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“BAD” TRADE AND INDUSTRIAL POLICIES THAT LED TO THE DEVELOPMENT OF THE USA AND BRITAIN. ARCHAIC IN SOOTH “GOOD” FOR THE DEVELOPING COUNTRIES
Part
of the conviction in free trade that the proponents of globalization processes comes from
the belief that economic theory has irrefutably established the superiority of
free trade, even though there are some formal models which show free trade may
not be the best. However, even the builders
of those models, such as Paul Krugman, argue that free trade is still the best
policy because interventionist trade policies are almost certain to be
politically abused. Looking closely at the history of capitalism, you realize
there is a very different story. History shows that virtually all of today’s
developed countries did not practice free trade as they often preach. They did
promote their national industries through tariffs, subsidies, and other
measures.
Notable to this cause is Britain and USA, conventionally these are believed to have reached the summit of the world’s economic ladder by clinging onto free trade when other countries were immovable with mercantilist trade policies. The hiatus between the “bona fide” and “envisaged” histories of trade policy is inordinate in relation to Britain and the United States. These two countries were, in fact, often the trailblazer and frequently the most ardent users of interventionist trade and industrial policy measures in their early stages of development. These two countries exposed the hollowness of free trade and this brings about re-thinking some key stereotyped wisdom in the debate on trade policy, and more broadly on globalization.
Only
Britain can claim to have practiced total free trade at one point in time.
However the most important event in Britain’s industrial development was in
1721 when Robert Walpole (1st Prime minister) introduced policies that
deliberately aimed at promoting manufacturing industries. The interventionist
policies that were used to promote industrialization were read in the 1721
legislation and these included Import duties on raw materials used by
manufacturers being reduced, export duties on most manufactured goods abolished,
duties on imported foreign manufactured goods were raised, export subsidies
(bounties) extended to new export items like silk products and gun powder while
the existing ones were increased. Controlled the quality of manufactured
products especially silk products.
The
same policies were adopted by United States of America, German, France,
Switzerland and other recently industrialized economies like Japan. Because of
this switch to protectionism, the Swedish economy performed extremely well in
the following decades. In the economic successes of Japan and other East Asian
countries (except Hong Kong), interventionist trade and industrial policies
played a crucial role. Notable are the similarities between their policies and
those used by other NDCs before them, including, above all, eighteenth –century
Britain and nineteenth-century United States. For obvious reasons, it is
difficult to establish the exact importance of the above-mentioned infant
industry promotion policies. However, without them, it would have been very
difficult for Britain to make this initial success in industrialization,
without which its Industrial Revolution may have been next to impossible. It is
a very common clever device that when anyone has attained the summit of
greatness, he kicks away the ladder by which he has climbed up, in order to
deprive others of the means of climbing up after him. (Chang, 2003)
Almost
all NDC’s used some forum of infant industry promotion strategy when they were
catching up. It must be noted that tariff protection was in many countries a
key point of this strategy, it was not necessarily the most important strategy, and they are now trying to kick away the ladder by
spreading the message of free trade. Those few neoliberal economists who
are aware of the rewards of protectionism in LDC’s try to avoid the obvious
conclusion. Namely that it can be very useful for economic development. The World
Bank argues that although industrial countries did benefit from higher natural
protection before transport costs declined, the average tariff for twelve
industrial countries ranged from 11 to 32% from 1820 to 1980. . . . In
contrast, the average tariff on manufactures in developing countries is 34%”. (Chang, 2003)
The historical picture is clear. When they were
trying to catch up with the frontier economies, the NDCs used interventionist
trade and industrial policies in order to promote their infant industries. The
forms of these policies and the emphases among them may have been different
across countries, but there is no denying that they actively used such
policies.
The National Industrial Policy (NIP) 2008 which
emphasizes the need to develop domestic resource based industries and promotion
of competitive industries that use raw materials. The policy encourages
existing industries and new investors to utilize the services of local
technologies and consultants as a means of developing national technological
capabilities.
Ministry of trade also launched the National Textile
Policy (NTP) 2009 which policy interventions to harness the use of local
resources for industrialization and employment creation. The Policy sought to
improve the local business environment through forward and backward linkages to
exploit local resources for export promotion. Among other policies introduced
was The National Sugar Policy (NSP) 2010 which proposed marketing of sugarcane
to the benefit of farmers, millers and consumers. Accordingly, the Government
aimed at regulating importation of sugar through appropriate tariff regimes and
also promote use of locally produced sugar as a raw material by beverage and
confectionary industries.
Although about 30 percent of
the NIP is reported to have been achieved, none of the set targets has been
met. The targets are 25 percent contribution of manufacturing to total GDP
(current performance is 7 percent); 30 percent contribution of manufacturing to
total exports (current is about 4.2 percent); 30 percent value added in
industry (current is 20 percent); and 4.0 score in competitiveness index
(current is 3.44).43 Similar studies have found that the NIP has had no
tangible impact.44 There is also no evidence that implementing agencies were
ready and equipped to kick-start implementation.
Similar to these industrial and
trade policies is Kenya National Industrial policy which was implemented in
2012 to transform Kenya into a globally competitive regional industrial hub
together with other policies across the region.
Every government throughout East Africa has been
practicing some form of industrial policy, public policies aimed at stimulating
industrial growth and, ultimately, the transformation of the economy from
low-productivity agriculture to high-productivity manufacturing and services.
Midway July 2016, Rwanda and the rest of the East African states did hike
tariffs on imported second hand clothes in defense that these cheap clothes
from the US were being imminent to their domestic manufacturing industries
which you can compare to what Britain and the US were doing before they
industrialized. They were practicing some form domestic industrial protection
which the
The historical picture is clear. When they were
trying to catch up with the frontier economies, the USA and Britain used
interventionist trade and industrial policies in order to promote their infant
industries and they would not like LDC’s to develop their industries by
advocating for free trade. If this is the case, the current orthodoxy
advocating free trade and laissez-faire industrial policies seems at
odds with historical experience, and the developed countries that propagate
such a view seem to be indeed “kicking away the ladder” that they used in order
to climb up to where they are.
Historically,
colonial development was oriented to producing the raw material exports
required by the factories of Europe, and importing the manufactured goods those
factories produced. Colonial government expenditures were devoted to building
the infrastructure railroads, roads, ports required to facilitate the export of
raw materials. Colonial policies discouraged local manufacturing to preserve
African markets for goods produced in European factories. (Seidman, 1977)
So,
if you are a neoliberal economist, you are faced with a paradox. The developing
countries grew much faster when they used “bad” trade and industrial policies
during 1960–1980 than when they used “good” (at least “better”) policies during
the following two decades. The obvious solution to this paradox is to accept
that the supposedly good
policies
are actually not good for the developing countries but that the “bad”
policies are actually good for them. This gets further confirmation from the
fact that these “bad” policies are also the ones that the NDCs had pursued when
they were developing countries themselves. (Chang, 2003) Uganda and other
East African countries need to develop industrial and trade policies which are
practical and applicable and they should not succumb to pressure from the
industrial powers as trade and industrial policies is the way to go.
Economic Hub Uganda
P.O Box 1337, Kampala- Uganda | Tel +256779373114/+256703744999 |
Email:economichubuganda@gmail.com|ezekieligadube@gmail.com
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