Protection of infant industries vital for Africa
This is the third in a series of articles by Lukas I Nantanga who argues that Africa needs to protect its infant industries, just like what the developed countries of today did in the past in order to grow their economies.
According to Fredrich List, Alexander Hamilton was “the intellectual father of infant industry protection” in the American economic history. England and the United States, in particular, are now heavily preaching and advocating the doctrines of free trade and free market rhetoric. They did not apply these principles during their catch-up periods. They used imitation and emulation methods. England emulated the Dutch Republic and Venice, the city-state. Rich countries use fallacies of logic, “things” that they purposely and deliberately know that they cannot work to get “poorer” countries out of poverty.
Secondly, the neo-classical principle contradicts one of the Listian principles (Fredrich List) which reads as follows: a nation first (and not before) industrialises (its economy) and is then gradually integrated economically with nations at the same level of development. The principle of timing when to put in force policy of free trade and when not to put it in force is very important principle. Most of the African countries either missed or ignore this very important Listian principle. A free trade policy is a game-like phenomenon. Let I take myself as an example. I am not a boxer, but I can box. Can I engage to box with Antony Oluwafemi Joshua, the current world heavyweight champion? And even if I were able to do it, the boxing match itself would be judged as unfair. It would be unthinkable. Joshua is a UK citizen, but he is an African from Nigeria. Joshua played with Wladimir Klitschko. Joshua and Klitschko are at the same level. Joshua knocked-out Wladimir Klitschko end of April 2017. Prof Chang summarises uneven match by asking a question: “how is it that we think a boxing match between people with more than a couple of kilos difference in weights is unfair, and yet we accept that the US and, for instance, Namibia should compete on equal terms?”
Africa should tilt the playing field. Tilting the playing field is the way to ensure fair competition, Prof Chang (2007) reminds Africa to remember. This is the same with free trade and free market. Economic history tells us that over the past quarter of a century the Bad Samaritans have made it difficult for developing countries to pursue the right policies for their development’. Africa is reminded to remember that the Bad Samaritans used and are still using “unholy trinity” through the IMF, the World Bank and World Trade Organisation to prevent African countries from protecting their infant industries. The Bad Samaritan countries argue that developing countries should “get rid of all protective barriers and make everyone compete on equal footing” (Chang, 2007:204). This is the so-called “one-size-fits all” Golden Straitjacket concept proposed by Thomas Friedman. Friedman’s “one-size-fits all” Golden Straitjacket is equal to Paul Samuelson’s notion and economic practice of “factor-price-equalisation”, to mean that the prices paid to the factors of production – capital and labour – will tend to be the same “all over the world” (Reinert, 2004).
The obvious contrast is, for instance, Namibia and China are not at the same level of development. Therefore the Namibian infant industries cannot compete with the mature and century-old Chinese, French or English companies. According to the Listian principles, Namibia is required to trade with other nations at the same level of development. If Namibia, for example, continues with uneven trade policies, consequently its infant industries would die. This is a hard historical reality. This is what is happening in most of the African states today.
Friedrich List continues to argue that wealth, democracy and political freedom should gear to a diversified manufacturing sector for “increasing returns”.
Most of the African countries failed to diversify their economies. Heavy dependency on commodities is killing the African countries economically. Africa is then reminded to remember to diversify manufacturing sector in order to create wealth and job opportunities. Ha-Joon Change reminds Africa to remember that developing countries should protect their infant industries strategically for a period of time. One would use the parenting analogy. The question is: why protection? This is a very important question. There are many reasons for the importance of infant industry protection (IIP). The following are inter alia good reasons for infant industry protection. (1) Preserving and protecting national identity in the interests of rural farmers and producers. (2) Food security concerns for protection tariffs of agricultural produce. Maintaining agricultural tariffs are very important to protect farmers and producers. (3) Industrial protection and tariffs are very crucial because they provide sustenance of employment for the population.
Contrary to the advice of IMF and World Bank, Alexander Hamilton, the first USA Treasury Secretary in 1790s suggested ‘better’ policy tools that would assist Africa to formulate better policy tools for infant industry protection path and that: (1) IIP can be understood as a solution to the problems of knowledge transfer and life-long learning (2) When IIP policy tools are absent in the country then this means that local IIP would die due to the international competition. IIP is a sensitive process.
