State-Led Development The intellectual inspiration behind state-led development comes from List and Keynes However - both

List and Keynes wrote about Western capitalist countries and not the Third World List, in fact, considered the non-West to be savage and half-civilized State-led development broadly took 2 forms: 1. ISI; 2. Developmental States ISI Described as a politicians dream strategy since most variables/inputs could be controlled by political leaders unlike free-market models where the uncertainties of the international economy make political control impossible ISI took many forms across the Third World Broad consensus on the following: 1. Heavy industrialization 2. Tariffs, trade quotas, and quantitative trade restrictions; 3. Sometimes driven by military/strategic aims, with the notable exception of Latin America, where these imperatives were relatively weak

4. Agricultural sector to provide surplus for investment in industry; 5. Planning and policy interventions to deal with market-based problems Lack of consensus on: 1. The role of foreign investment 2. The role of private sector 3. The distribution of public ownership in various sectors 4. Exchange rate, fiscal, and monetary policy 5. Policies towards agricultural sector 6. Redistributive policies While ISIs official origins date to the 1930s, its historical origins lie in the 19th century Late industrializers in Europe, including Russia, Germany, Japan) were primary concerned about their relative military and naval backwardnessISI was launched to overcome that backwardness Agricultural sector was made subservient to the imperative of industrializationthe goal was to make agriculture more productive and then to tax it in order to transfer this surplus as investment for industrialization These strategies followed by 19th century late industrializers have been called defensive modernization and more interestingly, it was not just in Europe but also in countries like Egypt, Turkey, and Meiji Japan that some of these policy measures were taken up it is argued that ISI, without its name, was a strategy adopted by many nation states up to 100 years before its official birth

Varieties of ISI State capitalism/developmentalism - Argentina, Brazil, South Korea 1. Less emphasis on redistribution 2. Favored foreign investment 3. Encouraged private sector State socialism/populism - Mexico, India, Tanzania 1. Emphasis on heavy industry ( transportation, power, chemicals etc); 2. Suspicious of foreign capital; 3. Tolerated small- and medium-scale private enterprise; 4. Reserved major means of production (not just oil) for state enterprises; 5. High regulation/control of economic activity; 6. Sought redistribution through taxation. Results of ISI One of the features of ISI is trade pessimismwhat ISI did was to change the economic structure but not the trade structureexports remained what they were in the pre-ISI era (primary goods)compare this to Japans development state where the economic miracle was based on both a change in the structure of the economy and a change in the structure of tradetrade in manufactured goods not absent but it was limited to trade between Third

World countries the problem was especially acute for countries with small marketsif their industries could not sell abroad, or compete with products of other Third World countries, the whole logic of industrialization appeared flawed