Magazine article New African

From Poverty to Wealth ... How the Others Did It: State Intervention Has Been at the Core of the Wealth Creation and Economic Success Stories, Starting with Britain and Europe in the Late 15th Century, Carrying through to the USA in the 19th Century and Japan, Taiwan and South Korea in the 20th Century, and Now China and India in the 21st Century, Reports Osei Boateng

Magazine article New African

From Poverty to Wealth ... How the Others Did It: State Intervention Has Been at the Core of the Wealth Creation and Economic Success Stories, Starting with Britain and Europe in the Late 15th Century, Carrying through to the USA in the 19th Century and Japan, Taiwan and South Korea in the 20th Century, and Now China and India in the 21st Century, Reports Osei Boateng

Article excerpt

IN AN AGE OF THE NEO-CONS AND NEO-LIBERALS, TRUTH-telling economists are hard to come by. This is why Africa should rejoice that economists like Erik Reinert and Ha-Joon Chang are still around. Both men are a delight to read and their work can move Africa forward if the continent takes them seriously. For example, in recent decades Africa and other developing countries have been encouraged to jump into free trade agreements with the more advanced economies because that is supposedly the only way to grow their economies.

But Chang tells how all of today's rich countries used nationalistic policies (tariffs, subsidies, restrictions on foreign investment, etc) to promote their infant industries.

The story was the same with the more recent economic success stories of China and, increasingly, India. Their examples, according to Chan, "show the importance of strategic, rather than unconditional, integration with the global economy based on a nationalistic vision".

China

Like the USA in the mid-19th century, or Japan and South Korea in the mid-20th century, China used high import tariffs to build up its industrial base. Right up to the 1990s, China's average tariff was over 30%. Chang admits that China has been more welcoming to foreign investment than Japan or South Korea were, but China still imposed foreign ownership ceilings and local content requirements that demanded that foreign firms should buy a certain proportion of their inputs from local suppliers.

Contrary to the liberalisation theory and hands-oft-by-the-state sermons preached to Africa, China has used heavy state intervention and an enlightened state-owned enterprise (SOE) strategy to grow its economy to a point where it is now an economic superpower vying for global domination with the more established big boys. In the past, all Chinese industrial enterprises were owned by the state, but today, the SOE sector accounts for 40% of industrial output.

France

After the Second World War, the French government acknowledged that its conservative, hands-off policies had been partly responsible for its relative economic decline, and thus defeats in two world wars. To stem the tide, the French state decided to take a much more active role in the economy. It launched "indicative" planning, according to Chang, and took over key industries through nationalisation, and channelled investment into strategic industries through state-owned banks.

To help its new industries to grow, the government imposed industrial tariffs and maintained them at a relatively high level until the 1960s. The strategy worked! By the 1980s, France had transformed itself into a technological leader in many areas.

Japan

In Japan, the Ministry of International Trade and Industry (MITI) orchestrated an industrial development programme that has now become legendary. The country's industrial tariffs were not particularly high after the Second World War, but imports were tightly controlled through government measures restricting the use of foreign exchange.

"Exports were promoted in order to maximise the supply of foreign currency needed to buy better technology (either by buying machinery or by paying for technology licences)," says Chang. "This involved direct and indirect export subsidies as well as information and marketing help from the Japan External Trade Organisation (JETRO), the state trading agency."

The government also put subsidised credits into key sectors through its "directed credit programme" while heavily regulating foreign investment by transnational corporations. Foreign investment was simply banned in most key industries. Even when it was allowed, there were strict ceilings on foreign ownership, usually a maximum 49%. This is mirrored by today's Zimbabwe where the governments new indigenisation law seeks to limit foreign ownership to a maximum 49%, with the remaining 51% going to indigenous people. …

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