Protectionism, why not and what makes Africa special?

23 Jun, 2015 - 00:06 0 Views

The Chronicle

Bernard Bwoni
There is no denying the fact that we all live in a global village and that we have to integrate with the world economy. This is well recognised on the African continent and across the globe.

However, our integration has to be selective, gradual and strategic. We have to prioritise and pursue policy autonomy, a state-led industrialisation (this we can argue in detail if required), and import-substitution-industrialisation and Zimbabwe’s current policies of indigenisation, empowerment and land reform are the key catalysts of this industrialisation drive and economic transformation that has roots on the ground. All the developed countries of today without exception had to go through the same. There are no short cuts. Free market policies have their place but for our industry to get off the ground they require a period of strategic protection and promotion. Protection sounds like such a dirty word in today’s economic order but the developed world of today cleaned up their act and developed through protectionist policies. I deliberately started by mentioning that we live in a global village and it sounds like a contradiction when I make the case for protectionism, but hear me out. Some will argue that Zimbabwe does not have the industry to protect and that is a valid argument but for Zimbabwe to have an industry to protect, the industry needs to come off the ground first and to do that requires promotion and protection.

The German Economist, Friedrich List, writing in 1841 makes very interesting observations about trade liberalisation and the double standards of those who are now the developed countries. He makes particular reference to Britain, accusing the British of preaching free trade to developing countries while having achieved economic supremacy through high tariffs and massive subsidies (protectionist policies). List accused the British of ‘kicking away the ladder’ that they climbed to reach the world’s economic summit and pole position in the world economic order. In his 1841 masterpiece, ‘The National System of Political Economy’, List makes a very compelling argument for infant industry protection. “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”. Most developing countries today are advised to embrace free market policies by countries that developed strictly on the back of strict protectionist tariffs. South Korea, China, USA, Japan, the UK and other EU developed economies have used infant industry protection strategies in the earlier days of their economic development.

List goes on to say “Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth”. Today, countries like Zimbabwe are lectured on the economic benefits of free markets and free trade yet these rich developed countries of today do give this advice not to benefit Zimbabwe and other developing countries, but to capture larger shares of these countries’ markets and to stifle the emergence of possible competitors. I am not at all stating that free trade is entirely flawed, but rather it has its place in the history of economic development of any nation.

Free trade in the developed world of today was out of choice and necessity, and in the developing world of today it has been an imposition from outside by the developed countries. These countries stand to gain from offering such advice they did not use when they were at this stage of development. The best performing economies of today are those that opened their economies selectively and gradually and examples include USA, EU developed countries at large, Britain, China, South Korea, Japan and others. In Africa and other developing countries, free market policies are paraded as if they are the panacea of all our economic transformation and industrialisation yet they have in fact hindered economic growth.

Ha-Joon Chang, writing in 2007 argues that ‘free trade reduces freedom of choice for poor countries and that keeping companies out may be good for them in the long run’. A valid argument in that by allowing big already established companies, you inevitably destroy the capacity of domestic infant industry, but then the counter-argument is that Foreign Direct Investment is key to industrial growth. In Zimbabwe, indigenisation, empowerment and land reform are good policies in the long run. There may be losses rather than gains in the first 15 to 20 years but eventually growth will be achieved, the difference is that these are home-grown initiatives of growth.

Alexander Hamilton in 1791 also made sound arguments on infant industry protection insisting that American industries were still in their infancy and as such could not be expected to compete against the mature industries in the more advanced economies without an initial period of deliberate government promotion and protection.

The strength of producing wealth is more fundamental than the wealth itself and history has shown that each and every country that reached the heights of being called a developed economy did so on the back of protective tariffs.

There is no arguing the fact that initially protectionism can make the price of manufactured goods very expensive but with time as a country builds its manufacturing capacity the same goods will be produced more cheaply domestically than the price they will be imported. These are the long run economic benefits of protectionism. Without a strong manufacturing base Zimbabwe and the continent at large will remain unprogressive. For them to become complex industrial forces there is need for that period of infant industry protection. I am aware that some will argue that in the case of Zimbabwe, there is no industry to protect, but then the other argument is that you can never have the industry unless and until you have protected and promoted it first.

The argument here is not purely anti-free market economy nor is it a case of arguing that protection should stifle healthy competition. The fundamental point is that there is need to build up capacity and to do that you have to go through a period of deliberate infant industry protection. In the case of Zimbabwe it is a rebuilding exercise and to rebuild you have to cushion the collapsed industry and along the way offer them protection until full capacity has been built. At this stage of our economic development, free trade only serves to expose us to the economic supremacy of the developed countries. Protectionism is the only system that has throughout history sustained nations to a stage where eventually free trade has been made possible and not counterproductive. We will talk and talk but bottom line is that period of infant industry protection.

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