The mantra of the day was trade liberalisation. Trade
liberalisation became the symbols of economic progress after years of inward
looking, import substitution policies supported by exchange controls. We were told that economic analysis has found repeatedly
that it meant efficiency gains through improved resource allocation to
expanding export sectors, heightened competition as a spur to achieve world
standards of efficiency, wider options for consumers, ability to tap
international capital markets and greater exposure to new ideas, technologies
and products.
More importantly, they say, it carried the promise of
a better life for all, especially for countries that seemed mired at the bottom
of the heap to climb their way out and hoist themselves onto the economic
escalator; it was to be a technological jump-start.
The exhibits: The tide of
liberalisation did not bypass the African Continent this time. A new generation of dynamic political
leaders in African countries was determined to pursue pro-growth reforms that
were much broader and more inclusive, resulting in the birth of NEPAD and a new
African Union. Unlike earlier initiatives, NEPAD is anchored in the
globalisation process with a genuine attempt to integrate the African economies
and open them to international trade and capital flows. Businesses adopted
covenants on corporate governance and the elimination of corruption, and codes
on good accounting and auditing practices and on corporate social
responsibility.
Governments have set in motion the Peer Review
Mechanism, which allows them to commission best governance practices to see how
they comply with the best of the world. The degree of openness of the economy
has become a well-prized indicator on the continent. The top tariff rates are
declining and the major non-tariff barriers have all but disappeared, while
internal tariffs have been eliminated or substantially reduced and currency
restrictions have been removed. The African Continent has achieved
unprecedented macro-economic stability that is contributing to the best
economic growth rates seen in decades. Elsewhere, to support their theories,
they point out to us that China, Singapore,Hong Kong,Korea, Chile and to a
lesser extent India, have been removing their trade barriers to reap rich
economic dividends.
The evidence: Five of the
world's 10 fastest growing economies are in Africa. Efforts are also under way
to establish separate free-trade areas in the Southern African Development
Community and the Common Market for Eastern and Southern Africa. A 19-country
worldwide survey recently conducted by Globescan shows that Africa is the only
region other than Northern Americans where a majority views globalisation
positively. Africans have pinned their hopes on integration with the global
economy. These findings, they concluded, suggest that Africans are eager and
willing to join the game of world economic integration even as they have
resentments that the wealthy countries are treating them unfairly.
But
there are now new pundits who are preaching the gospel of anti-liberalisation.
Surprisingly, locally, it is our ex-bureaucrat, ex-Excellency,
ex-AU so and so, now turned politician, who
is rimming his electoral sails with the anti-liberalisation banners to suit the
political winds. One could have dismissed this easily as typical rabble-rousing
opposition tactics; the so-called left-wing leaders usually make loud noises
about deviating from mainstream socialist goals when out of power but once in
office , stay the course by following more traditional “responsible” policies.
As positive results flow in terms of higher growth and lower inflation, the
erstwhile left-wing leaders reap the political benefits and the
anti-globalisation tirades completely disappear.
Our
new preacher sent to the front lines in the battle of ideas is however still
muddled up in his thinking and new to the argot of leftist defiance, mixing
issues and ending up with an inconsistent amalgam of an anti-globalisation
stance and a pro-Aid for Trade (AFT) position. (How can AFT be “une bonne
chose” if it does impose liberalization as a condition for aid?) But there is a need for serious debate that demands a
perspective with wider historic and economic horizons. This is amply provided
in the two recent well-researched and provocative books: “Bad Samaritans:
Rich Nations, Poor Policies and the Threat to the Developing World” by Ha-Joon Chang,
a Cambridge economist, and “How Rich Countries Got Rich and Why Poor
Countries Stay Poor” by Erik S. Reinert, a Norwegain Professor who
now teaches at Talinn, Estonia.
Ha-Joon
Chang argues that rich countries should not deny the poor ones the very same
route they had once themselves taken to develop. Almost all rich countries got
wealthy by protecting infant industries and limiting foreign investment. But
these countries are now denying poor ones the same chance to grow by forcing
free-trade rules on them before they are strong enough. “Therefore, if they are genuinely to help developing countries
develop through trade, wealthy countries need to accept asymmetric
protectionism, as they used to between the 1950s and the 1970s. The global
economic system should support the efforts of developing countries by allowing
them to use more freely the tools of infant industry promotion -- such as
tariff protection, subsidies, foreign investment regulation and weak Intellectual
Property rights.” There are huge benefits from global integration if it is done
in the right way, at the right speed. But if poor countries open up
prematurely, the result will be negative. Globalisation is too important to be left
to free-trade economists, whose policy advice has so ill served the developing
world in the past 25 years.
Similarly,
Reinert argues that the set of policies, namely, government intervention,
protectionism, and strategic investment in various combinations has been behind
the development of rich economies. Yet despite its demonstrable success,
orthodox development economists have largely ignored this approach and insisted
instead on the importance of free trade. Much earlier, a working paper released
from Fund economists in the fiscal affairs department, Thomas Baunsgaard and
Michael Keen, had asked a simple question: for each $1 of trade tax revenue
that governments lose as a result of trade liberalisation, how many dollars
have they recovered from other sources (usually through increased taxes)? The
worrying answer is not very much. And the eminent Ken Rogoff had also warned us
of the effects of financial liberalisation for poor countries. There is no
proof that financial liberalisation has benefited growth and it seems linked to
"increased vulnerability to crises”.
Thus
wise heads are striking a note of caution. It’s not playing to the gallery;
it’s the quest for Good Economics to ensure Good Politics.
