From ISI to an open economy: the state transformed, not in retreat

How have the countries that used import substitution industrialization (ISI) from the 1930s through the 1970s as an economy and state building strategy changed in the following four decades? We consider the former British Dominions (Australia, Canada, and New Zealand), Iberia (Spain and Portugal), and the three largest Latin American Countries (Argentina, Brazil and Mexico). Import substitution shifted rents from raw materials exports towards a nascent manufacturing. These policies created not just physical capital but also new social groups -- organized capital and labor -- that in turn created the capacity for direct state management of the economy, and so reflected and contributed to state building. The core change after the 1970s redefined the modes through which the state exercised control over the economy, rather than simply reducing state intervention. As in the other advanced industrial economies, the ISI states eventually shifted away from forms that involved direct public control and execution of economic tasks toward forms of indirect control. Bureaucratic control and administrative procedures gave way to the use of rules, guidelines and competitive pressures that shape individual and firm behaviors. Finally finance, some firms and finance ministries weakened the public status of organized interests in order to enhance both their own market power and state autonomy.