The Background: Modernization via Internationalization

The postwar experiences of the communist East and of several countries in the capitalist South have constituted two distinct attempts to overcome underdevelopment and to establish economic and political independence. The Eastern European model has been one of state property of productive resources, allocation by centralized command, and an autarkic development strategy led by producer-goods industries. The Latin American pattern was based on private property, an active role for the state, and a fair dose of protectionism oriented toward import-substitution industrialization. Both the East and the South were dependent parts of larger international systems: major decisions about investment, production, and pricing were made beyond the borders of particular countries. The Eastern European system was dominated by a single center, and allocations were overtly political, while in the South it was possible to play off competing centers against each other, and decisions were made by less visible private institutions.

Both strategies were successful during a long period, and several countries established significant industrial bases. According to Summers, Kravis, and Heston (1984: Table 1), the average annual rates of growth of real GDP (gross domestic product) between 1950 and 1980 for countries starting at different levels in 1950 were 3.9 percent for the Third World countries that started at a low level, 5.8 percent for those Third World countries that started at middle levels, 5.4 percent for the planned economies, and 4.1 percent for the industrial economies.