This chapter examines trends in Latin American economic performance and Latin American economic policy during and immediately after the Second World War. The emphasis is principally on the interaction of the Latin American economies with the international economy. In the 1930s, as the previous chapter has shown, Latin American economic performance as a whole was still driven by the export of primary products, although in most countries industry grew faster than real gross domestic product (GDP). Economic policy achieved the unusual feat of stimulating primary exports and industrial development at the same time. This was an important achievement, since primary exports were the main source of foreign exchange for the import of intermediate and capital goods. By the 1950s, however, Latin America was deeply entrenched in import-substituting industrialization (ISI). Its key characteristics were a strong discrimination against exports combined with an increased need for foreign exchange. Thus it discriminated against the sector which was crucial to its functioning. We need to understand, therefore, how and why policy evolved from the relative consistency of the 1930s to the contradictions of the 1950s. This chapter will explore first, the impact of the Second World War on the Latin American economies, and second, the evolution of economic policies – and economic performance – in the immediate aftermath of the war. The analysis will necessarily have to touch on the 1950s, since our conclusion is that the explicit rejection of the old export-led growth model and the consolidation of the new inward-looking ISI model of economic growth and development occurred, in the larger countries at least, between the late forties and the middle of the following decade.

Very little literature on the economic development of Latin America specifically addresses the 1940s. Analyses tend to see the 1929 Depression as initiating the shift to import-substituting industrialization in the form that is recognizable by the 1950s, and give little attention to the precise problematic of the Second World War and its aftermath. The wealth of studies of the 1930s therefore simply finds no parallel in the next decade. The international economy is, however, more fully studied, since this was a period of strong institutional innovation. See, for example, S. W. Black, A Levite among the Priests: Edward M. Bernstein and the Origins of the Bretton Woods System (Oxford, 1991). Robert A. Pollard, Economic Security and the Origins of the Cold War, 1945–1950 (New York, 1985) is an important study of the immediate postwar period, especially, for our purposes, chapter 9: ‘Natural resources and national security: U.S. policy in the developing world, 1945–50’. K. Kock, International Trade Policy and the GATT, 1947–1967 (Stockholm, 1969), is a useful source on GATT and the role of the United States. Longer-run general studies of the international economy that incorporate this period include: Alfred Maizels, Industrial Growth and World Trade: An Empirical Study of Trends in Production, Consumption and Trade in Manufactures, 1899–1959(Cambridge, Eng., 1963) and P. Lamartine Yates, Forty Years of Foreign Trade: A Statistical Handbook with Special Reference to Primary Products and Underdeveloped Countries (London, 1959). Two works on foreign investment which cover a longer span of Latin American economic history but which are useful for this period are Barbara Stallings, Bankers to the Third World: U.S. Portfolio Investment in Latin America, 1900–1986 (Berkeley, 1987) and J. Fred Rippy, British Investments in Latin America, 1822–1949 (Minneapolis, Minn., 1959).

This essay concentrates on material concerning Latin America as a whole, and on certain works of particular use from a comparative point of view. The period is one of increasing integration with the world economy, particularly in the 1920s. It is therefore no surprise to find that most of the richest contemporary material is foreign in origin, and produced in English. It is also, typically, only the foreigner who perceived ‘Latin America’ as a whole. Both factors are reflected in this review of the secondary literature; the material of foreign origin is exceptionally valuable as long as its context is borne in mind.

The outstanding modern book on U.S. expansion in this period is Barbara Stallings, Banker to the Third World: U.S. Portfolio Investment in Latin America, 1900–1986 (Berkeley and Los Angeles 1987). The ‘classic’ and still invaluable sources are Cleona Lewis, America’s Stake in International Investments (Washington, D.C., 1938), M. Winkler, Investments of U.S. Capital in Latin America (Boston, 1929), J. F. Normano, The Struggle for South America (Boston, 1931), H. Feis, The Diplomacy of the Dollar (Baltimore, 1950) and M. Wilkins, The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970 (Cambridge, Mass., 1974). An excellent comparative study is ECLA, Foreign Capital in Latin America (New York, 1955). On the expansion of banking, C. W. Phelps, The Foreign Expansion of American Banks (New York, 1927) and David Joslin, A Century of Banking in Latin America (London, 1963) are the key secondary sources. A brilliant more recent study is Carlos Marichal, A Century of Debt Crisis in Latin America: From Independence to the Great Depression 1820–1930 (Princeton, N.J., 1989).

This chapter examines trends in Latin American economic performance and Latin American economic policy during and immediately after the Second World War. The emphasis is principally on the interaction of the Latin American economies with the international economy. In the 1930s, as the previous chapter has shown, Latin American economic performance as a whole was still driven by the export of primary products, although in most countries industry grew faster than real gross domestic product (GDP). Economic policy achieved the unusual feat of stimulating primary exports and industrial development at the same time. This was an important achievement, since primary exports were the main source of foreign exchange for the import of intermediate and capital goods. By the 1950s, however, Latin America was deeply entrenched in import-substituting industrialization (ISI). Its key characteristics were a strong discrimination against exports combined with an increased need for foreign exchange. Thus it discriminated against the sector which was crucial to its functioning. We need to understand, therefore, how and why policy evolved from the relative consistency of the 1930s to the contradictions of the 1950s. This chapter will explore first, the impact of the Second World War on the Latin American economies, and second, the evolution of economic policies — and economic performance — in the immediate aftermath of the war. The analysis will necessarily have to touch on the 1950s, since our conclusion is that the explicit rejection of the old export-led growth model and the consolidation of the new inward-looking ISI model of economic growth and development occurred, in the larger countries at least, between the late forties and the middle of the following decade.

The periodization of Latin American economic history around ‘external shocks’ has been increasingly rejected in recent years. Yet if we wish to explore – as an open question – the role of the international economy in the economic development of Latin America, the First World War and the World Depression enclose a significant period. It bridges the gap between the first major ‘external shock’ of the twentieth century and the final breakdown of the export-led growth mechanism of the ‘Golden Age’ whose starting point had been around 1870. The period also represents the key years in the changeover from one hegemony to another: Britain's decline as a major economic power was hastened by the war (when Germany was eliminated) and the United States was thrust into the role of Latin America's major investment and trade partner.

Nevertheless, generalizations about Latin America as a whole, dangerous at the best of times, are particularly difficult in such a period of transition. Change occurs at different rates in different countries and perceptions vary: in some countries the ‘Golden Age’ clearly continues until 1929; in others fundamental changes occur between 1914 and 1929 and the period is aptly characterized the ‘Great Delay’; and in others the roots of change were there well before 1914.

In this chapter we first describe the major characteristics of the changing world economy between the First World War and the World Depression. Then we explore the impact of these changes on the Latin American economies. The conclusion attempts an evaluation of the extent of change and the long-term significance of the period.