And that has reverberations,
especially in the big oil importing countries, but, by the way,
will also affect all the countries in the less developed world too.
At the end of the 1970s, again picking up off a scare caused by the Iranian
Revolution of 1978 and 1979, oil prices make another big jump.
That rise in the prices of a key commodity in the world economy also contributes
to the Great Inflation.
So it's worth taking a moment and just reflecting on what all
these sorts of problems would mean for models of modernization like ISI.
Remember, that was import-substitution
industrialization, practiced by countries like Brazil.
Or export-oriented industrialization, practiced by countries
like Japan or South Korea. Or for
the more socialist models.
Why would this be trouble for an ISI-type system?
Well, you have to buy imports.
You hope you can keep the amount of money
you need to buy imports down, but if you're importing
a good amount of oil and the price of
oil triples, you need more money to buy that oil.
Well, how are you going to get it?
Because if the price of necessary imports
goes up, and import substitution approach doesn't have strong export products,
you've sheltered your own domestic industries from foreign competition,
they're not producing their goods at a price or
quality that has had to be competitive in foreign markets,
so you can't rapidly ramp up your exports in order to buy the oil you now need.
What do you then do about that problem?
You still need to buy the oil.
You may even want to give your people more subsidies, so
they can pay those higher oil prices without much domestic unrest.
The answers are going to be, you're going to
start printing money to solve problems like these.