In the 1930's, a group of South American intellectuals and economists cooked up an economic recovery theory that was designed to be applied to poor, underdeveloped countries. This plan was called, "Import Substituted Industrialization." The theory was subsequently applied to some South American countries and was found to work.....for awhile. After about two or three decades, all economic systems relying on this theory either met with crisis or saw crisis to be inevitable. Okay, so whats my point?

A contingency of this plan was government-funded protection of infant industries. In other words, if a young industry in a particular country started experiencing life-threatening financial upset, the government would step in with money and sometimes conditionality clauses attached to that money which would act as aid to bring that industry back to its feet. Now does anything about this sound familiar?

If you guessed "welfare state" then you are correct.

Now let me tell you why Import Substituted Industrialization doesnt work.

When an inndustry or firm is guaranteed a government bailout, when its employees know they will never be out of work and when the CEO's know they will never go broke, they all tend to lose interest in competiveness. Why invest all the hard labor, time, and money on something that really doesnt need to accomplish anything? Infant industries in these nations employing Import Substituted Industrialization never became competitive; and any industrialization that did occur in these regions was limited.

The same idea, rather than expand itself, narrows itself to the phenomena of the individual. After all, is it not individuals that create industries and firms? Is it not also true that the behavior of industry and firms reflects the behavior of individuals? Now I have reached my point. Welfare must simply be a bad idea, and I must admit it despite my unwillingness to do so. However, in the face of such clear reason, I have no choice but to affirm.