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Comment by eru | Hacker News Reader

Didn't that also involve lots of tariffs?

> It didn't work particularly well then, [...]

Yes, the government (or some other institution) picking winners doesn't really have a good track record in general.

> [...], which leaves the question of what to do now?

Basically the same as always: simplify local regulations, lower barriers to entry both to foreign people, ideas and capital, and also to local outsider who want to break into existing industries.

Or to make it shorter and more pragramatic: look at what Singapore did when they were at the same stage of development.

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> Didn't that also involve lots of tariffs?

That's how import substitution works.

> Yes, the government (or some other institution) picking winners doesn't really have a good track record in general.

Import substitution isn't about picking winners, it's about forcing local industry to pick up the demand.

> look at what Singapore did when they were at the same stage of development.

A city-state is a completely irrelevant comparison to an entire continent.

PS I don't know if import substitution was a good strategy for south american contries to follow. As pointed out, it didn't work very well for them. It did work in other places at other times.

Tariffs, subsidies or the State taking on equity in private corporations.

Or just starting state-owned companies (wololo). As long as you can distribute the costs of propping up unprofitable business lines throughout a large unorganized mass that doesn't even know why they're poor.

Import substitution is when the local population creates competitors for some steps on a production chain, replacing a foreign industry piece by piece. The process is caused by relative advantages that say that an industrializing population must create something, so a mature market is the most likely place to go.

Tariffs have no direct relation to it, and are a large indirect hindrance, since the entire process requires a mature importing market.

I was trying to use 'import substitution' like that as well. And that is a useful concept.

But since eg Wikipedia (https://en.wikipedia.org/wiki/Import_substitution_industrial...) only uses the term in the other meaning, I'm going to concede the term.

Let's find a different term to describe the process 'local population creates competitors for some steps on a production chain, replacing a foreign industry piece by piece. [...]'

> A city-state is a completely irrelevant comparison to an entire continent.

Well, breaking the countries on the continent up into city states might be one way to go, if you think that a smaller scale is more conductive to good policy.

Or look at what China, the US, or basically any other industrialized nation did at the same stage of development. The government levied tariffs and gave out subsidies to support local industry even when it was less economic to do so.

Chile has almost twice China’s gdp/capita already (15k vs 8k). Granted, Chile has been stuck in the middle income trap for a very very long time, but China could always get stuck there as well.

The argument is that those countries (e.g. Taiwan) with lower tariffs were more successful, compared to their peers at the same time.

> Look at what Singapore did

So, establish state-owned enterprise for oil industry, like Singapore National Oil Corporation. Chile did follow this lesson and established Codelco.

This of course partially lead to economic sanctions, and a coup. Chileans initially were made to pay dearly for such insolence.

Codelco was the right choice, even after counting sanctions.

Agreed. That's why I said "initially." Sanctions ended when the Chicago Boys were in charge of economic policy, but still did not convince the military dictatorship to hand Codelco to private control.

How much has the SPC contributed to Singapore's economy? How much have foreign oil, chemical and electronics companies contributed to Singapore's economy?

The comparison that comes to mind is Brunei, which had much more oil and did much better than Singapore up to the 1970s, but was mostly closed to outsiders.

Singapore's success mostly rested on inviting foreign companies.

I suspect Singapore got away with some state owned companies for a few different reasons. Partly, because Singapore is so small, they can not afford to run too many inefficient state owned companies. So there's skin in the game. Partly also, because they seem to have had unusually competent administration.

Also keep in mind, that even with all the state owned companies and government added together, the public share of GDP is much lower than in most western countries.

I said somewhat flippantly that you should look at Singapore for a guide. After their sudden independence, Singapore itself looked towards Hong Kong for guidance.

Singapore is a small completely urban city state that had plenty of capital and human resources and almost no natural resources. How did it resemble anything about Chile today?

> Singapore ... had plenty of capital

Citation needed. Singapore was GDP per capita <$300 poor country without capital in 1960s.

They had a lot of rich Chinese refugees from the time along with a British colonial legacy. It isn’t that different from Hong Kong’s rise.

Government having barriers up to foreign products and protecting industries seems to have worked out for China.

China has a massive population (and arguably better location than Chile) so it could provide cheap labor during this most important moment in the late 20th century when economies became global

And it did so by reducing local regulation so that said labor could remain cheap

It's funny that we have people in this thread arguing that the same policy worked for both Singapore and China and others arguing that Singapore is too small to be relevant to Chile's experience while China is too large.

Many countries have low-to-no regulation and cheap labour, and they remain poor. China also made a concerted effort to keep its currency artificially low so that Chinese labour would remain cheap and Chinese people would be discouraged from buying foreign-made goods. While more subtle than tariffs, the effect was protectionist.

Many countries have higher tariffs and trade barriers, and they remain poor.

> Many countries have low-to-no regulation and cheap labour, and they remain poor.

Please name some. And to be clear, it's the amount and _complexity_ of interference in practice that counts.

Ie both in India and China bribes were common, but from what I heard in China your company actually got what they were promised after paying the bribe.

China's economic rise began when barriers were removed and foreign companies and products (machines, materials) were allowed into the country. Shenzen, the most open of all Chinese regions, has become the richest. The decades before, when China had isolated itself from the outside world, did not work so well.

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