Trade Development: Art or Science?
Roelofsen, Hendrik, International Trade Forum
Many people now agree that there are clear links between trade and development. Yet the debate continues between those leaning towards a structured approach and those seeking a free rein for creativity in trade development.
Last year ITC celebrated its 40th anniversary. Its magazine Trade Forum has been in existence an equal number of years. In every issue, it highlights and analyses key aspects of international trade development. As can be expected, 40 years of analysis has led to a number of conclusions, which ITC increasingly frames into "best practices". But the question remains: can trade be promoted by using some magic formula, or does it happen because of the ingenuity and drive of a particular individual or combination of individuals?
The issue: Fostering innovation
Since the start-up of Apple Computers in the 1970s, the "garage" has become a symbol for numerous success stories of entrepreneurial vision and persistence. A modest structure, created for a different purpose, it was proof that neither substantial financial resources nor physical infrastructure needed to be in place for an idea to thrive and prosper.
The Lesotho Trade Promotion Unit, when established in the mid-1970s, was also housed in a garage. It had modest equipment and financial means, but plenty of ideas. A stone's throw away from the Ministry of Commerce and Industry, the garage presented an aura of usefulness and simplicity, of independence and pragmatism. ITC assisted in shaping the Unit's work plans and instruments, largely geared towards providing key services to firms.
Did it work? Hard evidence is difficult to obtain. But the numbers suggest that it did. Between 1977 and 1981 Lesotho's exports increased in dollar terms on average by 31% a year. The share of non-traditional export products expanded considerably and so did the number of non-traditional markets.
The focus of ITC's collaboration was clearly on the institution - building institutional capacity to underpin the energy and innovation of the entrepreneur. It focused on "networking" individuals who could make a difference. Was that the right approach? Was it sufficient? Did it work for all developing countries? Not everyone agreed.
The debate: Does policy reform come first?
In 1990, the World Bank issued a working paper entitled "Development Assistance Gone Wrong - Why Support Services Have Failed to Expand Exports". The study was carried out by the Trade Policy Division and concluded that external assistance for trade support services was generally ineffective. It diverted attention from the fundamental need for policy reform, the most important tool to improve national trade performance. Moreover, the authors argued that donors' focus on institution building resulted in permanent trade promotion organizations, poorly suited to countries in an early stage of development. "They even become a vested interest against needed change," said the study.
Lesotho was not featured in the study, but even if it had been, it is unlikely that the authors would have changed their views. What matters, however, is that the paper sparked a debate which is still very much alive.
Just one year earlier, the World Bank's Industry Development Division issued a working paper called "Export Catalysts in Low-income Countries - Preliminary Findings from a Review of Export Success Stories in Eleven Countries". The authors conducted firm-level research to define the most critical ingredients for successful entry into international markets. While admitting that the stories were anecdotal, the authors concluded that even in circumstances of large policy distortions, success could occur and could ignite development in an outward-oriented direction. …