist appeal and
co-opting workers' demands under the banner of
nationalism.
• While increasing worker’s rights, Vargas greatly imposed
labor regulations on labor. The new constitution, drafted
by Vargas allies, expanded social programs and set a
minimum wage but also placed stringent limits on union
organizing and "unauthorized" strikes.
Vargas-Brazil
• Although "the father of
the poor“ expanded
the electorate, granted
women's suffrage,
enacted social security
reforms, legalized
labor unions as a
populist, Vargas also
whittled down the
autonomy of labor and
crushed dissent
Getulio, how about being
a Good Neighbor & help
me whoop some Nazis.
It’s gonna cost you Yankee!
50 million in gold
& a steel mill
Next:
Good Neighbors in War Time?