The statement, "Development must take place outside the international trade system, it cannot occur within it!" adheres to strategies that generally seclude the state within itself, such as autarky, import substitution, and socialism, and rejects the globalization that development inside the international trade system would engender. It greatly corresponds to the argument against using international institutions to shepherd less developed countries into the industrialized world and therefore the premiere trading economy.
These supporters also believe this to be true because if development occurred inside the international trade system, the developing states would need assistance from international monetary systems, and many LDCs perceive the loans to create a reliance on DCs which would threaten to limit their autonomy and create a great dependency on the DC, which, according to Dependency Theory, can only be opted out of through the Global Marxist Revolution.
Engaging in these loans also simultaneously invests into the Western idea of capitalism because the conditions given often require open economic policies with trade liberalization, and this is often aberrant to the political ideology of the LDC. Globalization is a common offset to this free trade, and the advocates of the aforementioned quote would also agree with the beliefs that globalization increases unemployment in rich countries and exploitation in poor countries, reduces global cultural diversity and the legitimate democratic influence of people, undermines the welfare state through reduced tax policies to court global investment, and undermines their autonomy.
Autarky, import substitution, and socialism are all strategies that occur outside the international trade system and in practice are ineffective. The tactic of autarky, the approach in which a country cuts itself off from the international system completely, is undesirable. As a result of market restrictions, the basket of goods in the individual country is small and the price of products increases. Besides the surge of price (and the burden it places on citizens), autarky will never be satisfying because the limitations of goods that the country can independently produce will leave citizens wanting products that can only be acquired through trading with other countries, which would acquire inserting itself into the international system once again.
Socialism, another tactic that initiates development outside the international market, argues that leaving things up to the market is unreliable and therefore institutes a command economy in its place. A command economy asserts that the government determines the amount of products to be produced regardless of the demand for it, which is almost always an inaccurate estimate. This government guesswork leaves either too much or too few of an item and removes personal incentives to create quality products because the laborer wage is set and will not fluctuate according to the demand of a product.
The policy of import substitution ties into the belief that the cause of economic retardation in developing states is the restraint of producing only primary goods, and the secret of successful states is the money brought in through the turnover of raw goods into industrialized material. Local processed goods are substituted for imported goods to achieve this, and consumers are induced to buy these local goods because of the heavy tariffs levied on imported goods, making them more expensive.
The central dilemma that import substitution runs into is its neglect of the economy of scale. While tariffs are imposed consumers don't purchase goods from the outside market and as a result when the tariffs are lifted, the state would be blocked by other economies and lose all of its potential importers. This is not unique to import substitution; socialism and autarky also limits its scale of operation, and when these economies enter into the international trade system they will either be blocked by other states or its economic scale will be drastically behind states that developed inside the international trade system. This has been the central destructive factor of development strategies that occur outside of the international system: the adjustment to inside the system is far too onerous.
An excellent alternative to development strategies that occur outside the international trade system is the policy of export-led growth. In an export-led growth economy the state chooses the most promising industry to concentrate its investment in. The success of that industry and the money generated from it trickles down into other sectors, enabling them to be successful as well.
Although development inside the international trade system is generally more successful than outside of it, many IPE perspectives and theories persist in disagreeing, notably Marxism and Historical Structuralism. In Kicking Away the Ladder, Chang argues that almost every successful country used infant industry protection during a "catching up" phase in the economy, particularly(and ironically) the U.S. and Britain. Infant industry protection, that of protecting new economies through means such as tariffs, is utilized in import substitution, and as history has shown its success in the past, offers a solid argument against current skepticism.
Marxism, on the other hand, is opposed to aid not because of what's happened in the past but what's to happen in the future-the Marxist Revolution. Any aid that is given to poor countries staves off this revolution from occurring, and the trade between the countries is an unequal exchange since the LDC products are not compensated for their worth, which includes the labor invested into it. The Dependency Theory, as mentioned earlier, believes that the reliance on DCs and the aid they distribute personally or through monetary institutions creates a continuing cycle of exploitation that can only be cured through the Global Marxist Revolution.
Both the Dependency Theory and Marxist Theory do not hold much legitimacy today because while Asia, due to its contact with the West, should be getting poor and exploited, now has a solid economy because of its utilization of export-led growth.