This process requires care, love and determination from any African government. Any African government is expected to protect its infant industries. When one discusses the infant industry protection issue, one is tempted to use the parenting analogy. An infant of a human being requires protection. An infant requires protection from cold and wind. The provision for basic necessities for life ought to be provided. An infant needs water, food, clothes, warmth, shelter and above all love. Parents ought to love their children. Parents are expected by law to provide their children with protection until they grow. From a parental responsibility, a parent cannot leave her or his infant unattended and unprotected. When this happens, it shows irresponsible behaviour on part of the parents. As happens with parental protection for children, infant industry protection can go wrong when the government (parent) does not protected its identified infant industries (policy tools- should be designed for infant industry protection purposes with limited external influences). A question: what happens if an infant is not protected? Surely, when the infant is not protected and cared for may not survive even a day or two days.
The infant industry would die. Now who is responsible? The government (parent) is responsible. What happens when the infant industry dies? The country is responsible for its death because the infant industry is left unprotected and uncared for. What happens when the country does not have an infant industry to protect? When the country does not create, generate and promote infant industries, the country becomes poor. Countries are expected to love their infant industries.
Why? Infant industries are protected and nurtured in order to grow, and generate wealth and job opportunities. When a country fails to protect its infant industries that country would locks itself into raw material production- the ‘diminishing’ returns suggested by Antonio Serra in 1613 more than 400 years ago. Inventions and innovations of infant industries in any given African country create and generate wealth and therefore increasingly raise-up the national income. Rich countries travelled this route. They imitated one another specifically in manufacture sector. Africa should emulate the now developed rich countries in this same area, manufacturing, infant industry protection. In this case there must be strong, effective sector specific, activity specific policy tools for infant protection and promotion in any given African country. Africa listen to Hamilton (1791) he proposed that ‘infant industries could not be expected compete against mature industries in the more advanced economies without an initial period of deliberate government promotion and protection’. Hamilton’s ideas are simple, but powerful. Africa should be reminded to remember to imitate the right policy tools for infant industry protection.
Industries should be protected with a view to graduate and stand on their own. For instance, the Finn Nokia or the Japanese Toyota are good examples. Japan protected its infant Toyota car production from ‘start to the finish’ over numerous trials. In the process the Japanese government ‘kicked’ out of the country, the American General Motors Company in order to protect the Toyota infant industry as from 1933. In 1958, Toyota brands including the production of the most luxurious brand Lexus, were on the local and international markets. It took Japan exactly 25 years of hard struggle to protect its infant industry of Toyota. Had it been that Japan allowed the American General Motors Company to compete with the infant Toyota industry, Toyota definitely wouldn’t be producing Toyota brands as it is the case today.
Finland is home of Nokia. Nokia’s electronic business in Finland started in 1960. Finland right from its independence in 1918, tried its best to keep foreign companies out. The country introduced in 1930s a series of laws that limited foreign companies in favour of local companies. Finland worked hard to limit foreign direct investments in order to mobilise its local resources and protected her infant industries. Due to strategic protectionist policies, in 1977 Nokia started to make its first profits and became the biggest mobile phone company in local and international markets. It took Finland 17 years to protect Nokia.
Today Nokia protects itself. It does not need protection anymore. Infant industry protection should also be managed with care in order to avoid creating infant industry protection syndrome.
There are many countries that are heavily affected by the Washington institutions’ conditionalities. For instance, between 1980 and 1990, Mexico received financial assistance from IMF and the World Bank that included a wide-ranging trade liberalisation. Due to the “wide-ranging trade liberalization”, the Mexican manufacturing sector was heavily hit. Loss of jobs, falls in real wages and manufacturing jobs disappeared (Chang, 2007).
In Zimbabwe in 1990, IMF trade liberalisation programmes were implemented and as a result, the unemployment rate jumped from 10% to 20%. This created pressure on government budgets, reduced tariffs revenues. Ivory Coast in 1986, was recommended 40% tariffs cuts, then ‘after that the chemical, textile, shoe and automobile industries as result collapsed’. These are powerful lessons for Africa to learn from.
Like in terms of athletic games: Africa has had a false start. Africa should re-start afresh the economic game step-by-step by embarking on ‘unhindered’ manufacturing sector. African should recognise that it has been languishing in the ‘wrong business’ for a long time. The amount of loans made to either from the International Monetary Fund (IMF), World Bank (WB) or China for roads, rail, malls constructions by individual African nations, are a clear indications that Africa is in the ‘wrong business’. The protection of infant industries is therefore vital if Africa is to escape from its overdependence on raw material production.
• Lucas I Nantanga is a farmer and part-time lecturer at the University of Namibia’s School of Public Health, Oshakati Campus. These are his personal views. The article will be continued next week.